Investment Q&A

Editor’s note: The Investment Q&A feature appears regularly in our Financial Quarterly publication, spotlighting area investment professionals and their views on the markets and investments. In this issue, Jim Burns, president of J.W. Burns & Company in DeWitt, chatted with Adam Rombel, editor-in-chief, via phone on Nov. 2, several days before the presidential and Congressional elections.

James (Jim) Burns, 

president of J.W. Burns & Company in DeWitt 

Business Journal: What is your view on where the financial markets are headed in the coming months? 

Burns: Since I have been a guest on your Investment Q&A feature, my economic and stock market forecast has really not changed. I still believe the U.S. economy is experiencing sub-par economic growth due to the tremendous deleveraging that is occurring from consumers, businesses, and municipalities. Conversely, financial markets have done very well over the last three-plus years due to the extraordinary monetary stimulus from the Federal Reserve, combined with strong corporate profits. I believe it’s important for your readers to remember the S&P 500 Index has more than doubled since the March 2009 lows. 

Obviously, the real issue that the markets will be focusing on now will be the looming fiscal cliff in the United States. My best guess is that the next few months are going to be quite volatile because there is so much uncertainty on U.S. fiscal policy. I think the probabilities are relatively high that the lame-duck Congress will vote to extend the current tax rates while suspending the automatic spending cuts. So, my message to investors is to hang on and not make rash decisions with their portfolio.

Business Journal: Provide specific recommendations for investments that clients should be making right now. 

Burns: I believe that with the high degree of uncertainty in the economy and with fiscal policy, investors should focus their portfolios toward quality growth and yield. As such, I am going to provide two equity recommendations that I believe fit this bill. First, United Parcel Service, Inc. (ticker: UPS) is a company that everyone knows. It’s a durable, brand-name franchise that came public just about 13 years ago to the day. The stock price over this period has been largely stagnant, but the earnings have not. Over the last decade, UPS earnings have gone from $2.14 a share to about $4.60 a share this year. And, its dividend has more than tripled. UPS now yields more than 3 percent. And, its price-to-earnings ratio has come down to about 16. It was overvalued in the late 1990s and early 2000s, but now it’s undervalued.

The next stock that I would recommend is AmerisourceBergen Corp. (ticker: ABC). It’s a full-service, wholesale distributor of pharmaceutical products and other health-care services. I like this stock because it is a high-quality, low-debt business with both consistent earnings and dividend growth. Specifically, the aging baby-boom generation will be looking for less expensive pharmaceuticals. And, AmerisourceBergen helps deliver them. Selling at only 11 times earnings, you’re likely to make money on this stock over the next 3-5 years. 

Business Journal: What do you see as the greatest risks that investors need to be aware of and seek to avoid in the coming months? 

Burns: As you know, I am a co-host of “Financial Fitness” [a weekly TV show on WCNY]. I had an interview with CNBC’s David Faber on the show and I asked him exactly this question. His response is that he is deeply concerned that so many individual investors have been plowing money into bond funds without really considering the risks. I agree. It reminds me of the technology bubble back in 2000. The outflow from stocks and into bonds, with interest rates at essentially zero, has to be viewed skeptically. On the one hand, you use bonds to dampen volatility. But to move all or the vast majority of your money into an asset class that has absolutely minimal upside and significant downside should interest rates increase, remains the most serious risk to investors today.