Tags: john | dorfman | may | weed | out | stocks

Dorfman: Dump Boeing, Caterpillar and Dow Chemical Now

Monday, 03 May 2010 03:01 PM

The month of May is a “great time to weed out” one’s stock portfolio, market guru John Dorfman says.

Dorfman, founder of Thunderstorm Capital, notes that there is an old stock-market adage advising investors to “sell in May and go away.”

“Unlike some adages, this one has considerable empirical evidence in its favor," he says.

"The average six-month price gain for stocks in the Standard & Poor’s 500 Index since 1952 has been 6.36 percent for the November through April span compared with only 1.58 percent for the May through October period,” Dorfman wrote in his column on Bloomberg.

“Personally, I would never completely go away from the stock market. I believe investors should have some equity exposure all the time.”

But weeding out the underperformers is a good thing, Dorfman reckons.

Here are some stocks Dorfman recommends that investors consider selling:

• Boeing Co. “It was my favorite stock and largest personal holding. Today it no longer resembles the company I once admired. The Chicago-based company’s balance sheet has become bloated with debt. Total debt has climbed to more than 400 percent of stockholders’ equity.The competitive landscape is rougher than ever for Boeing’s commercial aircraft business,” says Dorfman.

• Caterpillar Inc. “About two-thirds of the company’s revenue comes outside the U.S. When the dollar is weak, profits earned abroad translate into a larger number of dollars. When the dollar is strong, those foreign sales ring up as a lesser total,” says Dorfman. “The dollar has been strengthening against the euro during the past few months, a trend that hurts Caterpillar.”

• Dow Chemical Co. “The company earned 62 cents per share in 2008 and 32 cents in 2009, when the recession raged. This year, analysts expect a bounce-back to $1.65, and they forecast $2.54 in 2011.

“Dow shares go for 34 times trailing earnings and about 18 times estimated earnings. Those seem to be high multiples to pay for a mature cyclical stock whose raw-material costs — mainly for oil — are likely to rise.

But others disagree.

The Business Journal of Cincinnati advises investors not to sell in May.

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