S&P chief strategist shares insight at Oklahoma Venture Forum

Journal Record, The (Oklahoma City), Aug 17, 2007 by Brian Brus

At least two of Oklahoma's most valuable industry sectors - aerospace and energy - are performing strongly, while the biotechnology industry seems to be in flux, Standard & Poor's Chief Investment Strategist Sam Stovall said Thursday.

Stovall, author of The Standard & Poor's Guide to Sector Investing, was invited to share his market insights ahead of the upcoming Oklahoma Venture Forum Bricktown Capital Conference on Sept. 4-6. Event co-chairman Bob Rader of Capital West Securities said Stovall will be keynote speaker at the end of the forum.

In the energy industry, Stovall had a positive outlook for oil companies with oil prices expected to remain high and volatile, reflecting strong global demand. Investors will probably want to take a long-term approach to such companies, he said.

"I'll send out a little teaser to say that Chesapeake Energy is a company that we have a 'strong-buy' recommendation on," he said.

Stovall had a "positive fundamental outlook" on the aerospace and defense industries. Many of the companies in that category are expected to report solid earnings growth, based largely on the country's continued military activity and rebounding airline traffic. Standard & Poor's is expecting about a 13-percent increase in earnings in 2008. Of the 24 companies in the aerospace industry, 16 are covered by S&P analysts. Of that number, 11 have "strong- buy" rankings.

The biosciences sector stood out in the interests of Oklahoma because that industry has been "a little bit challenging" for investors, Stovall said. Although bioscience businesses are responsible for developing some of the most important new pharmaceutical product lines, the industry actually declined 2.7 percent in 2006. The sector is underperforming the S&P 500 by more than 5 percent, he said, largely because investors are worried about future performance, competition and regulation.

"In general, our analysts are neutral on the fundamental outlook for biotech industries," he said. "Basically, we see a lack of capital into the next 12 months. There are 13 companies in our biotechnologies index, 11 of which we cover analytically by S&P analysts. Eight of those 11 have either 'buy' or 'strong-buy' rankings because we do think that there is potential for a turnaround in the months ahead."

He said embryonic biotech companies will be challenged to find capital through connections at the upcoming forum.

Stovall reiterated comments he made earlier in which he said the market overall is experiencing a "correction of conviction."

"Investors (are questioning) the faith they have toward our economy, markets and public officials," he said. Also, "I think the Fed will continue to inject liquidity (and confidence) as needed, so be prepared for additional responses by Bernanke & Co. In the end, I believe that even though the S&P 500 may decline a total of 10-15 percent from its high before stability is reached, we believe time will eventually be the great neutralizer of this volatility."

The U.S. economy is expected to show a healthy 2-percent growth this year and 3-percent growth next year, he said.