HUDSON: Fingers certainly have been crossed and some of that
optimism regarding Europe over the last several weeks has helped fuel the
strong rally this year. Tonight`s “Street Critique” guest thinks a
breather is in order. Michael Farr is back with us, author of “The
Arrogance Cycle.” He`s with us from our Washington, DC bureau. Michael,
so are you expecting the rally to fizzle or just pause?
MICHAEL FARR, AUTHOR, PRESIDENT, FARR, MILLER & WASHINGTON: Well, I think maybe a little bit of both. Fizzle, pause, fizzle pause — they sound
a lot alike, Tom. But we are up some 22 percent since September 30 and I`m
always cautious when I see enthusiasm building right along with market
gains. Markets making new highs and everybody want to put more money in.
That`s always a sign for caution. And I think it`s due for a bit of a
HUDSON: Wouldn`t you prefer a pause as opposed to a fizzle, meaning
that we kind of mark time at these multi-month highs as opposed to actually
lose some ground from what we`ve gained?
FARR: Not necessarily. Shake out some of the weaker hands (ph), to
have something of a pullback in here wouldn`t bother me too much. It
reminds people that they`ve got to be a little more real, a little more
serious with the money they`re spending.
HUDSON: That`s right, risk does come with reward hopefully at times,
doesn`t it? You like shares of Medtronic (NYSE:MDT), MDT, the medical
device manufacturer, has had one of those nice rallies since the August low
here at $40.50 per share. What do you expect out of it?
FARR: I think the stock`s pretty good. You know, 45 percent of its
sales are international. It has a 2.4 percent dividend. Earnings growth I
think of around 12 percent at 11 times earnings with an aging population
and all that Medtronic (NYSE:MDT) does to keep everybody healthier for
longer term pacemakers, I think it`s probably a pretty good stock for the
long term here and I like the price.
HUDSON: We`re all getting older except for you, Farr.
FARR: Look at the hair, come on.
HUDSON: Staples (NASDAQ:SPLS) meantime, SPLS, in all seriousness,
this office supply retailer, it`s been trudging along here in the low teens
for six months. It hasn`t participated in the rally. Is that what draws
you to it?
FARR: A little bit yes. You got to hit them where they ain`t. This
stock has struggled. It hasn`t performed as well as other retailers in the
office retail space has, but at 10 times earnings and a 2.7 percent
dividend, when you look at your money markets and everything else, it`s a
cheap stock and a great company. I think you`re going to make some money
here, might be a while, but there`s money to be made in Staples
(NASDAQ:SPLS), I believe.
HUDSON: Office Depot (NYSE:ODP) has had a heck of a run at least
this year, of course it`s a much lower priced issue. Back on January 11 the
last time we saw you, you liked Danaher (NYSE:DHR), the industrial and
technology equipment manufacturer. It up nicely from when you chose it back
in the $50 range. It`s $52 and change. Would you put new money to work?
FARR: I would. Where I don`t own these I might wait a little bit on
price. But the core company I like and our average hold is about four
years, I`m not a big trader. So I`m old school.
HUDSON: Yes, you are. We got a viewer question sent to
email@example.com from Jerry. If one owns a foreign stock and receives
income from dividends and/or capital gains, what are the tax implications?
I know you`re not a tax attorney, but what should investors keep in mind if
owning foreign paying dividend stocks?
FARR: I asked Sheldon Cohen who is our in-house council. He`s former
IRS commissioner, so I think he`s probably pretty good on this one.
Americans pay taxes on their income and dividends and everything worldwide.
If you have to pay tax in another country, you get credit for it here. So
if you pay 10 percent there, you just pay the difference here. If you pay
the whole thing there, you get credit here. You do have to may the tax no
matter what, there`s still no getting around it.
HUDSON: It does show up, the IRS always has their hand out.
Disclosures, do you own the three stocks we mentioned?
FARR: I do, I own them and we own them in the Touchstone capital
appreciation fund for which we are the sole manager.
HUDSON: All right. Get us your questions street firstname.lastname@example.org is
the email address. More questions next week and our guest this evening on
“Street Critique” is Michael Farr. Thanks Michael.
FARR: Thank you. Tom.