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Palm Beach Post

DOW 20,000: WEST PALM BEACH MONEY MANAGER CARL DOMINO CALLED IT FIVE YEARS AGO

Carl Domino (left above) has been predicting the Dow would hit 20,000 since 2011.

Back in January 2011, West Palm Beach money manager Carl Domino predicted the Dow Jones industrial average was headed to 20,000 — a bold call considering that memories of the Great Recession remained fresh in investors’ memories.

Domino’s prognostication looks likely to come true sooner than expected. Stocks have spiked since Donald Trump won the presidential election last month, and the Dow traded in the 19,940 range Tuesday afternoon.

The first time I heard Domino’s prediction was in January 2011, when the Dow was struggling to top 12,000. Domino made the 20,000 call but declined to pick a date.

As stocks soared, Domino grew more specific about a timetable. In 2013, with the Dow surging to 16,000, Domino called for 20,000 by the end of the decade, a forecast he reiterated in 2014.

A veteran value investor, Domino specializes in dividend-paying stocks.

Dow crosses 16,000; stocks have more than doubled since March 2009
By: Jeff Ostrowski – Palm Beach Post Staff Writer

The economy might be recovering slowly, but the stock market is on a tear — a disconnect that leaves some money managers worried that shares are ripe for a fall.

The Dow Jones industrial average briefly topped 16,000 for the first time Monday before closing at another record high, and the Standard & Poor’s 500 Index traded above 1,800 for a few minutes before closing just below Friday’s record.

Optimistic investors say stocks are soaring for a variety of valid reasons, including strong corporate balance sheets, a slowly improving economy and the poor returns offered by bonds and savings accounts.

“You’re in the early innings of a recovery,” Palm Beach money manager Carl Domino said. “Companies have been raising dividends, buying back shares and reporting good, if not great, earnings.”

Pessimists fear stocks have risen too quickly. The Dow topped 15,000 for the first time in May and has continued to rise even as U.S. economic growth has languished below 3 percent and the unemployment rate has remained above 7 percent.

“My view is that the stock market has detached from the real economy — I am cautious to negative,” Palm Beach hedge fund manager Doug Kass said by e-mail. “Sales growth is weak, and the only reason that earnings are higher are share buybacks, lower tax rates and lower interest rates.”

After flirting with 16,000, the Dow ended the day at 15,975.82, up 14.12 points from Friday. The broader Standard & Poor’s 500 Index briefly topped 1,800 but dipped 6.65 points to 1,791.54, just below Friday’s record close.

Most Palm Beach County stocks fell Monday, but two hit record highs: Florida Power & Light parent NextEra Energy (NYSE: NEE, $89.06) of Juno Beach and BE Aerospace (Nasdaq: BEAV, $85.38) of Wellington.
With the average one-year certificate of deposit paying less than 1 percent, NextEra’s 3 percent dividend looks like a generous deal.

Domino said he recently bought shares of Staples, reasoning that the retailer pays a 3 percent yield and faces less competition after the merger of Office Depot and OfficeMax. He sees other attractive deals in oil, drug and financial stocks.
Domino expects the stock market to keep climbing to 20,000 by the end of the decade. But Richard Steinberg of Steinberg Global Asset Management in Boca Raton said he’s urging investors to wait for stocks to fall before buying more shares.

“We don’t see a major crash coming, but we just think it’s been too much, too fast,” Steinberg said. “People have to be careful of the euphoria. At this market level, cash is not a four-letter word.”
Shashi Mehrotra, president of Legend Advisory Corp., is even more concerned.

“We’re very confident that next year, we could have a 20 percent to 25 percent correction,” Mehrotra said.
That prediction was echoed Monday by billionaire investor Carl Icahn. Stocks gave up some gains after Icahn said he was “very cautious” and feared stocks could suffer a “big drop.”

Mehrotra said investors should look for opportunities in Japan and Europe after the United States has overstimulated its economy with the Federal Reserve’s so-called quantitative easing programs.

“The fact that we keep solving these things with artificial means is a problem,” Mehrotra said.

The return of investor euphoria comes only a few years after the nightmarish crash of 2008 and 2009, when stock prices were slashed by half. Stocks have more than doubled since March 2009, the low point of the Great Recession.

 
Black and White Star in Circle

New York Times

INVESTING WITH: CARL DOMINO; NORTHERN LARGE CAP VALUE FUND

CARL DOMINO typically buys big, unpopular, high-dividend-paying companies for his $650 million Northern Large Cap Value fund.

''We generally buy companies that don't have such good management and aren't admired by the market,'' he said from his office in West Palm Beach, Fla. ''With dividends, we get paid while we wait for companies to regain their footing and the psychological cloud to lift.'' He tends to buy stocks when their dividend yield is at least about 2 percent.

But the market decline last spring resulted in lower prices and higher yields for many stocks. That allowed Mr. Domino to scoop up shares of what he regards as high-quality companies, increasing the fund's potential return and decreasing risk.

Over all, the companies in the portfolio yield 2.5 percent, on average, versus 1.6 percent for the Standard & Poor's 500-stock index.

The fund gained 2.8 percent, annualized, for the three years through Thursday, versus losses of 3.1 percent for its peer group of funds that buy large value stocks, and 10.6 percent, on average, for the S.& P. 500, according to Morningstar Inc.

The fund gained 14.8 percent in the last 12 months, compared with gains of 11.2 percent for its group and 13.6 percent for the index.

Mr. Domino, 59, is the fund's lead manager and a senior vice president of Northern Trust Investments, the fund's adviser and a unit of the Northern Trust Company. The adviser manages $2.6 billion for institutions and individuals.

Mr. Domino chooses the fund's 45 to 50 stocks from companies with market capitalizations of at least $5 billion. Picking stocks, he says, is like putting together a football team.

First, he said, ''build a strong defense, because if you don't give up any points you'll win the game.'' To him, a good defense means companies with strong cash flow and solid balance sheets.

Strong cash flow protects a company's dividend, he explained, even when the company's turnaround takes longer than he expects. Low debt, he said, helps companies weather the storm, even if their stock prices have hit new lows.

A good offense, Mr. Domino said, results from companies that have a ''catalyst for appreciation.'' Those catalysts can include an economic upturn, new management, demographic trends, revised business strategies or mergers. Managers, he added, should be able to ''show us business, financial and operating strategies that increase dividends and growth over the long term.''

He expects the total market return of S.& P. 500 companies -- stock-price appreciation plus dividends -- to average 8 to 12 percent a year over the next 5 to 10 years. ''Companies are running lean and mean, productivity is way up, and dividends should increase,'' prompted partly by new tax breaks for dividends, he said.

He first bought shares of Motorola in April, paying $8.21, on average. The shares are now at $10.84 and yield 1.48 percent. He called the company ''the best in the electronics and semiconductor business,'' and said he expects strong performance when the overall technology sector rebounds. ''If they show some earnings momentum,'' he said, ''the stock could double from here.''

Management is cutting costs and researching new products, he said, but the main catalyst is expected to be a future pickup in consumer demand. The company is using its cash flow to reduce debt, he said.

MR. DOMINO began buying shares of Coca-Cola in February; they now yield 1.9 percent. The company has a good balance sheet and strong cash flow, he said. Its water business is doing well, he added, and its multinational operations will benefit from the dollar's weakness.

He paid $40.11, on average, for the shares. They now trade at $43.99.

Mr. Domino calls another holding, Morgan Stanley, the ''premier brokerage firm'' with a good retail business. But the catalysts for price appreciation, he said, are its institutional business services -- for initial offerings, for example, and mergers and acquisitions -- which will be very profitable when capital markets strengthen. While it carries some debt, he said, he is satisfied with its financial strength. The shares now yield 1.88 percent.

The fund first bought shares in September 2001 at an average of $39.31 and has added to its position; the stock is now at $48.86.

 
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Barron's 2003