Report Card: Gary Gordon

Gary Gordon PaineWebber
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1st Place Consumer Finance

Bio

B.A., Colgate University; M.B.A., The Wharton School. Gordon has been an analyst for more than 15 years, joining PaineWebber in 1988. He covers consumer finance companies including mortgage lenders, thrifts, credit card issuers, private mortgage insurers and government-sponsored enterprises.

Industry Outlook and Style

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Gary Gordon has opposing outlooks for the two main components of consumer finance: On the credit card side, he expects a slowdown. The first half of 2000 saw 6% GDP growth, strong job growth and robust consumer spending, but he expects the economy to grow at a slower 3% rate for the remainder of the year. This should lead to a slowdown in job growth and spending which, in turn, should slow debt growth and erode credit quality.

"These companies are expecting to grow at 15% to 20% and credit card debt growth next year could be only 6% to 7%. You can see that it gets a little tough." Noting that credit card company stocks are up at the moment, he has few recommendations, but mentions Providian(PVN Quote) as the cheapest.

On the mortgage front, Gordon has a somewhat rosier outlook: Citing stable short-term interest rates, he asserts that thrifts will benefit as they see their interest margins begin to widen. In addition, reasonably healthy home sales mean good news for Fannie Mae(FNM Quote) and Freddie Mac(FRE Quote). He has buy ratings on both companies.

"As rates stabilize, people go from adjustable back to fixed-rate mortgages, and that's what Fannie Mae and Freddie Mac do for a living -- invest in fixed-rate mortgages. So that will help them." This trend should benefit mortgage bankers as well, since originating fixed-rate loans is their primary business. Gordon also notes that as rates have increased, the refinancing boom of 1998-1999 has ended. Many banks are talking about getting out of this business altogether, he says, which should mean less competition through 2001, and, consequently, better pricing of these stocks.

Stock Pick
Favorite stock for next 12 months:
Freddie Mac
Comment:
"Terrifically stable earnings and selling at a 13 multiple, which is half the multiple of some of the bigger finance companies."


Rate Their Stock Picks:

Which stock do you like best? Gordon: Freddie Mac Eisman: Providian Orenbuch: Capital One