Birinyi Says `Psychology of Fear' Created Bargains

Sept. 17 (Bloomberg) -- An unfounded concern that the U.S. economy will slip into a recession has pushed some stocks down too far, investor Laszlo Birinyi said.

``Right now, we have that psychology of fear,'' said Birinyi, who helps manage about $600 million as president of Birinyi Associates Inc. in Westport, Connecticut. ``Good, solid companies which have nothing to do with finance, which are really immune from all these other issues, are being punished just as severely as stocks which are really tied to the issues.''

The Standard & Poor's 500 Index has declined 5 percent from a July 19 record amid concern a rise in borrowing costs sparked by defaults on subprime home loans will stifle growth in the world's largest economy and erode companies' earnings.

Birinyi said shares of some companies that pay relatively large dividends including commercial real estate investment trusts may be good investments. He said his firm owns shares of Vornado Realty Trust, the second-largest U.S. REIT. The S&P 500 Real Estate Index has a dividend yield of 3.7 percent after dropping 11 percent this year.

``Commercial building is still strong,'' Birinyi said in an interview. The market has ``been throwing the baby out with the bathwater.''

Brokerages, Homebuilders

The money manager also said ``a lot of the bad news has been factored in'' to share prices of some brokerage firms such as Goldman Sachs Group Inc., the world's biggest securities firm by market value, and Bear Stearns Cos., the No. 2 underwriter of U.S. mortgage bonds.

The Amex Securities Broker/Dealer Index has declined 7.7 percent this year, compared with a 4 percent gain for the S&P 500.

``The risk-reward is on the side of the reward right now,'' he said. Birinyi said his firm has a ``significant position'' in some brokerage stocks, though he is ``severely underweight'' financial shares relative to benchmark indexes and has a ``very small'' position in banks.

As for shares of homebuilders, it's ``too early and too dangerous'' to start buying because of uncertainty in the mortgage market, Birinyi said.

``To me housing is like a centipede,'' he said. ``The other shoe keeps dropping and then there's another shoe, and yet another.''

Birinyi is known for pioneering money flow analysis, which compares the dollar amounts moving into or out of a stock or index to establish whether it is being more aggressively bought or sold.

``The markets are OK,'' Birinyi said. ``The problem is that we have a lot of smoke and a lot of noise going on.''