Find value stocks
Interview: State Street Research Large Cap Fund---Barry, Art---Portfolio Manager
>> well, the s&p stock market average has risen 41% since early march, 2002. as a result value investors have had their work cut out for them. here’s the approach our next guest continues to take. his investment strategy is to buy low expectations stocks where investor sentiment is poor and valuations are low. art berry is a portfolio manager at state street research large-cap value fund and he join us now from boston t. art, thank you for joining us. you told our producers earlier that you’re having difficulty finding value stocks and that not one sector looks good to you right now. it’s got to be hard to get out of bed in the morning.
>> it is, especially during earnings season. that’s correct. two months ago i would have told you that telecom and pharmaceuticals recommended some good values for us. but those stocks have caught up as well. so, the stocks that we’re finding that are interesting valuations are really one-off situations and there’s nothing that i can say thee mat cli that we’re finding good values.
>> nothing?
>> no. the stocks that we’re finding are one-off situations, a retail material here or there, a finance company, a health care stock . so, i mean, i can’t―with a broad brush, i can’t jump into utilities or technology or anything like that. it is name-specific where we’re finding valuation.
>> so really, it sounds almost like a contrarian. you’re looking for stocks out of favor. valuations are poor and investor sentiment is poor is. that not a contrarian with different stripes?
>> exactly. you know, sometimes i’m not very fun at parties because i always -- i’m devil’s advocate, but that’s the naurtsd of our work. you know, be. buzz we’re still finding―we still want to find stocks that have good assets, but the investor sentiment is very poor.
>> we happen to love devil’s advocates here, just a coincidence. what exactly―and the patriots. what exactly do you not like right now that the rest of the world, so to speak, maybe really likes? how about nortel, for example?
>> nortel. well, you know, i’d say all of technology is a little tough for us to get a handle on. last year, we found some valuations that we found attractive. we had intel, but we’ve sold that and moved on. and we have a few technology stocks . but nothing to really get us extremely excited. we probably hold three stocks in the sector that. gives us an underweight. but other than that, it’s tough. nortel, you know, i haven’t looked at nortel in a long time. to be quite frank with you.
>> no problem whatsoever. let me ask you, you know, economics are our top story today. i’m not sure exactly how important economic data is in your day-to-day decision making. how important is its?
>> well, you know, there are a lot of people who try and forecast interest rates in the economy for a living and they often get it wrong. so, i try not to spend too much time on those factors. the stocks we’re looking for are stocks that have something internally going on that we think can do well regardless of whether interest rates go up a little bit or go down a little bit. whether g.d.p. suspect 5% or 3%. so, we try and take those situations―we kind of treat it as―it’s a tailwind or headwind. but we don’t let economics drive or the economy drive our investment thee sis on a stock .
>> now if i can here, i’m par phrasing from some notes from my producer, but they quoted you as saying the market will go up because there is a good market in the recovery and investor sentiment is still high. how much higher do you think the market is going to go over, say, the next 12 months?
>> well, luckily, you know, i don’t make a living make these forecasts. if put on the spot, i’ll say somewhere in the neighborhood of 10% or 15%. investor send system very positive. money flow is coming into mutual funds. i’m seeing it on a daily basis. yet i contrast that with the fact that i’m having trouble finding good values in the market. so, i think investors should have tempered expectations this year verses last year.
>> so, when you are having trouble finding a stock that suit your―or meets your criteria, do you just sit in cash or are you building up cash right now?
>> i’m not building up cash. i’m finding―my job is to invest in the market, that’s what investors are paying me for. so, i’m finding the best stocks i possibly can.
>> i’ve never read your prospectus. is there a certain amount of money or maximum amount of cash that you’re allowed to have hold or do you have to stay fully invested at all times? >> we try to stay fully invested at all times. to us the, that means 5% of our assets can be in cash or less.
>> in all u.s. assets?
>> yeah. well, we will hold stocks of foreign company, but they trade in the u.s. for instance, b.p. amoco, for example.
>> as long as it’s an active a.d.r., then you look at it. so you are not concerned or do you see opportunity in the foreign markets?
>> it’s not something that we look at. we view―we look at foreign markets from the standpoint of what our companies are doing there. i mean, obviously china is a big issue, europe is a big issue. you know, we look at―we own some stocks in the travel segment because―one reason, one threat or one tailwind these stocks have is the falling dollar. with the falling dollar, we may see more international travelers to the u.s. so, we pay attention to it. we pay attention to what the companies are doing, but we don’t disstinkly make an investment in the middle east or anything like that.
>> art barry, thank you very much. i know you don’t do the numbers on economics and i won’t pin you down on the patriots and panthers, either. thank you very much. that’s just for the record, a portfolio manager art barry, steet street research, large-cap value fund. stay with us. lots more coming up after the break.
