Interview:
Comstock Funds---Minter, Charles---Fund Manager
Small caps
Interview: Century Capital Mgmt.---Callahan, Kevin---Equity Strategist
>> we’re back with charlie minter of the comstock strategy and value funds. you’re talking about valuations and the question is, we just had a big correction in 2001 and 2002. my question is why wasn’t that enough to get all the bears out of the market?
>> we did have a significant correction in the various market indices where you didn’t have the type of correction that i was expecting and my partner and i were expecting, marty wiener, is to have the p.e. multiple correct down to at least the average p.e. multiple over the past 80 years which is 15 times earnings. in fact, we would have expected it to get down to approximately 10 times earnings. it turns out that where the typical price-to-earnings multiples hit peaks over 20 and troughs under 10, they got to 40 times earnings during the bubble, it only got down to about 23 times earnings during the correction and we really don’t think a bull market can start from 23 times earnings.
>> we do have to say that your strategy fund lost 18% last year and the value fund lost 30% last year. is that because you were betting last year on a weak stock market and you pet wrong and now you’re saying it may be pushed out to 2004?
>> that is exactly right and it might be pushed out to the second half of 2004 because of the election cycle. but i really wouldn’t expect the stock market to have started a major bull market from these valuation levels with no capitulation by the public.
>> what about the fact that there are few alternative investments besides stocks ? is that bonds don’t seem attractive because the fed might raise rates, gold and housing have already had big runs and some people find few places to put money besides equities?
>> that’s exactly right and because greenspan is keeping the rates so low and money markets are yielding so little, it’s forcing a lot of people into the stock market. we think this could be a disastrous mistake.
>> thanks for being on the program, charlie minter of the comstock fund. our next guest invests in small caps and he is bullish for 2004 and expects small caps to have returns between 10% and 15% compared to better returns, 46%, in 2003. that man’s name is kevin callahan, director of research at century capital management and joins us live from boston. thanks for being on the program. you manage the century small cap funds and you’re here on say that small caps. will gain this year but with the russell 2000 at a three-year high today, doesn’t rotation out of small caps make sense at these lofty levels?%
>> our approach is very much bottom-up oriented, looking at it stock by stock . if you look at the overall market, yes, there might be modest growth going forward but overall, if you look at each company, i think there is value there. looking back into 2003, we saw a lot of the lower quality names perform very well and our expectation is that we’ll see the higher quality names perform better in 2004 as investors look for greater certainty and predictability in terms of results.
>> in your last appearance on bloomberg television, you gave viewers a good pick, fleer systems, they make night vision cameras and since then, the stock is up 49% reaching a 10-year high today, possibly an all-time high it reached today. do you still like flir systems?
>> i think this company is good for the long term and that’s what we focus on personally. we’re looking out over the next two to five years out but said that, with flir, the stock has obviously performed exceedingly well and we’re happy with the name and thinking about it longer term, however, this might be a point where you might think about trimming back the holding a bit given where the valuation has gone in a short period of time.
>> you have a fashion pick for us, not in terms of clothing, but a stock that is guilden active wear. it’s not a household name. tell us the appeal of the t-shirt and golf wear company.
>> this is an apparel company based in canada but they make products all over the world, especially central and south america. they make unbranded t-shirts, sports shirts like polo shirts and sweat sweatshirts and one of my co-workers was in a department store looking for a new england patriot sweatshirt and they were made by gildon active wear.
>> isn’t that a low margin business?
>> but that’s their focus, on being the low-cost provider out there and they’ve invested in the latest technology while at the same time having their manufacturing facilities in low-cost labor sites such as in honduras, dominican republic and% -other praises―places around the world and can compete against imports from asia but at the same time are close to the u.s. and european markets where they’re exporting their product and have done very well in terms of not only return on equities, north of 20%, while generating growth of 15% to 20% or higher. and to my way of thinking, if you get both of those along with a valuation in the mid teens, that’s very attractive stock .
>> our thanks to kevin callahan. we return, two of the largest investment banks are pitching to arrange the share sale of a chinese bank.
