Midcap shares
Interview: Lord Abbett & Co.---Ferguson, Kevin---Fund Manager
>> welcome back. after four years holding the top two jobs at coca-cola, the chairman and c.e.o. of the world’s largest beverage maker says he’ll retire at the end of the year. douglas daft struggled to boost sales during his four-year tenure as c.e.o. in the past five years, coke’s sales have lagged pepsi’s by 1.5%. coke has hired an executive search firm to find an outside successor. chief operating officer is also being considered for the job. separately, coke is boosting its annual difken to $1 a share. as you see, coke shares down .5% in regular trade today. b.e.a. systems reports profit rose, making nine cents a share excluding some costs. it made 10 cents a share, beating the average estimate by a penny. the company reported revenue was up 12%, also better than expected. in the regular session, b.e.a. shares down just two cents and if we look in the extended hours there, rebounding up 41 cents. nice move. investors may be remarking on the gapes the s&p 500 and dow have seen in recent month but it’s midcap stocks at record highs. the s&p 500 -- s&p 400 reached a record high today and closed at a record high yesterday and our next guest’s fund reflects the strength we’ve seen in that group. the lord abbett opportunities group is up 45% in the past year. kevin ferguson is the manager of that fund and joins us from new jersey. what’s going on with midcaps? why are midcaps outperforming at this time begin all factors?
>> people are attracted to the natural growth rates you find at midcap growth companies. those companies on average can grow faster than large cap companies and offer stability in terms of better management and better liquidity in stock prices, preventing a lower risk profile versus small cap stocks.
>> would you define in your terms what exactly is a midcap? >> we’re talking about mid-sized public capitalization companies generally between $1 billion and $10 billion in size.
>> i love that. i find $10 billion to be a large company but i guess that’s a midcap. that said, why are those companies growing faster than a large cap that benefit from all the advantages of scale, or small cap companies that are nimble and able to do things their larger brothers can’t?
>> typically, a major product introduction in a midcap company will often times be a multiyear driver in revenue and earnings per share because the size of that company means that a drug product that may generate sales of anywhere from $500 million to $1 billion over time can really positively impact a mid sized company but might be lost at a larger cap pharmaceutical company, for example.
>> so they’re better poised economically to benefit than large or small cap companies?
>> not necessarily. there’s a mixture of large cap, midcap and small cap companies, all of which would benefit from an improvement in the u.s. and global economies. but typically in the midcap company area, one major driver can often times produce a major outperformance cycle for that particular company.
>> i put together a chart on the bloomberg, six-month comparisons of small, medium and large, sounds like a t-shirt shop. in white on the top is the russell 2000, the midcap in orange and the s&p 500, 14%, up since the middle of august during that period of time. but they’re getting closer, the small and midcaps. do you think that the midcaps will take the lead now over small cap stocks?
>> i think they might. it it depends on your outlook and how stocks trade going forward over the next 12 months. midcap stocks typically offer greater liquidity and have more seasoned managements than often times we find in the small cap arena so if we go into a choppy stock market environment going forward, those lower-risk factors in the midcap space may make it a more attractive area for investment.
>> so as far as sectors or market capitalization, you like particular industries, i’m told energy. what is it about the energy group in terms of midcaps that you like?
>> our investment discipline is to identify growth industries and find companies that can gain and sustain high rates of market share within those growth industries. we think in 2004 there’s going to be an acceleration in global capital spending by major oil companies looking for new reserves of oil and natural gas. and patterson drilling, for example, on the drilling side, is a leading company to exploit that opportunity in north america.
>> so the best days are still ahead for energy?
>> i believe so, because of the higher commodity prices and spending that needs to take place to find new expansive reserves going forward.
>> kevin ferguson, thank you very much. appreciate it. he’s the portfolio manager of the lord abbett growth opportunities fund. eli lilly’s chief executive is attending the business council meeting in boca raton. the maker of prozac and cialis told bloomberg about his company’s strategy for growth and if you’re curious to find out what it is, it’s up next.
