Bullish on basic terms and industrials
Interview: SKBA Capital Management---Bischel, Andrew---Chief Investment Officer
>> we’re back, folks. let’s give you a quick check on how the bond market did today. in fact, i was an interesting day for the bond market if you take a look at it, only because we saw declines―i should say mostly because we saw declines. the yields on the 10-year note back almost to 4.5%, also on the shorter end we saw some declines there, and this after stronger than expected durable goods numbers that we’ve been talking about. it’s interesting, this is my point, because it send the dollar in the opposite direction. as you can see there, except againsts the yen, you’re buying less yen. the euro and the pound both down againsts the dollar today. our next guest is a large-cap value investor and is bullish on basic terms and industrials, as far as groups are concerned. he also likes stocks that paid dividends. andrew bische joins us from san francisco. thank you for joining us. let’s talk about --
>> thank you, matt.
>> you are a self-described contrarian at this time. i like contrarians. contrarians tend to be always right, they say on wall street. that’s one of the axioms we follow. why are you a contrarian now, though?
>> we sure would like that to be right now. we believe that there’s still upside in the equity markets , even in the face of rising interest rates. if you look at where interest rays would have to go to be concerned about the equity markets and whether they can continue their momentum, we think the long end of the treasury market would have to get above 5.75%. it was about 5.25%, or a little bit higher than that today. at the shorter end of the curve, we believe that the feds would need to raise short rates by at least 150 basis points before you begin to be worried about its impact on equity valuation.
>> so, why do we hear all this doom and gloom that if the fed raises rates too soon, it’s―i don’t know, the end of the world as we know it?
>> well, it won’t be the end of the world as we know it from our perspective. it should be a pretty good environment. at this point, the feded is way behind the curve in terms of raising interest rates at the short end to reflect the improving economy and a lot of what we expect to be the increase in rates will be the increase in real rates, in real interest rate increases are not bad for stocks the. they are a reflection that returns on capital are rising around the world and around the country.
>> one of stocks that you like right now is a contrarian value investor, nokia. the stock is down, what, 35% in six weeks. that’s value. if it was a department store and had a sign up on-sale 35% off, there would be a line out the door. in the stock market , it’s a different game.
>> well, clearly they’ve disappointed investors both in terms of what they’ve reported versus expectations of a few weeks ago and what they have talked about going forward. and they don’t have the big surge in model that’s going to come out later in the summer or early in the fall. there is this is period of time where nokia has realized they’re going to needsed to maintain market share by cutting price and keeping their phones very cost competitive and that’s gotten everybody worried. we don’t think that that should be the driving force about the way you look at the stock. this is a company with incredibly strong financial position, enormous cash flow in repurchasing shares and possibly boosting the dividend this year and this is a company that has not lost its sharpness and leadership position in the mobile phone market . what has happened over the last two-year, however, is that the growth rate of mobile phones is a lot lower than it used to be and that is reflected in the day’s valuation. we don’t think you ought to be running away from the stock here after this kind of plunge. i think it’s the time to step back up or to step up, whichever the case might be.
>> it’s also a question, not tonight growth rate slow, but the average selling price, a.s.p., as analysts always point out, on nokia. they’re selling, you know, significantly more phones, but making less money doing so. that’s not a good business model.
>> well, the average selling price reduction, if it goes on well above the unit gains, it usually is a problem. but we have striss, like semiconductors where average selling prices are falling all the time and those companies have periods in which they do extremely well. we think that the introduction of the new phones and higher price points in the fall will be a cat list for give v giving the company an opportunity both to have improved unit growth and better pricing that would lead finally to higher revenue growth. there hasn’t been any real revenue growth here. this company is still sitting around $30, $31 billion in revenues. this is a company that’s very strong and its margins should be much better after this periods that we’re going through in the next one or two quarters. we think it’s likely to be the time frame in which you can look forward and say, hey, nine or 12 monthses from now, things will look a lot better and the stock will be back into the 20’s.
>> we only have about 30 seconds left, andrew. everybody’s telling me that they like industrials and they like materials. but i haven’t heard anybody say they like wireless services and internet retailers and they’re the ones leadsing the market .
>> well, we’re large-cap value investors that don’t tend to deal with the internet stocks and the explosion in valuations that we either saw in the late 1990’s, or what looks like a mini bubble to us here as well in that particular area. the valuations are once again stretched and we wouldn’t be chasing after those kinds of companies.
>> ok.
>> one would expect after the tax rate cuts that we saw and the improvements in corporate balance sheets that companies who had the worst circumstances would have seen the biggest bounce over the last 12 months and that’s what’s happened. it’s been this small-cap and tech.
>> thank you. manchester united from the u.k. t famous soccer club is the focus of our business of sports next.
