Interview: Franklin Templeton --- Dean, Robert ---Portfolio Manager
>> stocks ended the first day of trading this week lower. are there reasons for optimism going forward? joining us with the answer is robert dean, portfolio manager of franklin aggressive growth fund, joining us from san mateo, california. rob, welcome
>> thank you, lori.
>> this was an interesting trading session in that stocks fell off a cliff around 1:00 eastern standard time. there was talk about rising interest rates and the bond yield shot up. what else do you think, besides interest rates, is going on in the minds of investors?
>> there’s a lot of things people are concerned about. we have oil prices, inflation fears and the interest rates.
>> so of those three market headwinds, if you will, which is the most significant to you as an investment strategist?
>> here at franklin, we focus on bottom-up research and company-by-company. those are all concerning in the short term, however, we feel the intermediate term has a much more positive backdrop behind it. we have positive g.d.p. growing, a relatively healthy job environment, global growth in g.d.p. and inflation seems to be somewhat in check.
>> you mentioned employment. we’re looking forward to that february jobs reading on friday. are you concerned that that could show a job market that’s so robust, it could be an even bigger headwind on markets by way of interest rate concerns?
>> yeah, i think that’s somewhat what the market is probably trying to digest, how strong is the economy rather than how weak it was. in the short term, it seems to go back and forth. however, if we focus on those companies with sustainable growth drivers, we feel really optimistic about the intermediate term.
>> tell me about your bottom-up strategy for stock picking? >> here at franklin, we have more than 30 analysts focused on the industry. in companies ranging from the smallest to the largest in each industry, focusing on companies that are able to generate growth, sustainable advantages they might have. and are very―frankly -- optimistic about the longer term.
>> and you’re heavily weighted in technology. i want to ask you about texas instruments. you’re overweight in the semi sector. we just heard from texas instruments, reporting their mid quarter update, in line with forecasts. many analysts were looking for the company to report on the high end of that window. shares, of course, ran up 9% over the last couple of days. what’s the texas instruments story?
>> i think there were high expectations going into the update. and i think the report was fine. i haven’t gone through all of the numbers but i don’t own texas instruments in the aggressive growth portfolio but there are some other semiconductors that i do hold. marvell and broadcom are benefiting from similar trends, including wireless growth and some strong growth in their end markets .
>> let me ask you about marvell, shares up 14% year to date. i understand they have several customers which contribute more than 10% of total revenue. how do you weigh the risk that one or several of those customers could leave marvell?
>> that is always a concern we try to analyze but we feel really good about their technology and their position and the end markets they’re serving. they do have technology leads and to this, so far, they have had superior execution so we feel pretty good about marvell’s prospects.
>> i’d like to ask you about the intel story and why the company seems to be on a divergent path from texas instruments right now.
>> clearly intel is tied to the p.c. market and they’ve given up market share recently. that is another company that’s not hitting the growth criteria we’re looking for in the aggressive growth fund but is something we are constantly monitoring.
>> another one of the stock picks you brought to us is a biotech firm, celgene. why is that one of your picks? shares up 24% year to date. this is a tough industry, biotech pharmaceuticals with problems in patents and pipelines. why do you target this stock?
>> we feel really good about celgene’s prospects around phalidamide and revlimid and prospects for the celgene. despite the headwinds and crosscurrents in the biotech industry.
>> curious what you think about telecom. so far, this seems to be one of the leading industries this year. we heard of the news today with the deal between at&t and bellsouth. is this an industry you look at?
>> here at franklin, we have over 30 analysts focusing on all the industries. i don’t have too much exposure in the portfolio to the u.s. telecom services industry. but i do have exposure, again, broadcom and marvel wellbeing two of which that sell ultimately into this end market and it has been a healthy end market .
>> where do you see the s&p 500 at year’s end?
>> that’s a good question. we’re focused on finding innovative companies that can do well in any market environment.
>> rob, thank you very much.
>> thank you.
>> robert dean, portfolio manager with franklin aggressive growth fund. we will continue our coverage. at&t and bellsouth come out with details of the purchase and antitrust issues front and center, as well. stay with us.
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Listen Market briefing --- Lori (slow)
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Enron --- June (slow)
session. the world’s biggest maker of mobile phone chips said sales this quarter will miss the high end of its previous quarter. the dallas-based company says first-quarter sales will be as high as $3.35 billion. the company had previously said sales would reach $3.38 billion. the company said that profit will come in between 31 cents and 33 cents a share, raising the low end of its range of its last forecast by two cents. during regular monday trading, texas instruments rose four cents to $32.33 a share. now let’s bring you the closing numbers before those numbers from texas instruments. the dow jones industrials closing down 63 points with weaker shares including caterpillar, at&t and exxon-mobil. the s&p 500 down nine points, 1278. the nasdaq composite index lost 16 points, 2286. at play today, falling oil prices dragging down energy-related shares and concern about rising interest rates, a big jump in bond yields today ahead of friday’s february jobs report. let’s go ahead and bring you the latest on treasuries. the u.s. 30-year treasury bond fell one full point in new york trading. the yield rose to 4.72%. the 10-year note’s yield pushed to its highest level since the day before the fed began its series of 14 straight interest rate increases and that was in june of gowv. the slide began today on speculation that report this week, the jobs report friday, it fast enough, it will come in showing robust job growth and encourage the fed to lift borrowing costs at least two more times. commodities-related stocks helped to spur the biggest declines today. here’s a report from julie hyman at the big board.
>> lower energy prices conversely not helping the stock market but rather pressuring energy stocks, which account for 10% of the s&p 500. so that was one of the reasons we saw the major drag on the s&p today. in addition to technical levels that investors were watching. if you look at energy shares that led the drop, exxon-mobil―these are the major drags, that is exxon-mobil, schlumberger, conocophillips and chevron, all trading lower in the session. indeed, if you look at all the members of the s&p 500 energy index, all of them were trading lower. in addition to that, natural gas producers in particular were weak in today’s session because wachovia downgraded them, namely dominion, el paso, quest and williams, all of those stocks downgraded at wachovia and the analyst there saying they’re concerned about the growing surplus of natural gas in storage. among the energy stocks, some of these with the steepest declines. in addition to that and energy prices, we had concerns about bond yields today. bond yields going higher, particularly on the 10-year note, hitting its highest since june 2004. that pressured some of the utility stocks for a couple of reasons. utilities have a lot of infrastructure and borrowing costs and when borrowing costs go higher, not good news for these stocks. in addition, they’re relatively high dividend-paying stocks, making them less attractive when yields are higher on bonds. in addition, we want to look at the financial-related stocks, namely the philadelphia kbw banking index, which also fell today, down just .4%, contributing to the overall declines seen today. not just owl-related stocks but also other types of commodities-related stocks weak today. newmont mining downgraded at cibc. metals prices fell, causing a drag on the miners. i’m julie hyman at the new york stock exchange.
>> and fireworks expected in houston when much-anticipated witness, former enron chief financial officer, andrew fastow, is scheduled to take the stand. fastow, who arrived at the courthouse earlier today, pleaded guilty to securities fraud and agreed to testify in the government’s fraud trial against enron’s former chairman, kenneth lay, and c.e.o., jeff skilling. june grasso has been covering the case and joins us in houston. june?
>> lori, he has been painted as the architect of the downfall of enron through the creation of off-partnership transactions and he has been called the star witness by many legal experts. in fact, the defense painted him that way in its opening statement. he certainly is, as you said, the most anticipated of the enron witnesses but is the question is, is he the star witness? many legal experts disagree with that. joining me is joel androphy, a trial attorney in houston. thank you very much for joining us, joel. joel, do you see him as the star prosecution witness?
>> he’s the star defense witness, not the prosecution witness. the prosecution doesn’t need him. they have done a good job so far in establishing the liability for skilling and lay. fastow helps, he’s another block to contribute to the case but at the end of the day, it’s more important for the defense to establish through andrew fastow that they’re innocent.
>> why do you think the prosecution is calling him at this point in the case, then?
>> they don’t want―andrew fastow helps a little bit but they don’t want the defense calling him. they don’t want the defense, their side of the case saying, here’s andrew fastow, the government didn’t want you to know what he had to say so we want to tell you the entire truth in the case and present andrew fastow. that would have been a great move for the defense but could have been devastating for the government.
>> fastow’s name comes up time and again during testimony. if the government didn’t put him on, the jurors would think there was a hole in the case?
>> no question or they were hiding something and they didn’t want the jurors to know all the truth about the case. andrew fastow is important, the third head to the monster portrayed in the case. andrew fastow was there all the time. a lot of these witnesses didn’t hear skilling say things directly or lay say things directly but andrew fastow was there. he was the person who had one-on-one conversations with people. although his credibility could be questioned, there’s no question at the end of the day that his presence was felt by everyone.
>> let’s talk about his credibility and the credibility of the witnesses we’ve heard so far. all have made plea agreements and all seem to be walking away with a great deal of money.
>> well, a lot of them, if the government likes a witness’ testimony, that witness, at the end of the day, could end up with probations and millions of dollars in the bank and walk away, basically, laughing at the system. that hurts the credibility of the government’s case. they have given away too much to these witnesses. when these witnesses negotiated deals for their testimony, the government could have given minimum sentence time, required them to forfeit all their money but it looks like the government was so anxious and desperate for testimony that they almost offered these witnesses to keep their money and to basically potentially stay out of jail, although it’s legal to negotiate, it’s almost offering somebody money for their testimony. and hopefully from the defense point of view, that’s going to look pretty terrible with regard to witness credibility.
>> how likely do you think it is that the defense attorneys will be able to turn around fastow’s testimony so that it shows him to be―at one point skilling’s attorney said the worm that ate the apple?
>> you can’t attack andrew fastow as the worm that ate his apple. you have to torch his testimony. you can’t dissect his testimony. in fastow’s case, they’re going to have to come in and entirely disprove him, totally attack his credibility. andrew fastow has given a lot of money back in this case but we don’t know how much money he still has but we do know at the end of the day he’s going to jail for 10 years.
>> a lot of experts have made a case that his testimony will be more believable because, whereas the other witnesses we don’t know what they’re going to actually end up spending time in jail for, we don’t know if it will be 10 years, they’re going afterwards, after their testimony, have the sentencing. he, we know, is 10 years. does that make that much of a difference to the jury? he’s still getting a deal.
>> sure, it’s not as sweet a deal as everybody else but if andrew fastow gets up there and at the end of the day the government’s saying, we don’t like that, you gave away too much, therefore, you know that 10 years minimum, we think it’s 15 so we’re recommending to the judge 15 and andrew fastow doesn’t want to go to jail that long. he has young children. he has a family and there is still motivation for the witness, fastow, to please the government.
>> thank you very much for being with us. tomorrow we expect, in the morning, that we’re going to see andrew fastow on the stand. we won’t find out for another half hour or so when court ends whether or not the testimony of the last witness has concluded. back to you in the studio.
>> s&p 500 lower today. can the market regain some of its losses in the future? robert dean of franklin templeton joins us with his aggressive growth fund next. details on their strategy, when we return.
