Mid-caps
Interview: Lord Abbett & Co..---Ferguson, Kevin---Fund Manager
>> we told you about stocks and bonds. now commodities. the price of crude oil in new york had its biggest decline in three weeks after the u.s. energy department reported that nationwide inventories rose last week, closing at 3.5% lower to $30 a barrel. gold rising to a two-week high on expectations for higher inflation in the u.s. gold futures closed at $362 an ounce. a campaign spokesman says billionaire investor warren buffett has agreed to be the senior financial and economic advisor for actor arnold schwarzenegger in his bid to become governor of california. bluft has built a fortune buying companies through his company berkshire hathaway and has demonstrated profitable timing in the stock market. schwarzenegger says he’s solve the state’s problem by luring businesses to california. he says i’ve known arnold for years and know he’ll be a great governor. that’s bust’s statements. it’s critical to the rest of the nation that california’s economic crisis be solved. i think arnold will get that job done, according to torl of omaha. recently there’s been a debate on large-caps versus small-caps and which group will do better in economic environment. mid-cap stocks have been posting strong gains. the s&p mid-cap 400, down on the day but up almost 15% so far this year. our next guest’s fund has been outperforming that benchmark. the lord abbett growth tunds fund is up 119% so far this year up 20% newscast 1 months. kevin ferguson is the manager of that fund e joins us from lord abbett’s jersey city new jersey offices live from hudson county. thanks for joining us.
>> thanks, lane. let’s talk about this here. first of all, mid-caps. some people safe a billion to $5 billion. what’s your range.
>> we define it $1 billion to $10 billion. there are 1500 publicly traded stocks in that universe. from that we use fundamental bottoms up research and analysis to basically cherry pick the 75 or so best ideas for inclusion in our portfolio. we have about 75 stocks in theful today.
>> how often is there a turnover there? we average about 100% or less each year, each of the last three years.
>> and is that strictly because they fall out or go above your market cap range?
>> that’s correct. there has been a lot of movement both with the boom in the late 1990’s as well as the correction in more recent years where companies come through that range quift frequently. and as a result it creates some turnover from time to time.
>> now you’ve been able to outperform your benchmark so far this year. what are you going to do to keep that going? how are you looking at the market today to determine how you are going to get to the end year.
>> most importantly we focus on company specific fundamentals. we let the market take care of itself. that’s the attractive thing about the mid-cap. we look for catalyst specific to specific companies and invest over a two to three-year time horizon. as long as the catalyst is in place we stick with the company.
>> you are looking at healthcare right now, generic drugs specifically. what about that industry is jumping out at you when it comes to the mid-cap names.
>> generic companies overall are taking massive amounts of market share from branded pharmaceutical companies. that growth trend has been in place for several years. one of the companies that i think highlights our investment philosophy clearly is teva pharmaceuticals, the number one generic pharmaceutical in north america. the real added plus is they have branded pharmaceutical companies that are higher margin fast growing, and it really makes a positive impact in their profit and loss statement in terms of higher margins than you would otherwise see at a generic company.
>> are you at all concerned about the p.e. situation on teva? it seems pretty high going forward. you combine that with the fact it’s up 47% year to date. there are many investors who say any anticipated growth is already priced into teva shares.
>> not yet. we don’t agree with that yet. an interesting point is that they are up for f.d.a. approval potentially over the next 12 months for the next leg of growth, which would be a drug called resagiline to treat the symptoms of parkinson’s disease. we think if that drug were to gain f.d.a. approval estimates will be moving up across the street. the company has exceeded expectations for many quarters in a row. we think that trend is likely to continue. the stock trades about 22 times, 23 times 2004 calendar estimates. and we think street estimates will be moving up from here.
>> there has been a lot of talk about pricing pressure on the pharmaceutical prices. generics get involved in that. for the most part we see the big names getting hit in the pocket book and at the bottom line. are you at all concerned that any changes in the legal landscape as far as the laws are concerned, any changes in the pricing pressure on pharmaceuticals is going to affect some of these generic names as much as it’s affecting the big names right now?
>> no, we think the political and regulatory environment is very much favoring generic companies at the expense of branded pharmaceutical companies. it’s a major tail wind that is now in the generic company’s favor. we think that’s another reason to be bullish on the group right now.
>> we’re running out of time but we want to get to new york community bancorp. why do you see this one? do you see it as a potential takeover target? no, they are a consolidator of their industry. new york community bancorp is one of the fastest growing financial institutions in the whole mid-cap space with a growth rate well in excess of 20%. the company has been beating numbers. they are gaining share in the mortgage market, lending to apartment owners, multi-family apartment owners. we think that trend is going to continue. just last month they announced an acquisition of roz lund bancorp which will further those gains.
>> kevin ferguson. thanks for your time today. manager of the lord abbett gropth opportunities fund. still to come the chief executive of applied materials says the company is seeing increased investment in japan.
