How to invest in this uncertain world we live in
Interview: Lord, Abbett & Co.---Morris, Robert---Fund Manager
>> aetna and cigna are asking the supreme court to block lawsuits in state courts over patient lawsuits made against h.m.o. h.m.o. aetna and cigna plan to argue the federal law extends to state courts. aetna is being sued by a patient who says he suffered permanent harm after the h.m.o. he subjishd to insisted he try a less expensive pain medicine than the one the doctor prescribed. if the lawsuit is won by the plaintiff, it could open up more litigation. our next guest is a value investor and bullish consumer staples and energy stocks now and tells us which stocks he’s buying as well as his feel about the markets right now. robert morris, director of equity investments at lord abbett joins us from the firm in jersey city, new jersey, across the shimmering hudson river. thank you, robert. i appreciate it. let’s stalk about the story du jour that doesn’t want to go away and that is terrorism. how do you invest in this uncertain world we live in?
>> i’ve learned that the only thing you can do is focus down and keep as clear a picture on the underlying fundamentals as possible because event-driven markets will come along from time to time. basically we see a market that should still be going up so that’s the underlying fundamental trend we’re trying to focus on.
>> we have been talking about the fall in the market prior to the situation in israel with the killing of the hamas leader over the weekend, which has heightened terrorism concerns following the spanish bombings but prior to the terrorism there were concerns coming into first-quarter earnings season, concerns about job growth. there’s always concerns from a market that’s risen 40% in 12 month. as a value investor, how are you positioning yourself to make money, again, in times of uncertainty. i hate to belabor the point?
>> it’s an excellent point and what you try to do is try to keep as broad a perspective on the market . last year, the cyclical, more cyclically oriented groups did much better than the stable demand consumer staple-type companies, opening up some value opportunities in staples so we’ve been focused on taking advantage on that here recently.
>> and also growth had outperformed value last year, as well. you expect that to flip around in your favor this year?
>> well, it’s a little hard to call the growth versus value thing because sectors of the market move back and forth between growth and value indices. but i think looking at last year, technology was clearly the strongest group. we expect technology to do fairly well this year, perhaps not as strong as last year. value will tend to be helped by what we think will be improved performance in the energy sector.
>> nice segue because we’re talking about oil and opec ministers that might postpone production cuts. we have two members today making announcements. but you told our producers it’s more risky not to be invested in energy stocks than to be invested in energy stocks. explain.
>> i think it’s been a year over the last year where most analysts have been forecasting a return of oil prices back to the mid 20’s and yet what we’ve seen is almost an unrelenting rise in oil prices. speculators have been blamed but we’ve been looking at fundamental causes and frankly we think a lot of the major oil companies are having difficulty keeping production up. we think that this is as much fundamentally driven as emotional. so these high oil prices may be a little bit too high but we think oil prices will stay higher than the consensus here for a while.
>> certainly oil, energy, oil and gas explorations, oil services, virualy anything that has to do with petroleum or gas products has been a market leader not only year to date but the past six months. do you think that will run?
>> we do. and the sector the market that we particularly like are the oil service companies. when you look at the reserve performance, reserve replacement performance of a number of companies, let alone the reserve writedowns by shell, you can see that these companies will have to run faster to stand―keep production standing up. so we think that means bigger cap-ex and oil and gas looking forward over the next several years, great for oil service stocks.
>> let’s swap over to pepsi. you do have concerns over health issues with the anti- anti-carbohydrate craze right now. tell us in 30 seconds what it is about pepsi that will make it outperform?
>> right now they’re firing on all cylinders, one of the best fundamental stories we can find in terms of a management getting the most out of what the company has going for it. all divisions perform reasonably well―soft drinks, snraks and―snacks and orange juice. the concern is that soft drinks and the salty snack area are going to continue to be under some pressure as health concerns continue to be in the news but that’s the only risk we see right now. otherwise, we see a company poised for future growth, 11% up in the next couple of years.
>> robert morris, thank you and we’ll be right back.
