Small-cap stocks
Harris Investment Mgmt.---Kleinaitis, Paul---Portfolio Manager
we’ll take a look at small-cap stocks and how they’re going to do in a rising rate environment.
>> the second largest life insurance company says the securities and exchange commission may sue one of its units for improper trading of variable annuities. the s.e.c sent a so-called wells notice to metlife’s general american life insurance company. a wells notice is send when the s.e.c has determined that there’s enough evidence of wrongdoing to warrant civil charges. metlife ended the regular session down a penny at $34.14. our next guest invests in both growth and value small-cap stocks and currently prefers the growth variety. paul clenitis of the harris insight small-cap opportunity fund joins us from chicago. that sounds like a full plate that you have going there, paul. what is it in the growth versus value argument that tilts you your current way?
>> we’ve asked the question about how do we invest in a rising rate environment. well, the way we like to think about it is trying to buy stocks that have secular growth. they tend to do well, whether the economy is rising or improving or deteriorating. and that’s the same is true of interest rates. so, we try to find stocks that do well regardless of their interest rate environment.
>> you do prefer growth stocks over value right now, is that correct?
>> absolutely. we think that growth stocks long-term provide better long-term returns based on our own research and i think most academic research, at least the way we view it.
>> so, as far as this interest rising interest rate environment, is there a threshhold where the rising interest rate environment actually becomes painful and isn’t just indicative of a stronger economy?
>> i think that’s―you’re exactly right. i think if interest rates are moderately higher than they are today, investors don’t have a real choice. they’ll probably stick with their current asset mix. but if we have a 5% increase in rates over the next one to two years, i think there might be a dislocation of in asset allocations. investors might seek out bond rates of return as opposed to investing in stocks. you could see a dislocation at that point. that’s what did happen in the late 1960’s.
>> let’s talk about something here in this century and that is cooper industries. that’s a company that you like. c.o.o. is the ticker symbol, based in pleasantton, california, just about 3700 employees. and it’s a cooper companies, excuse me. and they make contact lenses, among other things. why a contact lens maker worth about $1.7 billion now?
>> cooper is really number four in the contact lens market , but they’re really number one in specialty lenses and that’s the fastest part―fastest growing part of the contact lens market . they’ve got benefits from different tipes of eye problems as well as being more creative technologically than the other larger players.
>> they are a distant number four. is there huge growth in terms of specialty lens business for some reason?
>> yeah, there sure will. even in the first quarter, coopers lens sales rose 30%, which was tripple the rate of increase in the entire contact lens market in the united states. they’ve got two things that are really―two product lines that are really interesting t. first is the dry eye, i think it’s called proclear where individuals who have sensitivity to dryness caused by contact lenses―well, cooper has a product that offers more breatheability. lenses or eyes to end dry out less. secondly, demographics, individuals who owned or worn contact lenses for the past several years, as they get older, you know of bifocals in the eyeglass market . well, the same thing occurs in the contact lens market where the aging demographic would favor especially to lens manufacturer like cooper to provide multifoe lenses and they have the leading market share in those two markets .
>> i’m of the belief that every small-cap stock is always takeover target. does this apply here, given that it is a number four in the contact lens area, a distant number four?
>> well, we’d love nothing better than for cooper companies to be taken out at some premium buy. the leading manufacturer either johnson & johnson or bausch & lomb. but it―it’s probably not the case at this―that cooper will be taken on anytime soon. it is not an inexpensive stock, but continues to grow faster than its p/e ratio. we like it, despite its increase, despite the price rise. we like it nonetheless. it’s a wonderful story. it’s been a great story long-term.
>> excellent. paul kleinitis, and you’ve been a great guest in the short-term t. thank you for joining us here tonight, folks. he is of the small-cap growth fund up 30% as we show right there. well, the man known in football as primetime will no longer be a primetime tv player. neon deion sanders quits cbs for reasons involving money. you guessed. you knew i was going to say that before i said it. we’ll look at that and a lot more in our weekly money and spores chat coming up next.
