Looking for controversial companies
Interview: T .Rowe Price---Linehan, John--Fund Manager
>> glaxosmithkline is you providing the public with more information about its research. they will have results of drug trials. elliott spitzer filed a lawsuit on june 2 accusing the company of fraudulently with holding data on pax ill. glaxo said that the database will be ready for the third-quarter of this year. the medical association said that it will seek new rules requiring drug companies to disclose test results in pauble registry. in a public ridge strism our next company looks―registry. our next guest looks―john joins us from his offices in baltimore. thanks for being on the program. john, i want you to explain the philosophy that perhaps i did a poor job of interdution you in explaining in your introduction. can you explain looking for controversial companies?
>> bob, we’re not necessarily looking for controversial companies. we’re looking for companies that we believe are mispriced. especially in regard to longer term price trends. so when a company is trading at a relatively inexpensive levels compared to historic levels, we get―oftentimes opportunities exist when there is a fair amount of controversy surrounding the stock.
>> meaning that a lot of the value―the price has gone down much more than it should have because people overreacted to headline type news?
>> a lot of times people focus on the short term. we think more in terms of what a company could be like two years, three years in future. oftentimes it pays for the news that is driving the short-term performance dones have a long-term impact on the share price.
>> the market has been going nowhere. i wanted to find out what you think will come along to stop that. many of us think now that mr. greenspan will raise rates a quarter point on june 30. we have another month before second-quarter earnings kick in in ernest. what are investors waiting for? dwhrirks as we said interest rates are expected to increase. we are in an uncertain geopolitical situation. i think that we will need a strong set of earnings numbers for the second-quarter and full year to propel the market higher.
>> you invest in defensive stocks. with a possible economic rebound underway, a critic might say large cap value is the last place you want to be if the economy is doing well. to that you say what?
>> i say if you look over time large cap value outperform large cap growth. there are a number of companies that have a lot of leverage.
>> when you say if you look over time, but what about during an economic reeb? that’s where we are right now, right?
>> even last year large cap value outperformed large cap growth. i think that it was true for 2003.
>> you think that it is true for any economic rebound? you think that is the place to be?
>> obviously in a rebound certain stocks will outperform others. we’re longer term in terms of perspective. we that i the longer term value we think that longer term value should do well. i’m not sure if growth will outperform value. i think where we do see real opportunity is a large cap outperforming a large cap. i think that there is significant opportunities in the larger caps.
>> you like union pacific. investors in that stock have lost money year to date. the stock is down 17%, yet you like the stock, and you have a lot of faith in it for a company whose earnings this quarter are predicted to fall 30% from the year ago quarter. why union pacific?
>> first of all, we didn’t necessarily like the stock a few months ago. at these levels, the reason that we like it longer term the evaluation is appealing. we are looking at longer term with positive fundamentals, and that is why we like senior pacific. they’re going to earn $3.20 this year. we believe that it puts the company closer toed adds, which suggests a $70, $75 stock price.
>> you liked microsoft last time. it lagged other stocks. isn’t it hard to get a big company like microsoft to grow fast?
>> it is. but since april microsoft outperformed the market by 10% or so. i think that every stock has a price and microsoft at $25, $26, pricing in a great deal of bad news, the law of large money does impact a stock like moifment and i don’t think that you will see the robust growth that you have seen in the past. but i think that microsoft can grow 10% revenue.
>> thanks to john linehan for joining us on bloomberg tv. when we come back after the break, inca creased travel is sparking the hotel industry.
