Interview: Millennium Asset---Maltbie, Robert---Fund Manager
>> 2005 will mark the sixth straight year small cap stocks have beat eb the s&p 500 index. as large caps have gained around 3.5% in 2005 small cap stocks have run up 7%. our next guest sees this trend continuing through 2006. and he is robert maltbie, fund manager at millennium asset management joining us from los angeles with his market forecast. welcome, robert.
>> hi, lori.
>> if you’re ok with this i’d like to get your outlook for 2006 market performance especially on a day like today when we saw the yield curve flatten between the two and 10-year note triggering concern of an economic slowdown. does this at all influence your marketed outlook into 2006?
>> today does and a slowdown would. we think the first week of the new year and the last week of the old year are rather liquid, so we don’t put a lot of emphasis on that. we see 3% gp growth for next -- g.d.p. growth for next year.
>> where do you see the s&p 500 next year?
>> well, lori, we think the market is 15% to 20% undervalued. so we think it has that type of up side. if you’d have asked me a year ago where would the market prices be with oil prices up 50%, i guess i’d look at this as a surprise.
>> energy prices, lower across the board today. do you see energy as a continuing head wind. they’re lower today but i should be point out historically high, perhaps do you think this will continue through 2006?
>> right now we’re seeing that energy is not a huge obstacle or headwinds. hedge funds have been growing at 15%. importantly we’ve got an economy that’s got much less sensitivity to higher energy prices evidenced by the recent productivity figures and the fact we’re a much more service-based economy. so we hit the numbers with corporate earnings. we just didn’t hit the up side on the market . i think that’s coming.
>> to what degree are you pinning your 2006 outlook on the raise in interest rates?
>> well, that’s a fact that they raise it more than we think. we’re not beyond the consensus maybe a time or two. another 50 basis points maximum year unless inflation’s much worse than is seen and by all accounts right now, it doesn’t seem to be a problem in the core inflation indicators.
>> so you’re a small cap money manager here. you’ve said the s&p 500 recently, well, just now is 15% undervalued. why do you expect the bull market to continue in small cap stocks?
>> well, small caps have a ways to go based on historical ranges. also, they are not as sensitive to the higher energy price,, the higher wage prices, if the labor markets get a bit tight. but probably if you’ll look at historically p/e ratios on small caps have ranged from the low end of one to the high end of two times of the s&p multiple and right now it’s towards the lower end. so there’s room.
>> lot of investors shifting into large cap names after the sixth years of success. you do believe there’s more room for growth?
>> yes, we do. we just haven’t seen the top line growth on the market overall on the s&p overall. if you take out energy stocks, the average earnings gain has been pretty tepid, 6% to 8% and more expected. we think there’s much, much more earnings growth and valuation upside in the small cap and particularly in the last five years it’s been a lot of cutbacks in research. there’s a lot of companies that aren’t even followed. and that’s what we put our energy. we try and focus on companies that have no research at all. studies indicate that those companies are even more undervalued, 20%, 30% or so.
>> so that could be a challenge for small, even microcap,, especially microcap investors, limited analyst coverage. so what advice would you have for investors?
>> well, do your homework. find some type of advantage that you can put on your side of the table. for example, there’s a lot of smaller research beau teeks springing up that―bueteeks that special lies in this -- boutiques that specialize. they’re purely performance driven. they may have an edge that investors can take advantage of.
>> what industries would you recommend for small and mid cap investing?
>> industrywise we’re rather neutral. we really see it’s a stock picker’s market . you’ve got such opportunity and different growth rates. for example, one of our biggest winners last year was hance’s natural, make beverages, and one of our other greatest returns was a medical device company that far reaching from beverages, so it’s really a plethora of opportunity.
>> i will have to leave it there, robert. thanks for coming on.
>> my pleasure. our thanks to robert maltbie once again. profit this quarter will sink after a battle with u.s. regulators place sanctions on medical devices. we’ll tell you who’s bidding and consider why when “after the bell” continues.
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Listen Market briefing --- Lori (slow)
NYSE --- Julie (slow)
Nasdaq --- Robert (slow)
Holiday sales --- Margaret (slow)
world headquarters in new york city. i’m lori rothmann. this is bloomberg “after the bell.” a combination of weakness and energy shares in the stock market . plus u.s. retailers probably posted modest sales gains this holiday season. bloomberg’s martha popper gets a first hand account of shopping activity. we’ll hear from her in a moment. you heard the closing bells and there you go. the dow dow closing down 1 -- dowdow closing down 103 points. the s&p 500 is off 112356 and the nasdaq after a loss of 22 points. energy, capital goods, pharmaceuticals all among the weaker sectors today. 22 of the 24 s&p groups were lower, in fact. energy still accounted for most of the drope overall. let’s go ahead and check in with julie hyman live at the new york stact exchange.
>> indeed we are seeing a broad-base decline in today’s session. if you look at energy in and of itself at various points during the day accounting for about a quarter of the drop overall. 25% of the drop overall coming from energy. add to that the negative sentiment from the yield curve narrowing, that is the yield on the two and 10-year notes pretty much exactly the same. that in the past has sparked an economic slowdown and that also weighing on sentiment in today’s session. if you look also at volume that’s another factor we have to note today as we get near the end of the year. volume is lower and tradeering • markets easier to get pushed around. it’s still about 1.1 billion shares, about 30% below the average for the year. also let’s look at energy stocks in today’s session. with the drop in snarl gas in particular we saw natural gas producers seem to get hit the hard ers with x.t.o. and e.o.g. resources leading the decline. if you look at the s&p 500 energy index is having its lowest close today than it’s had all month. it’s down about 9 .5% to 10% from the record this index reached back on september 29. if you look at the m.x. national gas index you see reflected the steeper drop in the natural gas producers more specifically. another group that was hit today, the semi conductors, again linked to what’s going on with the yield curve. national semi, freescale semi conductor. this is having a particular effect on the banking and financial stocks. we saw the philadelphia index of banks. that was one of the groups that suffered in today’s session. want to mention the retailers. i know you’ll get more in a moment from margaret popper, but it was down consistently throughout the day, tiffy. the retailers on the list, more a sense of some of the discount retailers like family dollar stores, warbgt and radio shack on thravements retailers weighing on the major averages today. for more on the nasdaq we send it to robert gray.
>> thank you very much. the nasdaq falling ending a three-day advance by the composite. a lot of pressure coming from the yield curve told. a lot of concerns about the possible inversion, the flattening of that yield curve. i spoke with barry hyman, the equity market strategist, he said the e―reaction shows how nervous screverses are now. not the best back drop for the market , he says. w4 we saw that being played out . we see some of the best performing groups in the market and so far year to date. the worst performers in today’s session, the transports falling by 1.5%. semiconductors down. internet stocks falling 1.5% as well. the group falling some 8% today. the chief executive on bloomberg tv last friday morning telling us that he saw -- said the holiday sales would be disapointing and the stock began falling then. they put out a press release referencing that this morning and the stock gapped lower and closing down the lows of the session for today. we saw am zahn.com shares falling 1.―amazon.com shares falling. bed bath & beyond shares rising as they were upgraded following their worst decline in four years last week. plunging some 12% on the day. we you sa jet blue airways at a 4% and a 52-week high today as price target was raised over at prudential. that’s a look at the nazz damage back to you.
>> thanks, robert. for the first time in almost five years, yields on two-year treasure rice converge with yields on 10-year, securities creating a flat yield curve. the convergens of long and short-term yields came after the federal reserve raised interest rates. in response to the increase investors have pushed up short-term yields while driving down longer-term yields. this on speculation that the feds keep inflation in check. it brings concern that an inverted yield curve will occur. that’s when short-term yields exceed long-term yields. this last happened in december of 2000 and has proceed -- preceded each other the past four u.s. recessions. pinco’s bill gross, who runs the world’s biggest bond fund says a recession is not likely at this time. he discussed it on bloomberg radio today.
>> i think it is telling us that we have a slower economy ahead. we don’t necessarily have a recession ahead. i think that’s because the level of interest rates at the degree of flatness isn’t sufficiently high. but for a qumb, as you -- curve, as you mentioned, does indicate a slowing economy, in some cases a recession airy economy. i think what it suggests this time as a 2% economy in 2006 as oh bowsed to a recession.
>> ovepblgt once again that was bill gross from pacific investment management company. let’s check your commodities. mild day in the northeast. crude oil down. among the other energy movers, natural gas is the headliner again. down some 23% over the last sessions. we’re at a three-minute low on gas futures. declines for heating oil. gasoline down 2 1/3%. 22% below normal from january 22 to january 26 according to forecaster weather derivatives. let’s check currencies―i’m sorry―treasuries, especially on news that the yield curve flattened today. if we go to the shorter end of the curve―actually, let’s check the 5-year first. treasuries as a hole a little higher today. we’ve got a consumer confidence report tomorrow but on that yield, 4.34% right in line with the 10-year today. the week after christmas all eyes on retail store sales. analysts try to assess the amount of steam left in this economy. last year the days between christmas and new year’s made up 10% of all holiday sales. margaret popper is in programous, new jersey with an update for us. hi, margaret.
>> i’m here with matt eer erie, senior general manager of the westfield garden state mall in pa ramous, new jersey. how was mall traffic today?
>> excellent, margaret. it started slower than yesterday but as you can see now it’s building. it’s going to be a good day >> did it meet your expectations?
>> it has. we had about a 5% increase yesterday as opposed to last year. i would see a similar number today.
>> judging by how these two days have gone, do you expect that to continue for the week?
>> i do. i think there’s a lot of people off work this week. i think the shift with hanukkah this year, i think it’s going to be a tremendous week.
>> what kinds of things are people buying? do you have that kind of data yet?
>> most of my data, i see in customer’s bags as they walk through the mall. i think there’s some good deals on heavy weight merchandise. a lot of it is electronics as well.
>> heavy weight merchandise, you’re talk about clothes?
>> clothes. jackets, et cetera.
>> how much gift card shopping is going on? how has that been in the last couple of days?
>> it’s tremendous. you can see a lot of people redeeming gift cards. we had an excellent year in gift cards this year. i expect that trend to continue.
>> all right. well, thank you very much, matt.
>> thank you.
>> back to you.
>> all right. bloomberg’s margaret popper reporting live from new jersey. stocks dropped if most this month, so how into investors position thems as he head into 2006? our next guest says small cap stocks. more from robert maltbie after a short break.
