Market Monitor- Jeffrey Everett, Chief Investment Officer at Templeton Global Advisors
Friday, June 23, 2006PAUL KANGAS: My guest market monitor this week is Jeffrey Everett, chief investment officer at Templeton Global Advisors and Jeff, welcome back to NIGHTLY BUSINESS REPORT.
JEFFREY EVERETT, CHIEF INVESTMENT OFFICER, TEMPLETON GLOBAL ADVISORS: Thank you, Paul, nice to be here.
KANGAS: Give us your perspective on the steep downturn seen on most world financial markets this spring. Why did it happen and which markets were hurt the worst?
EVERETT: It happened because expectations ran ahead of what the stock prices could really deliver, Paul. We`ve had the adoption of the bricks trend globally, Brazil, Russia, India, China. Those markets which have led the down turn, actually, have really performed twice as well as almost every other stock market in the world. Investors simply ratcheted back growth expectations. There was a fear of the inflation bug appearing again and consequently investors took some money off the table from what I will call fairly expensive markets.
KANGAS: Which markets have emerged as the most attractive now and why?
EVERETT: Well, a lot of the pain has been felt outside the United States and consequently that has left the U.S. as a fairly safe market but still over a multiyear period, the U.S. has been a laggard market. So we at Templeton are bottom-up stock pickers but still finding a lot of value in different parts of the world, the U.S. being one of the major parts.
KANGAS: because of our relatively strong economy, no doubt.
EVERETT: The strong economy and great corporate earnings. It`s very tough to have a recession with good corporate earnings.
KANGAS: What about the ever relentless climb I should say in interest rates here? Won`t that kind of choke off our economy? Are you afraid of that?
EVERETT: Well, that`s the fear. But, you know, there is going to be inflation. No doubt, the statistics have been worse in the past few months than they were over the previous 12 months. But there`s still strong underlying growth. And interest rates climbing are not always bad. Sometimes they`re a sign of strength in an economy.
KANGAS: Has the drop in the price of gold recently represented a buying opportunity?
EVERETT: We`re not gold bugs but I will tell you that the price of gold coming down really does indicate investors` risk appetite being reduced. And that is a healthy thing for people that assess fundamentals.
KANGAS: A quick outlook on oil.
EVERETT: Well, we think oil stocks around the world are attractive.
KANGAS: Especially today.
EVERETT: Yes, they are.
KANGAS: All right. Now on your last visit with us in early December, you recommended three stocks. Let`s see how they`ve done since. And we see JPMorgan Chase up about 4.5 percent. Merrill Lynch just crept up but it traded as high as 81 actually so those were two on the upside and then there was one more that you gave us, Newscorp, which has had a nice rise, 18.5 percent. Are you still with all three?
EVERETT: We`re still with all three and I would buy almost all three right here today.
KANGAS: OK, fair enough. Do you have any new recommendations for our viewers?
EVERETT: The new recommendations would follow the suit of what I gave you previously. As I said, I would still buy all three of those. Merrill Lynch is symbolic of global financial services. I think that`s very interesting still and very cheap, JPMorgan very cheap. One of the cheap names that pops up right now on our radar screen is Fannie Mae.
KANGAS: Fannie Mae! With all the accounting problems it`s had, you think the worst is behind it now.
EVERETT: Well, I think it pops up on a lot of people`s radar as a cheap stock. We, having a long-term view at Templeton, really will be able to ride through the short-term noise very well. First of all, there`s a lot of investor uncertainty. There are no near-term catalysts but Paul, it`s left the stock selling for a very compelling valuation at nine times earnings.
KANGAS: OK. Another choice? We have time for one more.
EVERETT: Old Mutual (ph). It trades in London. It`s partly London based, partly South African based.
KANGAS: We don`t have a chart on it but it`s priced at around what price?
EVERETT: It`s about 150p right now. We think fair value is significantly higher, 30 to 40 percent higher from where it is right now and long term, it`s a very interesting story. The company originally made its fortune in South African asset management, life insurance and banking and it has now spread its wings globally. It recently made an acquisition in Sweden and it has been very successful and it`s growing its asset management business.
KANGAS: Insurance is their main game.
EVERETT: That`s right and it sells for a meager eight times earnings.
KANGAS: 150 pence. That`s about $3 a share, isn`t it? EVERETT: That`s correct.
KANGAS: OK. Do you personally own these securities?
EVERETT: We own them substantially in all of our funds. Fannie Mae, Old Mutual, one thing in common, very cheap stocks with very good long-term potential.
KANGAS: Jeff, I want to thank you for sharing your thoughts with us again.
EVERETT: Thank you Paul
KANGAS: My guest, Jeffrey Everett of Templeton Global Advisors.
