"Market Monitor"- Jeffrey Everett, CIO, Templeton Global Advisors
Friday, March 23, 2007PAUL KANGAS: My guest "market monitor" this week is Jeffrey Everett, chief investment officer at Templeton Global Advisors. Jeff, welcome back to NIGHTLY BUSINESS REPORT.
JEFFREY EVERETT, TEMPLETON GLOBAL ADVISORS: Thank you, Paul.
KANGAS: You know, your job at Templeton is to constantly search the globe for investment bargains. On your last visit with us in late June of 2006, you said that the U.S. looked very attractive because it had been a laggard market. The Dow is below 11,000 then. It's been above 12,700 since then, so that was a great call. I compliment you.
EVERETT: Thank you.
KANGAS: But have U.S. stocks since this rally occurred become fully valued now?
EVERETT: They have not. U.S. valuations are at 10-year lows and I think it's important to put that gain in perspective. The U.S., over the past three years, is actually one of the three worst-performing markets in the world Paul.
KANGAS: What are the other two?
EVERETT: The other two are Taiwan and Thailand.
KANGAS: For goodness sakes. I didn't realize that.
EVERETT: So interesting company, two out in Asia, one with serious political problems. That would be Thailand. But the U.S. valuation-wise look very attractive and we're finding a significant number of bargains in our own backyard.
KANGAS: And you think the market will hold up nicely overall.
EVERETT: I do. Two other interesting factors to help the market backdrop. One, very high tax rates in the United States. Many people may not be aware that we have a very severe tax regime in the United States, second only to Japan. Secondly, short-term interest rates, a lot of chatter about that lately. We have very high rates. Only Australia and New Zealand have higher short-term rates than the United States. So a good backdrop.
KANGAS: The market seems to be telling us this week with the big rally that the Fed's next move might be a tax - I mean a rate cut, not a tax cut. That would be too good to be true.
EVERETT: Too good to be true, but I think that's the point. That sets up well for some very undervalued stocks in the U.S. market.
KANGAS: OK. Are there other global financial markets that are more attractive than the U.S?
EVERETT: Again, I mentioned Taiwan and Thailand. We have more investments in Taiwan. One that I'll give you later is an interesting Taiwanese opportunity. But globally, we have the lowest inflation rate in emerging markets than we've had globally. That's been a major driver of global economic growth as you know and the world is swimming in liquidity right now.
KANGAS: On that last visit with us in June, you gave four stock buy recommendations. Let's see how they've done since then. JP Morgan has done very well, 18 3/4 percent up from where it was and well above where you originally told us to buy it, six months before last June. Merrill lynches that has done a very nice job, up 26 percent. And let's have a look at the other, News Corp up almost 24 percent and Fannie Mae was the only new recommendation last time and it's up 22 percent. Are you with all of these still?
EVERETT: We're still with them and I would buy News Corp today, Merrill Lynch today, absolutely.
KANGAS: Stay with them and buy them.
EVERETT: Absolutely. The work of a smart team at Templeton, very good picks that we're sticking with longer term.
KANGAS: That was a very nice bunch of choices you made there. How about some new recommendations?
EVERETT: Well, as I said, I would start right here in our own backyard. We believe names like Microsoft are selling at unusually low valuation.
KANGAS: The chart indicates it is coming alive a bit.
EVERETT: It came alive last spring, after they announced a major share repurchase. And I think people are starting to appreciate the value of this business. Interestingly, net income last year was greater than sales in 1997. Sales have quadrupled in 10 years, tremendous franchise, wonderful profitability, $20 billion in cash on the balance sheet. But nobody wants to pay more than 16 times earnings for this company.
KANGAS: How about a number two choice?
EVERETT: Number two, also in technology, Oracle. We think Oracle is a wonderful -- again, tremendous profit margins. They just surprised this week with better than-than-expected revenue and earnings, wonderful growth opportunity long term, priced very inexpensive.
KANGAS: And they dominate their industries.
EVERETT: Absolutely dominate the three industries. KANGAS: OK. We have time for one quick other one.
EVERETT: Well I would take you to Taiwan. You can't buy a (INAUDIBLE) but a company called Lite-On Technology. It's fascinating that you can buy a technology company with 20 plus percent earnings growth, a 7 percent dividend yield and you're only paying 11 times earning.
KANGAS: And it trades only on the Taiwan, no ADRs here in this country.
EVERETT: No ADR. They make notebook back-lit screens. They make LED screens for handset on the phones.
KANGAS: OK, Jeff, do you personally own any of the securities mentioned or have or any other disclosure to make?
EVERETT: I own the funds that own the stocks.
KANGAS: The fund that own - OK. Jeff, thanks once again for joining us and sharing your insights.
EVERETT: Thank you Paul.
KANGAS: My guest, Jeffrey Everett of Templeton Global Advisors.
