OK, armchair quarterbacks, here's a real buy, sell or hold scenario for you: A well-known, large-cap company is down over 20% year to date and has slumped to an 18-month low, vastly underperforming its benchmark, which is essentially unchanged. What would you do?
If you were portfolio manager John Carey with Pioneer Investments, a self-proclaimed value and contrarian investor, and the stock in question was Target (TGT), you'd be all over it. He says he's "not deterred that it (Target) has not performed well ... from my point of view that's where you want to be looking."
Target clearly has lost its way. Whether that was due to efforts aimed at reaching down to consumers during hard times, a recent Wall Street Journal article suggested the retailer has lost its cachet and thus its unique ability to "mix mass with class" by focusing too much on food. But "time will tell ... I have confidence in their strategy and think it will work longer term," Carey argues.
Next on the docket is Ford (F). The stock rallied hard out of the March 2009 lows, rising from $2 to $20 a share. But so far this year, Ford has seen a lot of selling and is down 17%. In this situation, Carey says he's "mainly impressed with management and the company's improving book value." Not only is he undaunted by Ford's just-announced expansion plans for China, Carey thinks the automaker has great prospects in Europe and improving market share in the United States.
Software titan Microsoft (MSFT) is another down-and-out laggard that Carey likes. Whether it's the 2.7% dividend or a forward P/E of 10x estimates, he thinks "management knows what it's doing." When pushed by Macke about the merits of Microsoft spending $8.5 billion for eBay's (EBAY) Skype, Carey defended the deal, saying "there is nothing in the stock price for any new success."
By comparison, his last pick stands out because unlike Target, Ford and Microsoft, it's actually up this year. In fact, syringe and medical diagnostics manufacturer Becton Dickinson (BDX) has just slipped back from a three-year high. Hardly a comeback story, Carey's defensive pick is in almost every hospital and lab in the world and does the majority of its sales overseas.
Since Carey is a long-term investor, we may not get a chance to settle our gentlemen's disagreement with most of his out-of-favor picks for three to five years, but we certainly enjoy challenging them here and now. And you can, too, in the comments section below or via email: firstname.lastname@example.org.
- book value.
- Becton Dickinson