Cash On Balance Sheets Funding Acquisitions Of Value Stocks: Aberdeen Portfolio Managers Reveal Their Picks And Methodology

• On 4:46 pm EST, Monday November 9, 2009

67 WALL STREET, New York - November 9, 2009 - The Wall Street Transcript has just published its TWST Small Cap Value Report offering a timely review of the sector to serious investors and industry executives. This 47 page feature contains expert industry commentary through in-depth interviews with expert Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Small-Cap Value - Capital Preservation - Sovereign Bonds - Precious Metals - Value-Investing - Companies with International Exposure - US-listed Chinese Companies - Risk Limitation - Industry-Diversified Portfolios - Long-Term Value - Micro-Cap Companies - Turnaround Situations - Strategic Buying - Fundamental Analysis

Companies include: Bridgepoint Education (BPI); Compass Minerals (CMP); Flexsteel (FLXS); Hardinge Corp (HDNG); Phillips-Van Heusen (PVH); Adobe (ADB); Affiliated Computer Services (ACS); Alliance Data Systems (ADS); American Water Works (AWK); Atlantic Tele-Network (ATNI); Celanese Chemical (CE); CenturyTel (CTL); Clean Energy Fuels (CLNE); Consolidated Graphics (CGX); Dell (DELL); Dillard's Department Stores (DDS); Drew Industries (DW); Educational Development Corporation (EDUC); First Acceptance Corp (FAC); Forestar Group (FOR); Fresh Del Monte (FDP); Hain Celestial (HAIN); Harbin Electric (HRBN); Huron Consulting (HURN); IMAX (IMAX); IMS Health (RX); Kennametal (KMT); Lamar Advertising (LAMR); NBTY (NTY); Nature's Sunshine Products (NATR); Nobility Homes (NOBH); Omniture, Inc. (OMTR); Perot Systems (PER); Pfizer (PFE); SPDR Barclays Capital International Treasury Bond Fund (BWX); SPDR Gold Trust (GLD); Silver Wheaton (SLW); Tellabs (TLAB); Temple-Inland (TIN); Tempur-Pedic (TPX); Tesoro (TSO); Valero (VLO); Verizon Wireless (VZ); Whole Foods (WFMI); Xerox (XRX).

In the following brief excerpt from just one of the in depth interviews in the 47 page report, a top tier portfolio manager discusses the outlook for the market for investors.

Jason Kotik is an investment manager on the U.S. equity team at Aberdeen Asset Management, Inc.. Jason joined Aberdeen in 2007 following the acquisition of Nationwide Financial Services' equity investment management team, where he had served as an assistant portfolio manager and senior equity research analyst since November 2000. Jason previously was a financial analyst with Allied Investment Advisors. Prior to that, he was a trading systems administrator with T. Rowe Price Associates. Jason is a graduate of the University of Delaware, and has earned an MBA degree from Johns Hopkins University. He is a CFA Charterholder.

Michael J. Manzo is an investment manager on the U.S. equity team at Aberdeen Asset Management, Inc. Michael joined Aberdeen in 2007 following the acquisition of Nationwide Financial Services' equity investment management team he served as a research analyst providing fundamental research coverage to the value team since September 2005. Michael was an analyst covering the machinery multi-industry/electrical equipment sectors at JP Morgan Chase and Company from July 2000 through August 2005. Prior to that, he was an equity analyst intern at Lepercq, DeNeuflize & Company. Michael graduated with a BS degree in business administration with a specialization in finance/economics from Fordham University. He is a CFA Charterholder.

TWST: What are some of the core holdings, some of your top holdings that you've held onto the longest in your fund?

Mr. Kotik: I would say two of our core holdings have been Phillips-Van Heusen (PVH) and Tellabs (TLAB). I think as of our last report of holdings, those were two of our larger positions.

TWST: Mergers and acquisition activity looks like it might be on the rise again. How does M&A impact your investing?

Mr. Manzo: I think it indirectly impacts it. Certainly if we're finding these kind of high-quality businesses attractive, other larger companies will as well. I think you are starting to see the onset of another time period of reasonable M&A activity, as some of the cash from the big companies gets put to work. Interest rates are low enough where holding cash in the balance sheet just isn't attractive. Fortunately, we have had two of our companies recently being taken out - Omniture, Inc. (OMTR) taken out by Adobe (ADB), Perot Systems (PER) being taken out by Dell (DELL).

Mr. Kotik: Part of our process, like Mike said, is to find these businesses that have a significant value in the long term and I agree. Because the cash on corporate balance sheets is still large, they were waiting to see that there would be some sort of financial markets environment from the banks being able to be there as a backstop. But our philosophy is not to buy companies that could be acquired.

TWST: Two of the sectors that have been doing really badly but have shown opportunities recently are the financials and the consumer discretionary. How are these sectors faring in the small-cap arena?

Mr. Kotik: Yes, consumer discretionary in the small-cap sector has probably been, if not one of the top-performing segments of the market. During the winter/spring of 2008-2009, they were very good values in the economically sensitive consumer discretionary space. One of the things that's been happening over the past couple of years, as you know, is the deflation of the housing bubble, number one. And then two, the decline in consumer sentiment and increased unemployment. What that has done is caused valuations to become rather inexpensive. Those high-quality names that had a potential for forward growth and increased margins were trading at levels that you don't often see. We did take advantage of that in the consumer side. On the financial side, we have a very diversified portfolio of financials. We've been very skeptical of the system, and we've been very focused on our financial services holdings, looking for those that, one, either trade below book value where we don't think there's deterioration in the book; two, companies that have very strong execution; and three, those with capital that they can actually take advantage of and thrive in the downturn. We did take advantage of those particular stocks that would meet those criteria.

TWST: What is the sell process? What triggers an exit from your portfolio?

Mr. Kotik: Yes, that's pretty simple. One is deterioration in the quality of the business, whether that be driven by industry dynamics or a change in management issues with industry players not being rational, things like that, that would change the way we look at the company. Obviously M&A if a company is taken out, obviously where that is another area. Three would be better ideas - if we find a significantly better idea that meets the portfolio's needs, then we will take out one of those ideas that we have less conviction of.

Mr. Manzo: I'll just add, if we feel like the valuation of the stock price does not justify some future level of earnings or future level of cash flow and we just can't get our hands around valuation, we certainly will sell the stock. We emphasize valuation on all that we do, including sell figures.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 47 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

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