Large Cap Value Investing Veterans Shift From Consumer Staples To Selected Financials And Tech In Current Market

• On 8:38 am EDT, Wednesday October 28, 2009

67 WALL STREET, New York - October 28, 2009 - The Wall Street Transcript has recently published its TWST Large Cap Value Report offering a timely review of the sector to serious investors and industry executives. This 62 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Price to Earnings -- Relative Valuation -- Free Cash Flow -- Cheap Valuations -- Improving Products -- Company Transparency -- Short Term Performance -- Diversification -- Auto Industry -- Risk Management -- Large Cap Value Fund -- Acquisition -- Profits -- Revenue Growth -- Aggressive Cost Cuts -- Cable Industry -- Capital Base -- Credit Downturn -- Market Share -- Restructuring -- Change in Business Fundamentals -- Market Volatility -- New Opportunities -- Adding Value -- Technology Sector -- Technological Growth -- Credit Market -- Advantaged Economics -- Competitive Position -- Consumer Discretionary Exposure -- Flexibility -- Building Value -- Valuation -- Dividends -- Employment Normalization -- Profit Margins -- Focus on Middle Market

Companies include: Vodafone (VOD); SUPERVALU (SVU); Safeway (SWY); Kroger (KR); Microsoft (MSFT); American Express (AXP); AutoNation (AN); Goldman Sachs (GS); IBM (IBM); ConocoPhillips (COP); JPMorgan (JPM); PowerSecure (POWR); Innovative Solutions & Support (ISSC); Cablevision Systems (CVC); Viacom (VIA); Vivendi; Groupe Danone (BN:FP); Honeywell (HON); Crane (CR); BB&T (BBT); Aon (AOC); Caterpillar (CAT); Schering-Plough (SGP); Merck (MRK); JPMorgan (JPM); State Street (STT); Emerson Electric (EMR); Aetna (AET); Harris (HRS); Honda Motor (HMC); Symantec (SYMC); Magna International (MGA); Cisco Systems (CSCO); JPMorgan (JPM); American Express (AXP); Bank of America (BAC); Citigroup ©; Syngenta (SYT); MasterCard (MA); Monsanto (MON); Avon Products (AVP); Chesapeake Energy (CHK); Apollo Group (APOL); Automatic Data Processing (ADP); Colgate-Palmolive (CL); Berkshire Hathaway (BRK); Praxair (PX); Oracle (ORCL); Coach (COH); Jefferies Group (JEF); Granite Construction (GVA); Potash Corp. of Saskatchewan (POT); Schnitzer Steel Industries (SCHN)

In the following brief excerpt from just one of the in depth interviews in the 62 page report, two veteran money managers discuss the outlook for the market and justify their stock picks for investors.

Marian L. Kessler is a Portfolio Manager and Equity Research Analyst at Becker Capital Management, Inc. She joined Becker Capital in 2004, bringing twenty-two years of experience in the investment business as an analyst, portfolio manager and Managing Director of IDS/American Express, Safeco Asset Management and Crabbe Huson. In addition to her research responsibilites, she is a member of Becker Capital's Large Cap Value team. She recieved her BA degree, Magna Cum Laude from Carleton College in 1981, and her MBA degree in Finance from Northwestern University's Kellogg School in 1985.

Robert N. Schaeffer is a Portfolio Manager and Equity Research Analyst with Becker Capital Management, Inc.. He joined the company in 1984. Prior to joining Becker Capital, he managed equity portfolios for institutional clients at First Interstate Bank of Oregon, where he headed the Endowment and Charitable Funds Management Group. In addition to his research responsibilities, he is a member of the firm's Large Cap Value team and is responsible for the product's record since it's inception in 1987. He received his BA degree from Willamette University in 1969.

TWST: How do you describe your value philosophy? Would you give us some idea on what type of value investors you are at Becker Capital Management?

Ms. Kessler: We are large cap investors. At least 60% of both our separate accounts and our mutual fund are invested in large cap stocks. However, we do have some flexibility to find stocks, particularly in the mid-cap range. In the past year we have had an opportunity to look at many companies that have fallen into this territory, but the average market capitalization of our portfolio is still clearly large cap at $38.8 billion. Philosophically, we buy stocks that meet four characteristics; 1) They must be out of favor, 2) They must be average or better quality, 3) Business trends must be stable to improving and 4) They must be trading at a valuation discount to their historic norms, or the market. We don't buy turnarounds. Instead we prefer healthy balance sheets. We prefer very low debt-to-capital and we're really focused on cash flow and other attractive balance sheet characteristics. We spend our time researching diligently our companies to discern the direction and the magnitude of the change in business fundamentals, whether that is operating margins, market share, top line growth, bottom line growth. This approach, especially last year, kept us away from a lot of value traps that many large cap value managers fell into.

TWST: Perhaps you can elaborate more on the difficult climate and the turmoil in the markets last year and how you coped with the volatility and everything in last year?

Ms. Kessler: First and foremost, we're not top-down sector rotators; we are bottom-up stock pickers. We're not macro driven. This kept us out of a lot of trouble during the last 12-18 months. Fundamental changes on the margin began in early 2006, when we started to see deterioration in many mortgage-related and credit sensitive stocks that had done so well for the portfolio coming off the 2002/2003 lows. We recognized this and began to sell many of our financial holdings in late 2006 and early 2007. Subsequently, 2006 was our worst year of relative performance to the benchmark, the Russell 1000 Value.

TWST: How have you been faring this year? Did you take advantage of the March correction and what is the environment like for opportunities in the value world?

Mr. Schaeffer: Given the volatility that we have experienced, I think there has been a lot of opportunities created. The sell off was rather indiscriminate. By that I mean strong companies and weak companies were being sold without consideration of the underlying fundamentals and valuation. In many cases we had the opportunity to sell a company and upgrade into an even better quality company at a comparable valuation. We took advantage of this. Historically, our turnover has been 30% to 40%. In the last year it has been about 45%. We had a chance in March to step into a company like JP Morgan (JPM) at $21 a share, State Street Corporation (STT) STT in the $20s and those have worked out very well. It took a certain courage given the investing climate, but the valuations were clearly right for the taking.

Ms. Kessler: Our sector exposures changed slightly late last year and into the first quarter of 2009. We began selling a number of consumer staple stocks that had become very rich in terms of their valuation and had held up very, very well in 2008's turmoil. Companies like General Mills (GIS), Constellation Brands (CEG) and others we sold or trimmed and redeployed those funds into names like Emerson Electric (EMR) and Harris (HRS) in the industrial and technology space or Aetna (AET), JP Morgan, State Street in the financial space.

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 62 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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