Small Cap Value Investing: Is The Party Over For Finding Value In Low Capitalization Stocks?

• On 3:59 pm EDT, Monday October 26, 2009

67 WALL STREET, New York - October 26, 2009 - The Wall Street Transcript has just published its TWST Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This 34 page feature contains expert industry commentary through in-depth interviews with top tier Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Top-down and Bottom-up Opportunities-Active Management-Multiple Asset Allocation-Tactical Asset Allocation-Canadian Stocks-Debt/Equity Ratios-Qualitative and Quantitative Approach-Large Cap Opportunistic Value-Low Valuation-Sustainability of Return-Price-to-Earnings-Price-to-Book Value Basis-Uncovering Compelling Values-High Returns on Investment

Companies include: Agrium (AGU); Airgas (ARG); American Express (AXP); Anadarko Petroleum (APC); Analog Devices (ADI); Avnet (AVT); BCE Inc. (BCE); Bank of America (BAC); Bank of Montreal (BMO); Broadcom (BRCM); CVS Caremark (CVS); Canadian National Railway (CNI); Chevron (CVX); Cisco (CSCO); Conoco (COP); Devon Energy (DVN); Disney (DIS); Enbridge (ENB); Garmin (GRMN); Genzyme (GENZ); Johnson Controls (JCI); McKesson (MCK); Medtronic (MDT); Mettler-Toledo (MTD); Microsoft (MSFT); Monster Worldwide (MWW); Morgan Stanley (MS); Mosaic Corp (MOS); Novellus (NVLS); Omnicare (OCR); Potash Corp of Saskatchewan (POT); Shoppers Drug Mart (SC); Tim Hortons (THI); Time Warner (TWX); TransAlta (TAC); TransCanada (TRP); Tyco International (TYC); Valero (VLO); Wal-Mart (WMT); Walgreen's (WAG); Wendy's (WEN); Western Union (WU); Yahoo! (YHOO); Zimmer (ZMH); asterCard (MA); eBay (EBAY).

In the following brief excerpt from just one of the in depth interviews in the 34 page report, an experienced Money Manager discusses the outlook for investors.

Carl Gardiner is a Portfolio Manager on the Small Cap Value Equity strategy. Mr. Gardiner has been a financial analyst for over 18 years, including eight years in investment analysis and management. Prior to joining Schafer Cullen Capital Management, he was an investment analyst and portfolio manager at two research-driven, value-oriented investment funds, Copper Arch Capital and North Sound Capital. From 1992 to 2000, he was a Director at Merrill Lynch, as an investment banker in New York and London. Mr. Gardiner began his career at Fox Asset Management, a value-oriented money management firm. He received a MA degree in International Economics from Johns Hopkins School of Advanced International Studies in 1992 and a BA degree with High Honors from the University of Virginia in 1989.

TWST: When did you find the best period for investing in your type of stocks? ?

Mr. Gardiner: It was obviously, especially now looking back, in that February-March period when the market was bottoming. Taking a look at hard data helps to keep your perspective clear. Jim Cullen has been in the business since 1965, and that perspective really helps in this regard in times like the market collapse. As an example, here's a simple but helpful guidepost that I found really helped with objectivity in early March. If you go back and look at the earnings profile of the S and P since 1960, the trend line has been 7% growth per year over the last nearly 50 years. And over that time, the S and P has been capitalized at just under 17 times trailing P/E. Obviously there is a lot of variation in earnings around the trend line as you go through earnings cycles, and then price variability is further exaggerated by multiples shrinking and expanding. But you can draw a trend price line for the market and track how far above or below trend the market is at any time over the last 50 years. It's a simple exercise as I said, but in early March around the lows, we were 46% below that trend. The market had only ever come close to that in 1974 when it was about 42% below trend, and from which point you had a very nice forward return. It really was a generational opportunity from a valuation perspective. Today we're about 16% below that trendline. That is still pretty attractive considering the market had not been below trend since the early 90s, but it was so lopsided in the beginning of March. There was just an abundance of opportunity to buy great businesses with great long-term prospects at very attractive valuations.

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 34 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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