Navigating a Higher Interest Rate Environment: Expert Money Manager David Abella Focuses on Companies That Can Grow Cash Flow and Dividends as the Economy Improves

Wall Street Transcript

67 WALL STREET, New York - August 8, 2013 - The Wall Street Transcript has just published its Deep Value Investing and Other Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Bottom-Up Stock Selection - Value Oriented Strategy - Value Investing - Deep Value - Small Cap Investing

Companies include: Mattel Inc. (MAT), Dr Pepper Snapple Group, Inc. (DPS), The Coca-Cola Company (KO), Pepsico, Inc. (PEP), Johnson & Johnson (JNJ), Procter & Gamble Co. (PG), Centurytel, Inc. (CTL), Liberty Property Trust (LRY) and many more.

In the following excerpt from the Deep Value Investing and Other Strategies Report, an expert portfolio manager discusses his portfolio-construction methodology and his investment philosophy:

TWST: What are some of the most common questions or concerns you're fielding from investors right now and how do you answer them?

Mr. Abella: The main concern right now is how higher interest rates are going to affect stocks that pay a dividend and will they trade negatively with higher rates. So there is some truth that in the short run the high-dividend stocks have a pretty high correlation to movements in interest rates. And we saw interest rates had a pretty rapid pace upward the last couple of months.

You did see quite a bit of pullback in sectors like REITs and utilities, and even in consumer staples. But what I tell investors is that you really need to focus on a company that can grow its cash flow and grow its dividend. Over time, there is more of a driver for total return with these stocks in a positive way with an improving economy.

So in other words, over time if the economy can grow better that means dividend and value companies can also grow better, and this is usually a stronger factor than just how they trade relative to interest rates. It's an important concern and certainly if there is a stock out there that has a relatively high dividend and no real growth prospect, it may trade in a more interest rate-sensitive manner. That is to say, as interest rates do rise even higher, then stocks without earnings growth prospects are vulnerable to pulling back even more.

But if a stock can grow its earnings and cash flow, then that will be a strong factor in helping to drive a positive total return. Generally, in the past dividend stocks and value stocks have done well as the economy improved, similar to the broader equity markets. So I try to get our investors to really focus on how these stocks fit in versus other stocks, and how they can grow their earnings and their dividends in an improved environment...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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