Ignore EPS, Watch the Cashflows: Calamos

Muhammed Ali or Joe Louis? Secretariat or Man o' War? Overvalued or undervalued?

The first two questions are conversation starters in crusty sports bars everywhere. But if you want to start a fight on Wall Street, you throw a bull and a bear into a ring (or television studio) and challenge them to settle the question once and for all. Just in the last week the financial press has featured spirited debates between heavyweights like David Bianco, Robert Schiller and now Laszlo Birinyi, who seemingly couldn't stand being on the sidelines for the latest round.

We looked to the Midwest to find a man with a different, more practical take. John Calamos, the eponymous CEO of $37 billion Calamos Asset Management, says many stocks in his growth universe are undervalued and going higher. What's his basis for the assertion? Rather than looking at some variant of trailing earnings and P/E, as are the above three titans, Calamos is living in the now and looking at the future.

While Calamos isn't blind to economic headwinds both real and imagined, he sees a situation where borrowing costs are nil, productivity is of the essence and companies are still able to find ample growth opportunities overseas. Flush balance sheets are best for companies which can put the money to work. While the (other) financial press sources obsess over EPS, Calamos is looking at slightly more esoteric measures such as cash flow and return on invested capital.

So where does he weigh in on the undervalued vs. overvalued debate? He's somewhat guardedly bullish, but one gets the impression that Calamos finds the entire debate largely beside the point. "It's a market of stocks, not a stock market" he says. "Valuation from the bottoms up trumps momentum."

Add it up and Calamos is a discriminating bull, something like a Ferdinand of Fund Managers. Calamos is content to let others get into the arena and gore one another with bull/bear debates; John's simply looking to put his clients' money into the fastest-growing trees.

We want to know what you think. Drop us a line at breakoutcrew@yahoo.com.