Finding a Unique Situation in a Market Where Great Pricing is Fleeting: Expert Portfolio Manager James C. Roumell Discusses His Deep-Value Approach to Investing with The Wall Street Transcript
67 WALL STREET, New York - June 4, 2013 - The Wall Street Transcript has just published its Multicap Value Investing 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 public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Investing in Financial Services - Large Cap Investing - Value Investing - High Quality Companies - Bottom-up Investing - All-Cap Growth Investing
Companies include: Tecumseh Products Company (TECUA), Apple Inc. (AAPL), Merck & Co. Inc. (MRK), Berkshire Hathaway Inc. (BRK-A), Dell Inc. (DELL), Transocean Ltd. (RIG), Sears Holdings Corporation (SHLD), J. C. Penney Company, Inc. (JCP), Ultra Petroleum Corp. (UPL) and many more.
In the following excerpt from the Multicap Value Investing Report, an expert analyst discusses the outlook for the sector for investors:
TWST: You said you are holding 35% cash right now. What determines how much cash you hold?
Mr. Roumell: We will hold cash if we don't have a great idea where we want to invest. If we have an idea that grabs us, we will absolutely buy it. There is no hesitation to deploy capital if we can justify it on a company-specific basis. We are not trying to of predict market movements in general. Sometimes there is not great pricing available. It's not to say that things don't become available here and there.
I would use the analogy of when you walk into Bloomingdale's, about 80% of the goods there are going to be overvalued and can probably be purchased cheaper elsewhere. But sometimes you find a unique situation. A couple of years ago, I found a suit that had 40% knocked off and there was a little cut on the back of the knee and they knocked often another 25%, so I got over 50% off a great suit. It does happen, you can find good values, but we would say this market is expensive to us. Although the market does have forward earnings of 14 times or 15 times, it's still much more expensive on a 10-year-adjusted p/e basis, kind of the Shiller CAPE.
We think earnings should be looked at over 10 years, not one year. Current earnings coming off the S&P are coming off the highest operating margins post war. If you look at a chart where corporate profit margins are right now, they are at about 13%, when the post-war median has been about 9.5%. And if margins revert to the mean, you no longer have the S&P earning $110.
There is a lot of faith put on the fact that the market is at a modest p/e, but it's really being driven by an abnormally high - the highest, in fact - post-war operating margin, which we don't think is sustainable. If you look at nonearnings measures like market cap to GDP or price to sales of the economy, the market is over 100% of GDP right now, and the postwar median has...
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.
