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TagsBY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY
Large-cap growth stocks, like Starbucks and NIKE, seem poised to rebound soon, according to T. Rowe Price's money managers. In fact, things are looking pretty good all up and down the investment markets.
That was the theme last week at T. Rowe Price's annual press briefing in New York City. Whether it was U.S. stocks or foreign stocks, taxable bonds or tax-free bonds, or natural resources, T. Rowe Price's spokespeople seemed optimistic.
"Stock valuations are reasonable overall," said William Stromberg, director of global equity and global equity research. Even though the markets are likely to remain volatile, "solid fundamentals should provide compelling opportunities through the recovery."
Things to worry about, Stromberg added, include increasing regulation of health care, financials, and energy, fiscal imbalances in the U.S., Europe, and Japan, along with "irrational pessimism." The level of pessimism, he said, is "astonishing," especially considering the "outstanding yields on good stocks."
On the positive side, corporate earnings are "shockingly good," free cash flow is encouraging, global blue chips are exceptionally productive, and the healthy emerging-market countries are helping corporate earnings.Agreeing that stocks look reasonably priced was Larry Puglia, manager of the Blue Chip Growth Fund. After a decade of vale stocks outperforming growth, he said, "the pendulum may be reversing course." (Value stocks seem like bargains, growth stocks are the favorites.)
Particularly attractive, he went on, are "large-cap multinational companies that generate strong earnings and cash flow, and can take market share in their respective industries." Such companies offer "diversification by product and geography, with broader access to fast-growing Asian markets."
He mentioned that Google is selling for less than 15 times its earnings. Other stocks he named: Starbucks, NIKE, and Danaher. If growth stocks return to favor, he added, they could remain in the driver's seat for a long time.
True, the economic recovery "has been disappointingly slow," said chief economist Alan Levenson. But despite "lingering restraints from the housing bust and financial crisis," he believes that the "economic recovery is poised to keep moving forward." Still, the outlook is "not exciting." He predicted that unemployment would fall to 8.6% in the final quarter of 2011.
What the government should do, he went on, is rein in federal budget deficits, "with entitlement reform at the heart of the effort."
As for foreign stocks, Robert Smith, manager of the International Stock Fund, said that valuations of emerging markets are a little high, but "fair given the superior growth expectation." He expects ongoing volatility, and more modest results than in the recent past.
Particularly strong, he went on, are China, India, Brazil, and Mexico.
As for developed-market companies, he likes those that can sell to consumers in emerging markets.
The emerging markets are still buying natural resources, said Timothy Parker, manager of the New Era Fund. And despite their recent rally, natural resources stocks "do not fully reflect the sector's positive long-term fundamentals as the global economy recovers and resource consumption grows."
As for increasing regulations, he said that they can hurt in the short term, but can also result in higher prices - like the price of coal.
Returns in the fixed-income markets will be more modest than in the recent past, and investors should look globally, said Steven Huber, manager of the Strategic Income Fund. The 30-year decline in interest rates seems to be nearing an end, limiting capital-gain possibilities. Overall, fixed-income investments "are more fairly valued than we've seen in recent years, placing increased importance on individual security selection."
He favors corporate bonds rated Baa, Ba, and B - because the yield on lower-rated bonds isn't high enough.
In general, he concluded, "This is a security selection market."
As for tax-free bonds, Hugh McGuirk, head of municipal investments, reported that despite the recent sell-off, "muni yields remain relatively attractive," and the municipal market "is still a high-quality market with a very low default rate."
There's no near-term threat to the states' ability to continue servicing their outstanding debts. But "we do have concerns about potentially onerous future pension and other post-employment obligations." Because of the states' fiscal problems, "we currently favor revenue bonds, particularly essential service bonds, over general obligations." That's a cautious approach.
T. Rowe Price, headquartered in Baltimore, is a gigantic investment company, with around $440 billion in assets. According to Lipper statistics, Stromberg reported, 78% of its funds have outperformed their peers over the past 10 years.
Its funds are no-load – sold directly to investors, without sales commissions.
Warren Boroson will answer readers' questions. Send them to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
