Value Investing: Going Where Expectations are Lowest

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

BARRON'S INTERVIEW: Dropping Great Expectations by Neil A. Martin

Highlighted companies: Franklin Resources Inc. (BEN), BHP Billiton Limited (BHP), News Corp. (NWS), Suez (SZE), GlaxoSmithKline plc (GSK), sanofi-aventis (SNY), DirecTV Group Inc. (DTV), Comcast Corp. (CMCSA), Merrill Lynch & Co. Inc. (MER), JPMorgan & Chase Co. (JPM), France Telecom (FTE), Mobile TeleSystems OJSC (MBT). Telenor ASA (TELN)
Summary: Interview of Jeff Everett (pictured), chief investment officer of the Templeton Global Equity Group, a Franklin Resources (BEN) unit that oversees the $152 billion Templeton fund family. His investment strategy: He looks for unnoticed, undervalued stocks: "We like to go where expectations are the lowest." Some key points:

• Risk management: Risk means owning stock for which expectations are difficult to meet/beat; he replaces such stocks with companies for which expectations are very low that have good prospects for outperformance. Examples: (1) He replaced BHP Billiton Limited (BHP) with News Corp. (NWS). (2) He has been switching Chinese banks with Taiwanese ones for their lower valuations. (3) He purged Suez (SZE) from his portfolio based on the market's "overly optimistic" expectations, but likes GlaxoSmithKline plc (GSK) because of its low valuation, vast resources that enable it to unearth new revenue sources, and because shares have gone nowhere giving it upside potential.
• Other picks: (1) Sanofi-aventis (SNY) -- management is very focused and the company has exciting new products such as Rimonabant, a promising weight-loss drug. He thinks the market is caught up on data points and not looking at the company's long-term potential. (2) Media: News Corp, DirecTV Group Inc. (DTV) and Comcast Corp. (CMCSA) -- previous uncertainty in the sector created a buying opportunity. He's comfortable with cash flows, management, and long-term prospects. (3) Financial: Merrill Lynch & Co. Inc. (MER), JPMorgan & Chase Co. (JPM). (4) Telecom: France Telecom (FTE) -- it has 40% of its fixed-line business moved over to VOIP, and the wherewithal to withstand significant competition. It owns half of the Polish incumbent, and are the leading mobile providers in Spain in Holland, with smaller stakes in other countries. Mobile Telesystems OJSC (MBT) -- very large, very fast-growing Russian wireless company. He visited MBT this fall and found it exceeding expectations in every metric. Telenor ASA (TELN) -- Norway's major telecom provider.

Related: And the Top Media Company of 2006 Is..., Eye On GlaxoSmithKline, The Risks of Investing in Telenor

Comments

[Junexx:]

I think that most penny stocks are scams. When trading penny stocks, it's important to realize that most are worthless. It doesn't mean you cannot make money.

You have to go into them realizing they are not investments and you have to sell when you realize the profit you want, because if you don't, you will be left with nothing.

I normally visit this
Penny Stocks Site: www.surefirepennystock... to research. It's a decent resource.

I know that in penny stocks, they move with good news, chatter online, and when price and volume breakout occurs, you hop in. When the momentum slows down - GET OUT! Take your profits and limit your losses, that's the way to make money with them.

Mar 03 08:29 AM