Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
Making the Most of a "Stockpicker's Market" by Sandra Ward
Summary: Cliff Hoover is poised to take over the $21.5 billion Dreman Value Management when David Dreman retires. A contrarian investor, he looks for low-P/E and dividend stocks trading below their intrinsic value. He likes:
- ConocoPhillips (NYSE:COP) -- 7.5x earnings and 5x cash flow vs. ExxonMobil's (NYSE:XOM) 13x and 10x. Non-OPEC oil has already peaked, and OPEC oil should peak around 2014-15. Smaller exploration/production companies like Anadarko Petroleum Corp. (NYSE:APC), Devon Energy Corp. (NYSE:DVN) and Apache Corp. (NYSE:APA) should be taken out within two years.
- Amgen Inc. (NASDAQ:AMGN) is turning itself into a Big Pharma. Recent selloffs due to off-label treatment concerns and Medicare restrictions have brought share prices down to very attractive levels. It's an 8-10% growth stock.
- Pfizer Inc. (NYSE:PFE) is on sale. Shares ($27) are easily worth $34 due to huge stock buybacks and 20%+ dividend increases. He hopes it buys Wyeth (WYE), another pick of his, because they have the smallest patent-expiration problem of all the Big Pharmas and could benefit from Pfizer's distribution channel.
- Bank of America Corp. (NYSE:BAC) at 10x earnings, 10% earnings growth and a 4%+ yield will be consistent over time.
- Fannie Mae (FNM) and Freddie Mac (FRE) will benefit from mortgage lending problems as smaller players are driven out of the market.
Related Links: Previous Barron's interviews: Five Steel Stocks from Industry Maven Michelle Applebaum • Time to Buy Newspaper and Movie Theater Stocks -- Buzz Zaino, Royce Opportunity Fund • Hidden Trends and the Sectors They Drive - Barron's Interviews Charles Hess • GGlobal Investor Jason Trennert's Bullish Domestic, Bearish Emerging