Friday, March 18, 2011

David Herro, The Contrarian

David Herro, Morningstar's International Stock Manager of the Decade and manager of Oakmark International (OAKIX) since its founding in 1992 (returning 9% annually over the past 10 years...better than 98% of competitors), had the following to say in a recent Fortune article on emerging markets:

In the late '90s we had 20% to 30% emerging-markets exposure, and people thought we were crazy. There had just been a crash, and prices were dirt cheap. Today there's hype and over-euphoria, and we cut our investments because they're reflected in the price. One has to distinguish between attractive equities and an attractive macroeconomic situation. And investors have confused this.

On China...

...China is growing 8% to 10% a year. Do you play that by buying some state-owned enterprise that doesn't care about the shareholders, has no transparency, and is trading at 25 times earnings? Or do you play that by buying into a business that trades at less than 10 times cash flow and makes more than 30% of its profits from emerging markets and China? That's the case for companies like Danone (DANOY), Diageo (DEO), and Nestlé (NSRGY).

Herro added that he likes natural resources the least and explains his thinking.

He also explains why he likes European banks (Banco Santander: STD, Credit Suisse: CS, UBS: UBS) and, though the interview occurred before the awful earthquake and tsunami had happened, Japanese stocks like Canon (CAJ) and Toyota (TM). 

Pretty much a contrarian on most things but considering the track record it's worth listening to him. Check out the full article.

Adam

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