Portfolio Manager Perspectives

Jeff Benjamin

Stocks look cheap vs. bonds, says Perkins

Fund manager is finding value in health care and tech

Aug 26, 2010 @ 12:58 pm

By Jeff Benjamin

Relative to the low yields of bonds, the stock market is attractively valued, according to Tom Perkins, manager of the $81 million Perkins Large Cap Value Fund Ticker:(JAPIX) and the $12.4 billion Perkins Mid Cap Value Fund Ticker:(JMVAX).

“There is uncertainty about the economy and earnings, but when you compare stock prices to bond yields, the market looks very cheap,” he said.

Mr. Perkins added that the recent stock market volatility creates pockets of value, particularly in the large-cap space.

“You can find dividend yields that are relatively good and rising, and that provides a good stream of income while you wait for capital appreciation,” he said.

The price-to-earnings ratios for larger companies represents a slight discount to smaller companies, Mr. Perkins said.

And, in an environment where access to credit is restricted, larger companies have the advantage of being able to issue debt, he said.

“You are seeing companies like IBM [Corp] and Johnson & Johnson coming out with bonds priced at low levels,” Mr. Perkins said. “That’s a competitive advantage for larger companies, because that kind of financing is not always available to smaller companies.”

Mr. Perkins said he builds the large-cap-value portfolio by starting with a “focus on risk, and then we look at the appreciation potential.”

The bottom-up stock picking has introduced a slight overweight in areas such as technology and health care, which are not traditionally associated with value.

“Technology and health care are historically classified as growth, but they have come down to the value area,” he said. “A lot of the tech stocks we own, we had no interest in 10 years ago, but these are companies now with no debt and lots of cash on the balance sheet.”

Two examples of tech stocks in the portfolio are Cisco Systems Inc. Ticker:(CSCO) and Microsoft Corp. Ticker:(MSFT).

The health care industry, while still operating under the cloud of nebulous regulatory reform, is still attractive from a demographics perspective, Mr. Perkins said.

A couple of health care names in the fund include Laboratory Corporation of America Holdings Ticker:(LH) and Thermo Fisher Scientific Inc. Ticker:(TMO).

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.


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