"Call Up" Fogle's Favorite
08/26/2005 12:00 am EST
"Our discipline is looking for companies at an inflection point, where business is getting better," says Glenn Fogle, senior portfolio manager for American Century. Here are stocks in which he has "reasonably high confidence regardless of which direction the market goes."
""We view this as an attractive environment for stock market investing. The Fed has shown that they are determined to slow things down, but don't want to send us into a recession. Once the market can reach the consensus that the interest rate rises are about over, I think people will breath a collective sigh of relief and their appetite for risk will increase. Granted, the market is not a screaming buy. But it is a reasonable place to put money to work, especially considering the alternatives such as cash, bonds, and real estate. If you look out a year or two, I'd say returns in the 5-10% range for the overall market are the most likely scenario.
"Within that enviroonment, we see a divergence of opportunities. Probably the biggest inflection point that we anticipate is a shift from value to growth. I'd note that that is a very self-serving forecast, being a growth manager. But, it's not only that I hope it happens. I think it's reasonable to assume it will, because since 2000, value has trounced growth and the valuation spreads are now historically very narrow. So there is an opportunity to get better growth in today's market without paying the typical premium over value.
"Meanwhile, regarding individual stocks, I'd note that American Century is a broad array of mutual funds and within that spectrum my team is responsible for taking a substantial amount of risk. We are looking at businesses that may have been good and are now great or ones that may have been bad and are now tolerable. But overall, we are looking for businesses that are improving because the market tends to miss those opportunities. So, overall, our goal is to find catalysts that are driving improvements. Two companies that fit this strategy are in the cell phone area.
"NII Holdings (NIHD NASDAQ) is from Virginia, but none of their business is conducted in the US. It is a spin-off from Nextel and their primary markets are Mexico, Brazil, and Argentina. The cellular business here in the US is rather mature. But in Mexico, for instance, the majority of cell phone subscribers charge about $10 or $15 a month. However, NII Holdings has a lock on the business customer, which does an average of $65 or $70 per subscriber per month. They just acquired spectrum to greatly increase the markets in which they can deliver services. They have a unique push-to-talk technology, and their business customers are excellent credit risks. The company has a great opportunity to further penetrate this market. Meanwhile, Brazil had been a problem, but the regulatory situation has improved to where they can now make a little bit of profit. Brazil is not a great market, but it's a lot better than it was. So we see an inflection point there.
"Domestically, we're not enthusiastic about the wireless companies themselves, but we like the tower companies. As we develop more wireless technologies, there will be great capacity demands. These are almost like real estate plays. For example, when companies like Sprint or Verizon increases their business, they need a larger number of towers. The more subscribers they get and the more data those subscribers require, the more attennae these companies require. But it's hard to find real estate to do this. Nobody wants these towers in their back yard. American Tower (AMT NYSE) has some 13,000 locations and they can lease antennae space to multiple competitors. They recently merged with the #2 player in North America. They are now in a terrific competitive position that will enable them to extract ever-increasing rents from the cellular companies."