Tag Archives: David Herro

The “Art of Successful Investing” with Zulauf, Black, Herro & Priest (Part I)

Last month, Barron’s published stock picks of eight leading investors who participated in its AOSI conference.  Below are several of the longer-term trends identified by these industry leaders.

Felix Zulauf, president of the hedge fund Zulauf Asset Management, sees a bear market. “We are in a recovery rally in the early stages of a cyclical bear market,” he says. After possible upward bumps for the remainder of 2015, he continues, “I see a bear market around the world, including the U.S. . . . The S&P could decline to 1600.” He explains. “we are in a deflationary cycle,” while attributing much of the reason for pessimism to China. “The Chinese economy is slowing,” he observes, predicting: “I expect China to devalue its currency by 10% to 15% in the next 12 months.” His advice? “Next year, when a global bear hits, you’ll want to be as defensive and cautious as possible. It will be time to hold long-term U.S. treasuries again.”

Scott Black, founder of Delphi Management, highlights both the challenges of the current market and the potential for finding individual companies likely to produce significant returns. He describes the market as a whole as “slightly overpriced,” noting that “earning expectations for next year are much too high.” While he opines that “there aren’t many bargains to be found in equities as a homogeneous risk class,” he also identifies some individual companies (such as FedEx) that he views as particularly good bets.

Ross Margolies, founder and portfolio manager of Stelliam Investment Management LP, illustrates the point that individual companies may offer significant opportunities for returns well above the indexes. He points to structural improvements at Delta Airlines, for example.

William Priest, CEO and co-CIO at Epoch Investment Partners, explains his view that “free cash flow is the lifeblood of any business” because it allows a company “to reinvest in the business, buy back stock, pay down debt, make acquisitions, or pay cash dividends.”  He applies this view to identify some stock picks, such as CVS Health, which he describes as “the poster child for excellent capital allocation.”

David Herro, the Oakmark manager Morningstar dubbed its 2010 manager of the decade, looks at the Chinese stock market disruptions caused by currency devaluation and notes: “when prices move a lot more than value, that spells opportunity.” In other areas, he points to Credit Suisse, noting its new management.

Taking “Short-term Lumps” for Long-Term Value in Emerging Markets

The manager of the Oakmark International Fund, David Herro, believes it is a good time to invest in emerging markets. The fund had roughly one-quarter of its portfolio in emerging markets in the late 1990s and “benefited greatly” from that decision over the next decade, Herro says. Then, investors became interested in emerging market stocks and “by the end of the last decade, prices got stretched,” so the fund reduced its emerging market stocks to near zero. “Now we’re finally starting to see that come full circle again,” according to Herro. He points to both “good valuations” of companies and a “tailwind” from undervalued currencies in countries like Indonesia.

To Invest Like A Guru, Keep An Eye On Free Cash Flow Yield

While many investors focus on earnings, Validea CEO John Reese says that some of Wall Street’s best strategists prefer to use free cash flow when analyzing a company.

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Herro’s Take On Greece

Recently, David Herro of Harris Associates spoke to CNBC about his thoughts on the Greece instability, and how that affects European investments — and the top fund manager’s outlook may well surprise you.

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Herro: There’s Value In Europe

Top fund manager David Herro is finding a lot of value in the unloved European region, as well as in Japan. In a recent letter to his Oakmark International shareholders, Herro said he had about 80% of the portfolio in Europe and 11% in Japan. “How we are positioned is really a function of where we are finding individual-company value,” Herro tells Morningstar. “I think it’s really important to realize that a lot of these European and Japanese multinationals have revenue streams and cash flow streams that are really sourced from all over the world. I think that is one of the anomalies that we try to take advantage of. People were scared of Europe, so they stopped buying European equities, even though many of those European companies have exposure to good areas of growth in Asia, even in Latin America, where some of the growth exists. And so, really, this is why we’re positioned the way we are in some of these markets.”

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Herro: Good Time To Add To Euro Bank Exposure

Top fund manager David Herro says many European banks are looking like good investments right now, and that they are “well positioned to perform better” than US banks.

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Roundtable: Gross, Herro, Cohen And Others On What To Expect In 2015

A number of the world’s top investment strategists recently gathered for Barron’s annual roundtable to offer their thoughts on where the economy and markets are heading. David Herro, Abby Joseph Cohen, Bill Gross, and Marc Faber were among those who participated, and overall the mood was subdued. “On the whole, they expect interest rates to stay unnaturally low, and the U.S. to lead the world in economic growth,” writes Barron’s Lauren R. Rublin. “Yet, they doubt that will translate into robust gains for the stock market. Scott Black’s expectation that the Standard & Poor’s 500 will return 10% this year — an 8% price advance and a 2% dividend yield — was as rosy as it got. Marc Faber, we feel compelled to warn you, thinks the market already has made its high for 2015.”

Barron’s also included one-on-one interviews with many of the strategists. In the clip below, Gross talks about his outlook for how the current global debt overload will play out, and discusses where investors should be looking right now.

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