Some British portfolio managers point of view

Posted May 15th 2007 1:21PM by Georges Yared
Filed under: Before the Bell, Forecasts, Microsoft (MSFT), Apple Inc (AAPL), Cisco Systems (CSCO), International Business Machines (IBM), Citigroup Inc. (C), Penney (J.C.) (JCP), Bank of America (BAC), Costco Wholesale (COST), Chipotle Mexican Grill'A' (CMG), Wachovia Corp (WB), Washington Mutual (WM), Wells Fargo (WFC)

I have written before that for 16 years I worked for two investment banking-research boutique firms. With the two firms I was in charge of European sales dealing with British, French and Swiss portfolio managers and advising them on their US stock holdings. After 16 years great friendships were made and kept. Every other month, a group of six British portfolio managers and I have a conference call catching up on local (London) happenings and we swap ideas about stocks and trends. We held the call this past Friday and I wanted to share with you some of their observations. The six portfolio managers I spoke with manage a total of $35 billion in the US markets.

The first observation was a unanimous agreement that the US market is still trading at a reasonable valuation. Earnings have been strong from the end of 2006 and carried through for the first quarter of 2007. The remainder of 2007 appears positioned and poised for excellent numbers.The technology sector has provided the most pleasant of surprises as typically the first quarter is quiet. Although financial models normally reflect the quiet first quarter, the numbers have been very good and outlooks even better. Leaders like Microsoft (NASDAQ: MSFT), Cisco Systems (NASDAQ: CSCO), IBM (NYSE: IBM) and of course Apple (NASDAQ: AAPL) all reported very good March/April quarters with excellent visibility going forward. All six felt Apple was one of the best names to own for this year and next.

Pharmaceuticals, chemicals and energy all showed strength and sustainability for 2007. The retail sector as normal, is mixed. The better run concepts reported good March results with the laggards continuing to lag. Some of the better names like Chipotle (NYSE: CMG), Costco (NASDAQ: COST) and J.C.Penney (NYSE: JCP) have reported good earnings and good same store sales numbers as well.Some of the dogs shall remain like the dogs ( A British expression!). All six managers agreed that Wal-Mart (NYSE: WMT) should be under weighted (because of Wal-Mart's size, the managers have to own it, but they have reduced the percentage weighting).

The best sign of relief came from the financial sector. The major banks came through the sub-prime issue with higher bad debt reserves, but also, higher than expected earnings. The valuations are very cheap and if the Federal Reserve does begin to lower interest rates, these stocks will have a field day. The better names include Wells Fargo (NYSE: WFC), Washington Mutual (NYSE: WM), Wachovia Bank (NYSE: WB), Bank of America (NYSE: BAC) and TCB (TCF CORP: TCB). Five of the six felt that Citigroup (NYSE: C) would under perform the group going forward.

That was the jist of the feelings from across the pond...The British are bullish on the US...I wonder if that's why the Queen came visiting last week?!!...

Georges Yared is the CIO of Yared Investment Research where he explores more growth stock ideas.

Tags: aapl, bac, c, cmg, cost, csco, ibm, jcp, msft, wb, wfc, wm