Bill Nygren: Stocks are Extremely Cheap


Bill Nygren, Oakmark Funds, says stocks are really attractive today. “Investors are over-paying a lot for safety,” he says.

Video and transcript:

now back to scott. time for slow money where we look for some of the best long term strategy. my next guest has been findingvalue in stocks for more than 30 years. hips fund is outperforming the s&p 500 this year. portfolio manager. thanks for having us. i will get your reaction to bill gross’s note today which heard something earlier. tell us what you think about themarkets as you sit here right now? i think stocks are reallyattractive today. i think investors are overpaying by a lot for safety and for income generation, high yield. i think that is giving us value where investors are willing to take risks on cyclical issues and also on companies where also just generally equities versus bonds. stocks are a lot cheaper than have interesting holdings and sectors. capital one being the oldest. our parent company comcast in there, oracle and ebay.some technology and financials and media exposure. i think one of the things they have in common is most of those companies are taking their cash flow and investing to growearnings per share faster than they grow earnings because they are buying back stock. investors are penalizing companies like that penalties for that rather than higher payout ratios. if you’re in the market these days for stocks you think are attractive besides what your top holdings are, what do you see? i would say in general, industrial companies and financial companies are really cheap. like i said earlier, i think stocks are a lot cheaper than bonds. i think investors are making a mistake when they sell stocks to buy bonds today. i think in most cases, investors are far better off if they look for companies that will grow earnings faster rather than overpaying for the companiespaying out a lot in dividend yield. you like aig. why? aig was a company a couple quarters ago was still a very complicated story. they had to liquidate a lot of complex portfolios. today, it’s basically an insurer sells at half of book value and putting all their repair in work in share purchases and an attractive stock.did you read bill gross’ letter he putdo you have an opinion about it? i haven’t had a chance. do you think stock investorsare in the past? i don’t. i think they aren’t properly accounting for the large amount of free cash flow that’s not getting paid out as dividends. typical company today is only paying 30% in dividends. that leaves them 6% of their market cap to reinvest, to grow earnings. if the real economy isn’t growing, that money will be put to work in share repurchases, will have a historically large gap between espn growth and corporate earnings growth. bill, a pleasure speaking with you. hope to have you back soon. bill ni glen. he’s absolutely right. the flaw in gross’ argument, he’s talking about an economy growing 3 1/2% on average and the historical growth is much