Value Investing

Meryl Witmer – Barron’s 2016 Roundtable, Part 1: A World of Opportunities

….Meryl Witmer – Barron’s 2016 Roundtable, Part 1: A World of Opportunities

Gundlach: Exactly, because they are buying less today. Commodities prices are falling every day. That can only be because Chinese demand is weak. Prices for copper and iron ore have been cut just about in half.

Priest: Oil was down 35% last year. It has to be demand-based.

Witmer: The drop in oil is supply-based.


Meryl, we haven’t gotten your view.

Witmer: As you know, I try to stick to stock-picking. Companies tell us there isn’t a lot of growth out there. There is no driving force to move things forward. The fracking boom was great for the economy until it ended. It helped move things forward. Housing is OK. Auto sales are probably at a peak. With the dollar so high, many companies are having trouble exporting their goods. The outlook isn’t rosy. It’s just OK.


Black: From Jan. 1. The S&P 500 finished last year at 2043.94. Analysts expect S&P 500 companies to post earnings from operations of $125.56 in 2016, up from an estimated $106.39 last year. That implies 18% growth, which isn’t in the bag. I see 4% growth in earnings per share from net income and 3% from stock buybacks, which takes you to about $114. Based on Friday’sS&P close of 1922.03, the market is trading for 16.9 times estimated earnings. By historical standards, the market is slightly overvalued.

Many of us specialize in small- and mid-cap stocks, which did very poorly last year. As homogeneous risk classes, both are still expensive. The mid-cap Russell 2500 index is trading at about 21 times expected earnings, and the small-cap Russell 2000 is at roughly 22 times. It is hard to find great values in individual stocks, and hard to be bullish on the U.S. stock market as a whole. It is a market that favors individual stock selection.

Meryl, do you agree with that?

Witmer: Scott is starting from the beginning of the year. I would start from Friday’s close. Based on that, I could see the market easily going up 5%, 6%, 7% for the year. Companies will have some cash accretion and pay down debt. As I’ve said, there is no great driving force in the economy. But valuations at the beginning of the year were brought down by a bad selloff in stocks. There are opportunities out there.


Felix, you’re not a U.S. citizen, so you can’t vote. But you are permitted an opinion.

Zulauf: Hillary Clinton will probably make it despite her lack of integrity. Donald Trump would be good on a few points, but extremely dangerous for the world economy. He would close our doors to the world. Trump is a reflection of how upset the people are with the political establishment. You see the same development in Europe, which is bad news, because eventually it will put more populists in power. And that creates a much less stable world.

Witmer: I expect a Republican to win.

Gundlach: Hillary is going to lose badly. She is the opposite of what Felix discussed: the antiestablishment mood. The populist momentum is unstoppable. If Trump wins the nomination, he will own her in the debates.


Rogers: Subscriber growth has been holding. Comcast has introduced a fancy X1 interactive product, and will continue to roll out X1 products in the next couple of years. After 2017, cash flow will improve as the company will be making less of an investment in the X1.

Comcast management made good decisions last year. The Time Warner Cable decision was made for them by regulators, but buying back stock was probably at least as good as an investment as TWC would have been.

Witmer: Doesn’t Comcast make most of its money from providing broadband Internet service?

Gabelli: Yes. The video part of cable has become a marginal contributor.


Rogers: And I am convinced the dividend yield is safe. This is like a bond with a call option.

Witmer: Why would they pay out so much in dividends?

Rogers: They generate a lot of cash flow and don’t have many things to invest in.

FUll piece here