David Herro on Why EM is Crashing and His Top Picks [VIDEO]

welcome back, everybody. home depot’s profit grew by 9% and hiked its guidance yesterday, but were there any hitten warning signs. we’ve stephen weiss in one corner, brian in the othercorner is the bear. 1:30 on the clock. this is never a company carl icahn is going to go after which may be a negative but i think it’s a positive. they deploy their cash extremely well. they have announced $17 million in buybacks last year. if you look at the operating metrics, their overall sales are up 9.5% despite a weak view. stellar performance. average ticket price was up,number of transactions were up. and they know how to guide the street and it’s been a beat and raise type story for such along, long time. okay. the final point is the average spending on — i’m trying to give brian no time — the average spending,residential spending, fixed residential expenditures, is only up 2.7% whereas the average spend is 4.1% so there’s plenty of pent up demand here. he’s left you precisely 32 seconds. i’m ready to rock and roll. first of all, we knew that. we knew that six mon ago. that’s why the stock is up. fact is now home depot, the orange bloated retailer is a big ship in the water susceptible to a lot of headline risk. if you drill down to the earnings call, hoaffordability is starting to negatively impact their sales. even their core sales underperformed some of the seasonal categories. most importantly, they guide a lot but gross margins were down for second half. and i think they were down 7.1% while lowe’s is at a record high. gross margins were up yearover year. i like the fact they took down the expectations and we knew it a year ago also. hasn’t stopped the stock from moving up. they were up. he’s totally correct, but the gross margin, they guide down in the second half. with home depot it’s valued 20times earnings. that’s not supposed to happen and it’s going to. i think the buzzer was a long time ago. let’s go to the other judges — i always get more time. so the fact is you’ve got an s&p growing at about 6% versus home depot growing mid to high teens yet it’s selling at a discount to peg rate on the s&p.the only — is this written in your contract? you always get more time than your opponent? yes, it is. okay. who won the debate? first of all, pete, tell us what you think. i’m looking at the recovery in housing and i don’t think it’s over. for this reason alone, i think i go with steve. it’s pulled back significantly from the 52-week highs where lowe is establishing new 52-weekhighs. i think that pullback is giving you the opportunity in homedepot. you can tweet us @cnbcfastmoney using #bull or #bear.every year for the last 20 years fund manager david harrow has beaten his benchmark and it’s that track record that earned time the title of international fund manager of the decade. david joins us now. good to have you back on the show. let me ask you, first of all, about the massive carnage we’ve been witnessing in the emerging market markets and the emerging currencies as well. what do you make of it and do you think it’s overdone?well, it’s not necessarily overdone. i think it’s a reflection of toomuch money has gone into the emerging markets too quicklyirrespective of valuations. it became in the last four or five years a trendy thing to do. people saw global economic growth coming from the emerging world. and incidentally the emergingworld will continue to be a propellant of global macroeconomic growth but valuations got too stretched. now when you have one little bump, people look at the valuations and say, well, let’shead to the exits. so they’re starting to look better, but we’re still having difficulty finding individual companies that meet ourvaluation criteria. i don’t think it’s time just to go whole hog into emerging markets yet based on value. don’t go full hog intoemerging markets. are there any specific emerging markets though that you are watching, david, which, if they come down a little bit more for you, might start to look compelling? well, i think one of the highest quality emerging markets is mexico, but it would have to come down pretty much. it really did have quite a run. then there’s a couple other one that is fit that. indonesia is a quality emerging market, but again it’s down, it’s weak.everyone says it’s back to september of 2012 numbers, but it’s still, you know, well selling in expensive territory. brazil is one that is starting to look more and more interesting. it’s come down significantly. people are turning very bearish. so this maybe hopefully with some more market weakness, a fewinvestment ideas may open up. i see you are most overweightin europe, particularly you like the european financials, sir. well, what we have here is europe’s finally beginning to repair its macro economy. they still have to repair their micro economy, but if you look at the various components of europe, we’re starting to see improvement. europe on a whole looks like thelast quarter has grown a tiny little bit, and with that companies such as the financials which have really been beaten up over the last couple years — can you give us any specific financial names in the european space, david? i think our favorite european financial is still credit suisse. you get a strong private bank that gives you an annuity-like cash flow stream with what has been a restructured and isked investment bank. we have to leave it there but thank you for joining us, david herro. i understand a year ago you were significantly overweight japanand today you are underweight. just wanted to get that inbecause we often talk about