David Herro, CIO at Harris Associates, joins “Squawk on the Street” to discuss the post-earnings playbook as markets rally.
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David Herro: Alphabet Is Doing What It Takes To Build Shareholder Value
Q4 hedge fund letters, conference, scoops etc
Transcript
Maybe not just start there in your take on the and some of the concerns in the market today around those earnings.
Well we really don't look at things quarter to quarter you know week to week year to year. We think Alphabet's a great company continues to produce cash flow and this is what makes the company valuable. It continues to modify its business and it does the things necessary to build shareholder value. And as such we think it is itself a good value. It's taken its a very strong position in its search and its expanded that it's become a dominant place to place advertising et cetera. So whether it's this quarter or next quarter we think Alphabet is doing what it takes to build shareholder value and that's what makes us happy shareholders of the company.
What about valuations overall in December. Really all of last autumn was pretty brutal I think your fund got swept up in that. Talk about December performance and what sort of opportunities that gave you for that for the beginning of the year.
Yeah you look at our global and international funds we have been hit quite hard as a result of our exposure to certain areas that really face downward pricing pressure specifically European financials and even some industrials in Europe and in fact today I believe that this is where we find some of the best value in the world today. Many of these stocks are down 30 to 40 percent year over year. And they have. And. If anything it increased earnings. In some of the financials like Credit Suisse or even the BNP Paribas in France or a Lloyds Bank. Or industrials like a Daimler or c. These are companies that have lost over 30 percent of their value and U.S. dollar terms which have maintained and if not will grow earnings in the next couple of years. So we think these are very attractive. And despite the fact that we've kind of been beat up by them last year we think they offer excellent value and will propel. Future returns over the next couple of years.
David in the Global Fund where you have the opportunity to go anywhere in the world where are you finding more ideas right now it seems as if we're at least at last report the U.S. exposure which is about 45 percent which seems a little bit odd maybe even a slight underweight versus the benchmark. So where do you find there to be better values.
We are a little underweight in the U.S. and it's not for lack of value in the U.S. we are able to find value. There are just other sectors of the world have really been clobbered actually worse than the US. Last year. And again if you go to Europe it's been marred by all the political situation the Braggs that fighting with the Italians so on and so forth. Slow growth it is extremely weak share price. And again even though share prices have been weak we still see except the rates of growth because European companies of course sell and generate cash flow all over the world not just in Europe. So we think Europe is really one of the places in the world where there is. A. Huge value there is very extreme value in Europe. Europe should trade to European companies should trade at a discount to a U.S. company because the return structure of European companies tends to be a little bit less than the wise but the discount today is probably bigger than it should be. And then if you look at Japan another place where investors go you know itchin even trade at a bigger discount and it probably doesn't trade out enough of this. So by process of elimination. We're actually finding some of the best better values today around the globe in continental Europe.
