Thursday, January 13, 2005
Countrywide, Commerce Bancorp, Merck
True believer
Putnam manager likes Countrywide, Commerce Bancorp, Merck
By Greg Morcroft, CBS.MarketWatch.com
Last Update: 12:01 AM ET Jan. 13, 2005
NEW YORK (CBS.MW) - Rich Cervone doesn't mean to be contrary; it's just the nature of his investment style.
Cervone, co-manager of the Putnam Investors fund (PINVX: news, chart, profile), leans toward shares of large-capitalization companies with strong balance sheets and healthy free cash flow that other investors nonetheless disregard.
"We try to think as if we were private equity investors acquiring entire companies," Cervone said. "At the end of the day, that's what drives value -- not trying to predict how certain stocks will behave."
The $4.4 billion fund's Class A shares rose 8.7 percent in the 12 months through Jan. 11, vs. 4.8 percent for the large-cap core category, according to fund tracker Lipper. The portfolio's three-year annualized 2.6 percent average gain tops its peers' 0.60 percent return.
Mortgage finance firm Countrywide Financial Corp. (CFC: news, chart, profile) is high on Cervone's list. The stock is attractive, he said, due to investor concern that mortgage originations and refinancing are slowing as the Federal Reserve drives U.S. interest rates higher.
Countrywide can withstand the pressure, Cervone said. "Regardless of what mortgage originations do, they're gaining market share, and in a profitable manner," he said. "Investors underestimate the power of what Countrywide has built as a business."
On Wednesday, shares of Countrywide Financial rose 57 cents to $37.21.
Cervone also likes Commerce Bancorp (CBH: news, chart, profile), a fast-growing New Jersey-based banking company.
"Commerce is sort of like a category killer -- gaining market share despite changes in the banking environment," Cervone said.
He said the bank is attracting deposits at rates well-above the industry average and is having success with value-added services such as keeping branches open on evenings and weekends.
"It's a company with a tremendous long term outlook," Cervone said. "It's not unlike Home Depot or Starbucks 10 years ago. They will continue to expand and grow, and the stock price should continue to grow right along with that success."
Shares of Commerce Bancorp rose 67 cents on Wednesday to $61.92.
In true contrarian spirit, Cervone also recommends troubled Merck & Co. (MRK: news, chart, profile).
"The thing about Merck now is everybody has the same view, and it's very negative," Cervone said. "There's a good chance that the market is overestimating the potential liability over the withdrawal of (painkiller)Vioxx from the market."
Investors are also down on the pharmaceutical giant because of its scant new product pipeline, Cervone added. But that overlooks Merck's top-flight research and development arms, he said. "These things don't come evenly," Cervone observed. "You've had a dry spell, but that doesn't mean your long term potential for new drugs has diminished."
In addition, Cervone said, Merck's solid cash position, apparently secure 5 percent dividend yield and cost-cutting opportunities are all positive factors for the stock.
"But the market isn't applying any weight to that," Cervone said. "We see virtually no downside with how negative investors have become on Merck."
Shares of Merck lost 9 cents on Wednesday to $31.08.
Putnam manager likes Countrywide, Commerce Bancorp, Merck
By Greg Morcroft, CBS.MarketWatch.com
Last Update: 12:01 AM ET Jan. 13, 2005
NEW YORK (CBS.MW) - Rich Cervone doesn't mean to be contrary; it's just the nature of his investment style.
Cervone, co-manager of the Putnam Investors fund (PINVX: news, chart, profile), leans toward shares of large-capitalization companies with strong balance sheets and healthy free cash flow that other investors nonetheless disregard.
"We try to think as if we were private equity investors acquiring entire companies," Cervone said. "At the end of the day, that's what drives value -- not trying to predict how certain stocks will behave."
The $4.4 billion fund's Class A shares rose 8.7 percent in the 12 months through Jan. 11, vs. 4.8 percent for the large-cap core category, according to fund tracker Lipper. The portfolio's three-year annualized 2.6 percent average gain tops its peers' 0.60 percent return.
Mortgage finance firm Countrywide Financial Corp. (CFC: news, chart, profile) is high on Cervone's list. The stock is attractive, he said, due to investor concern that mortgage originations and refinancing are slowing as the Federal Reserve drives U.S. interest rates higher.
Countrywide can withstand the pressure, Cervone said. "Regardless of what mortgage originations do, they're gaining market share, and in a profitable manner," he said. "Investors underestimate the power of what Countrywide has built as a business."
On Wednesday, shares of Countrywide Financial rose 57 cents to $37.21.
Cervone also likes Commerce Bancorp (CBH: news, chart, profile), a fast-growing New Jersey-based banking company.
"Commerce is sort of like a category killer -- gaining market share despite changes in the banking environment," Cervone said.
He said the bank is attracting deposits at rates well-above the industry average and is having success with value-added services such as keeping branches open on evenings and weekends.
"It's a company with a tremendous long term outlook," Cervone said. "It's not unlike Home Depot or Starbucks 10 years ago. They will continue to expand and grow, and the stock price should continue to grow right along with that success."
Shares of Commerce Bancorp rose 67 cents on Wednesday to $61.92.
In true contrarian spirit, Cervone also recommends troubled Merck & Co. (MRK: news, chart, profile).
"The thing about Merck now is everybody has the same view, and it's very negative," Cervone said. "There's a good chance that the market is overestimating the potential liability over the withdrawal of (painkiller)Vioxx from the market."
Investors are also down on the pharmaceutical giant because of its scant new product pipeline, Cervone added. But that overlooks Merck's top-flight research and development arms, he said. "These things don't come evenly," Cervone observed. "You've had a dry spell, but that doesn't mean your long term potential for new drugs has diminished."
In addition, Cervone said, Merck's solid cash position, apparently secure 5 percent dividend yield and cost-cutting opportunities are all positive factors for the stock.
"But the market isn't applying any weight to that," Cervone said. "We see virtually no downside with how negative investors have become on Merck."
Shares of Merck lost 9 cents on Wednesday to $31.08.
# posted by Logan Ramasamy @ 1:45 PM 
