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CNN Live Today

Interview with John Waggoner

Aired July 24, 2002 - 13:25   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

KYRA PHILLIPS, CNN ANCHOR: Investors appear to be taking advantage of those bargain-basement prices on Wall Street. But, in light of the continued decline, is now a smart time to buy or should investors just hold off a little longer?
Joining us from Virginia with some insight is "USA Today" personal finance reporter John Waggoner -- Hi, John.

JOHN WAGGONER, PERSONAL FINANCE REPORTER, "USA TODAY": Hey, Kyra.

PHILLIPS: Well, I guess the good news here is that everyone can afford to buy stocks of good companies, right?

WAGGONER: Well, if they have money left, sure.

PHILLIPS: That's straight and to the point. Well, you know, I guess we have some money left, don't we, if we have had a lot of money invested in the stock market, I mean, we're not completely dry.

WAGGONER: Right. We are only down anywhere from 30 to 70 percent, depending on what you invested in.

PHILLIPS: Minor numbers. You have -- let's get right down to what we talked about, OK, and that was value fund managers. Now, these were sort of -- this was sort of a laughing stock of the 90s, though, right? Nobody really took value funds seriously.

WAGGONER: Oh, sure. They were the village idiots back in the 90s because they looked at things like balance sheets and earnings and dividends and stuff that people didn't care about.

PHILLIPS: All right. So now you list Clipper Fund, Scudder- Dreman High Return Equity Fund and Oakmark Funds. Let's talk about each one of these and why you named these as good value fund managers. Clipper fund.

WAGGONER: Well, Clipper Fund is a team-managed fund headed by a guy named Jim Gipson, and when they can't find good stocks to buy, they will let their cash build up. They still actually have a fair amount of cash, I believe about 20 percent, in the fund, so they have a lot of powder left to buy, if they want to wade into the market now.

PHILLIPS: All right. Scudder-Dreman.

WAGGONER: Dreman is a contrarian. He has often taken controversial positions. He looks for really battered down stocks, like Williams Company, for example, which has been under some shadow for a while now. But he thinks it is still a good bargain, and so far he has got a good record of being right.

PHILLIPS: Oakmark Funds.

WAGGONER: Oakmark is kind of one of the best-known no load value funds. Jim Nygren is a very thoughtful guy. He is looking at the market now. It's a bit undervalued by the federal reserves model, and he thinks it is kind of silly that people are saying returns will be much lower going forward when actually the market is down, returns should be higher.

PHILLIPS: What are some of the common characteristics of all three of these, would you say?

WAGGONER: Well, a value investor looks for a couple things. First of all, they are going to look for a low-price to earnings ratio. They are going to try to buy stocks as cheaply as they can. The advantage to that is, they have already been clobbered, so they might not get clobbered too much more. And they also tend to look for good dividend yields, which is a nice cushion to have in a market like this.

PHILLIPS: So you went on Morningstar to find these? Is that the best way to go?

WAGGONER: Yes, these come from Morningstar, and Morningstar is a great place to find funds. It is one of the best sources around.

PHILLIPS: OK. Now, why did this fund manager steer clear of the roaring 90s?

WAGGONER: Well, they stayed clear because they just couldn't find stocks that they thought were a bargain. There are people who just can't stand to pay too much for one stock, and if they don't like the stocks, or they think something is trading at 300 times earnings is a bad idea, which they all do, they will just let the money sit in cash. In a way, they are kind of de facto market timers.

PHILLIPS: OK. Let's get down to business. You interviewed eight analysts, and these are the bargain stocks. First of all, Freddie Mac -- why?

WAGGONER: Well, Freddie Mac is a lovely company. It is well run, it is in the mortgage business. It has been smacked down partly, I think, because people like to sell some of their better positions in markets like this because their really awful positions have just been crunched. It's down to about eight times earning. It has got a nice dividend yield around 2 percent. It is a solid company at a cheap price.

PHILLIPS: El Paso Corporation.

WAGGONER: Well, El Paso got hit with the Enron stick. They are an energy company, they do a lot of natural gas transportation. They just bought Coastal, which is a big company, energy company. They are at about 5 percent dividend yield right now, about 8 percent price to earnings, and it is a very good buy if you think energy might do well in the future.

PHILLIPS: And you mention Sears. Heck, I remember growing up on Sears.

WAGGONER: Oh, yes. Sears is a great company.

PHILLIPS: (UNINTELLIGIBLE) and jeans.

WAGGONER: That's right. And you know, it is funny. They are doing a big booming business on the Internet now. They started out as a catalog company. Maybe they will go as an Internet catalog company. But they've been also beaten down because people thought the consumers weren't going to to buy anything. But you know, I think in all this misery we have had, Americans go out for mall therapy. They like to go out and drown their sorrows by buying stuff.

PHILLIPS: Isn't that true. Bristol-Myers Squibb, final bargain of the day here, according to you, John. Let's talk a little bit about it.

WAGGONER: Well, now this is a little controversial, because stocks that get pummeled sometimes get pummeled for a good reason. This Bristol-Myers came out with earnings that were not terribly good. They have been shaking up their management for a while, and they generally suffered more than the rest of the big pharmas. If you take the view that, Hey, it is a nice big company, they are taking steps to improve things. It has got a 5 percent yield while you're waiting, it is not such a bad idea. Now, if you're a little leery of it, you might want another one of the big pharmas like Schering-Plough.

PHILLIPS: John Waggoner, "USA Today." All right. We are going to do a follow up. We are going to see how many people buy these stocks...

WAGGONER: All right.

PHILLIPS: ... and then come back at you again and see if we made any money.

WAGGONER: Great. Thanks.

PHILLIPS: John, thank you.

WAGGONER: Thank you.

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