After years of lamenting the lack of opportunities, a change of tune.
At the recent Berkshire Hathaway BRK.B shareholders' meeting, Warren Buffett said he was likely to be investing much more frequently in foreign companies during the next year or so. According to MarketWatch, in fact, he said it was tough to find any bargains among big companies in the United States these days.
We've been hearing the same refrain from a number of top value-oriented global-fund managers over the past few years. As a result, the size of the U.S. weightings in their funds had fallen sharply in this decade. Typically, that decline did not owe to macro reasoning (unlike Buffett, for whom concerns about the U.S. dollar and other structural factors play a significant role). Rather, the managers' company-by-company analytical process had uncovered very few firms in the United States that met their fundamental standards while also selling at the mouth-watering levels they demand.
In recent months, though, the managers of some of the most prominent global funds have changed their tune. Unlike Buffett, they now see plenty of topnotch companies in the United States trading at fetching prices. Interestingly, Bill Miller, renowned manager of Legg Mason Value LMVTX, recently wrote that he, too, considers the United States a great place to invest now. But for him, such a stance isn't unusual--and he runs a U.S-focused fund. The views of the global managers are arguably even more intriguing because they can give the U.S. very short shrift if they don't like what they see.
First Eagle Flies Home
Charles de Vaulx of First Eagle Global SGENX is one example. With that wide-ranging fund, de Vaulx--who worked on it with Jean-Marie Eveillard until the latter's retirement at the end of 2004--can look anywhere in the world, can buy bonds and gold-related assets in addition to stocks, and has the freedom to pile up the cash if nothing meets his value standards. And for several years, that fund has stacked up plenty of cash. During that time, de Vaulx regularly lamented the lack of bargains anywhere, but particularly here at home. He said that while he at least could find a few solid, cheap plays in foreign climes, the U.S. was practically barren. As a result, by May 2005 the fund's U.S. equity weighting sat at just 16% of assets--its lowest level since Eveillard had taken its reins 25 years earlier.
A few weeks ago, though, de Vaulx told us that he has been finding plenty of opportunities in the U.S.--and, by contrast, few such gems elsewhere. He emphasized that he doesn't think the U.S. is overflowing with bargains or that it's time for everyone to load up on America. In fact, the fund's U.S. exposure remains underweight. But there's no doubt his attitude has shifted: The fund's U.S. equity stake now stands at 29%. The trend actually had begun in 2005, when he bought Microsoft MSFT, impressed with its free cash flow, its reasonable valuation, and its pile of cash; that giant is now in the fund's top 10. Other U.S. companies he has bought or added to in recent months include Johnson & Johnson JNJ and Tyco International TYC. He had sold the latter when it rose over $30, but he recently bought it back when it fell to the mid-$20s.PAGEBREAK
Most of all, though, the fund's cash has headed to the media sector. Among the companies de Vaulx has found to his liking last year and this year have been Liberty Media L (he considers that more of a retail play because of its large stake in home-shopping channel QVC), Comcast CMCSA, Clear Channel Communications CCU, and Dow Jones DJ.
Some of those names would sound familiar to Murdo Murchison and Jeffrey Everett, lead managers of Templeton Growth TEPLX and Templeton World TEMWX, respectively. Those managers have also struggled to find suitable U.S. picks for a number of years, but they've found opportunities more plentiful of late. When he spoke with Morningstar fund analyst Arijit Dutta in March, Murchison echoed de Vaulx's enthusiasm for media stocks in particular. Comcast is one favorite; he cited its impressive ability to generate cash as a key attraction. He and Everett also like DirecTV DTV quite a lot. In general, Templeton's value-minded analysts have been finding more worthy targets in the U.S. than they have in years.