Jason Stipp: Moving on to individual sectors and areas where you are seeing opportunity, one thing I noted not necessarily uncommon for a growth portfolio to be less weighted in financials, but there are a couple of opportunities you'd seen in financials. What is your take on that sector right now?
Eric Fischman: I think within financials, there is always interesting places to be. So whether or not you are bullish on the credit cycle and where we are in credit, there are other areas within financials that are interesting places to look at where there is secular growth and secular earnings growth and great business models. For instance, in some of the credit card processors, Visa and MasterCard. Those are great business models. They don't take credit risk. They have pricing power and there is strong earnings growth, so people are focused on the consumer spending environment and worry about credit cards and credit losses.
But if you look at Visa and MasterCard for instances, they don't take credit risk. They have pricing power. They have been able to take pricing power throughout this downturn and they are going to be able to show earnings growth, significantly above the market for the next three to five years. And that's really what we look for with ideas. Read Full Transcript
In a similar vein within the investment banks and brokers, Goldman Sachs is going to be a huge share-taker over the next several years as other companies lose share, some of the big banks that have been in this and no more Bear Stearns, and no more Lehman Brothers.
So they are all going to be share winners and share losers, and there is going to be a lot of share to pick up by the survivors within that.
And so we are looking for the survivors and who are the share takers and who has pricing power and who doesn't have pricing power, where is the credit risk, where isn't the credit risk, to find great ideas within the financial sector.
Stipp: So the ones that can actually make it through will be the ones that will be able to benefit?
Fischman: Yeah, there is going to be winners and losers and the survivors and the people who are going to pick up share are going to be some of the big winners in that scenario.
Stipp: And lastly moving to the energy sector, we have noted you seeing some opportunity there as well, what's your take on the earnings growth potential in energy and are there some areas within energy that are looking more attractive to you?
Fischman: Long term, I am pretty bullish on the energy sector. We know that the world is short of energy. Right now, there is enough oil and that's why we have seen a big drop in oil and natural gas prices. Natural gas, specifically is much more of a local market to the U.S. and as demand has fallen off, you have seen a drop in prices. But longer term, I think we can all agree that we are probably short of energy, both oil and natural gas, and over the long term, the price of gas and oil probably is going to trend higher. So companies that can benefit from that are going to be winners.
So whether it is an E&P company that is looking for and finding new gas and oil and that has huge proven and unproven reserves, that is going to be able to grow earnings significantly over the next three to five years.
Those companies are going to be good opportunities to invest in and as well there is going to be the services companies and the drillers. So who are the Exxons and Chevrons going to be paying to drill for that new oil, who are the E&P companies going to need to hire to prospect for that new oil.
So the service and the drilling companies are going to be long-term winners too. They are going to be able to take price. They are going to be able to grow earnings. Right now, they are suffering a little as you have seen companies delaying some of that drilling and some of that exploration and production as the prices are down. But as the prices come back, they are going to need to hire new drillers and that is where you are going to see the pricing power.
So you want to sort of follow that cost curve up on the same way that the cost curve came down over the past year, so we opportunity in those sectors as well.
Stipp: Great. Well, thanks so much for joining us today, really good insights.
Fischman: Thank you.
Stipp: This is Jason Stipp from Morningstar. Thanks for watching.