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By Christine Benz | 03-04-2011 09:56 AM

Rogers: I'm Very, Very Optimistic About Equities

Ariel's John Rogers explains why he is bullish on U.S. equities and why media stocks remain his top pick.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com.

I'm here at the Morningstar Ibbotson Conference, and today I had great pleasure of sitting down with John Rogers; he is the chairman and CEO of Ariel Investments. We talked about his equity market outlook and his outlook for his own basket of stocks.

So, John, stocks have enjoyed a really nice runup, and your portfolios in particular have performed very well. I think the question is given where valuations are currently, what's next for stocks, and how optimistic are you about stocks given current valuations?

John Rogers: I am very, very optimistic today. I think what the market is missing is that this economic recovery is going to be substantially stronger than people have anticipated. Everywhere I go now, people are talking about hiring again, companies are paying dividends again, they are buying back stock, they are generating lots and lots of cash, and I just think that the market hasn't really caught on to how strong this recovery is going to be.

Benz: So you're a value guy, and you still feel that there is upside left in your portfolios given the strong runup?

Rogers: I do think there's substantial opportunities left in the marketplace, and a lot of our favorite companies we still think they have room to run.

Several of the CEOs and CFOs that I've been meeting with recently have said this is just getting started. One CFO told me the other day this is just the third inning of a nine-inning game, and that's how I am feeling. It's just something about this optimism, it's just becoming greater and greater and it's building and building.

Benz: So when you think about your portfolio and think about areas or particular companies that you are excited about right now. Can you give us some examples?

Rogers: Well, our favorite areas have been the ones that have been doing the best the last couple of years, coming off the March '09 lows. So our media names, we still love CBS. We think they're well positioned, they've paid down debt, they are more diversified in their revenue structure than ever. We love them. We think Viacom in the cable space is very cheap. MTV is coming back with great programming, and Nickelodeon continues to be powerful.

And then we even see value in some of the print media, magazine companies like Meredith and newspaper companies like Gannett. They are still struggling through this period, but we think the recovery is going to be significant. Both of those companies have strong television properties that we think will give them some extra counterweight and margin of safety as we come through this recovery. So media is our biggest bet and the one we believe in.

Second strong area that continues to be very strong is our real estate related companies. CB Richard Ellis and Jones Lang Lasalle and commercial real estate have exploded off the bottom. Things are starting to click on all cylinders both in their leasing business as well as in their outsourcing business--those things have been very strong recently. And we think you're going to see more and more capital transactions, and their money management subsidiaries will start to move higher and get the kind of active fee structure and bonuses that we think will help the profitability going forward.

Now some of the newer areas that we're adding to, health care, we're investing there, more heavily than ever.

Benz: Where within health care?

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