Large-Cap Growth Gems in the Rubbish Heap

Ryan Leggio: One area you are finding values, which you said you may own for some time, are these high-quality growth names. Can you talk a little about thematically why you like this group and a couple of names in particular that you especially like?

Jerry Jordan: I mean, we're believers in the pendulum. The pendulum swings back and forth. We think right now the pendulum has just started to really swing down in financials and it's going to take a while. But on the other side, large-cap growth, which was everyone's darling a decade ago, was absolutely in the rubbish heap for the last 10 years. Worst-performing group in the market, one of the--if not the--worst performing asset class of all asset classes for the last decade. That's generally a great place to be fishing in if you're a value investor.

What I like about it is I actually get to buy companies that are growing earnings as opposed to companies that are losing money, and I'm buying them at an asset value basis. I get to buy companies that are actually growing earnings.

So companies like Coca-Cola, an incredible franchise who's growing quickly in emerging markets, who, I think has right-sized the business in the OECD countries, throwing off tons of cash. I think this is a company that's trading at the bottom end of their 20-year valuation range.

I believe they will grow faster than the S&P the next three years and ought to trade at a premium multiple as opposed to a 30% discount to the S&P. So I think Coca-Cola's the kind of company that could see the multiple expand by 40% to 50%, earnings grow at 12% to 15%.

I think they'll do aggressive share buybacks when they realize there's only so much they can do with their cash. They'll make acquisitions in India and Asia, but I think they're going to generate too much cash...to be able to put it to work.

A company like Abbott Labs--their earnings are predictable, they're visible, they happen quarter after quarter after quarter with very little variation. Again, same type of company, down at the bottom end of its valuation range, left on the rubbish heap. I think with this health-care plan looking out in the future it's going to help them from a unit-volume perspective.

They don't have any products that are getting huge reimbursement, so they're not at risk at the government trying to clamp down on pricing. They've got tons and tons of products. They've got a few pharma products, but they're not wildly expensive, so I don't think they're going to be on anyone's real watch list. Companies like that, I think, are huge opportunities.

News Corp, a media name we own, middle of the range in the valuation, with I think, huge upside in terms of an ability to finally start raising prices, stop giving away content for free, charging cable companies for their content, charging viewers for their content.

I think that gives you huge upside, and nobody wants to own large cap. All they want to own is small cap value, and I think large cap growth's got a huge opportunity in front of it.

Leggio: Well, Jerry, thanks so much for joining us today.

Jordan: Thanks, Ryan.

Leggio: And thank you for joining us. This is Ryan Leggio for Morningstar.