Jason Stipp: This is Jason Stipp with Morningstar, reporting from the 2009 Morningstar Investment Conference. I'm here with Tom Forester today. Thanks for joining me, Tom.
Tom Forester: Thanks, Jason. Good to be here.
Stipp: Tom, you run the fund Forester Value, and last year was a very good year for you. You finished at the top of your class in large value. You had a few things you told us earlier that had caused you to be a little defensive. You'd been looking at housing prices in 2006-2007 and saw some trouble signs there. You'd also looked at consumer savings and spending and saw some trouble signs there. That caused you to position your portfolio, which resulted in some of your out-performance last year. My question for you now, as the market seems to be sort of turning a little bit or at least reaching some stability, what sort of warning signs are you seeing in your economic analysis? And is that causing you to position your portfolio in any particular way?
Forester: I think the good news is, is that the ones that were causing systemic risk have subsided now, and that's a big deal. Housing prices are down 30% across the country. Maybe they've to another 5% to go. But we're largely through that. We still have some concerns with credit cards. We've seen a lot of charge-offs on that. Chase, as I've mentioned, they're seeing somewhere around 9% default rates, something like that. That can be a big number. I'm still concerned about commercial real estate. It's kind of the next shoe to drop, as far as real estate prices go.
But the housing one, it was really the big one that we had seen and caused us to take cover. This is something we'll work out of, the rest of it, the credit cards and the commercial real estate. While there's still some trouble ahead, it's kind of normal trouble, if you will. So we're not really as defensive as we once were.
Stipp: Would you say that now you've sort of shifted gears a little bit and may be looking to be a little bit more offensive? What sort of signs or signals do you look at? I think a lot of investors are wondering: should I become more offensive now? Is it time to really get back in the market? What do you look at when you decide I'm going to be more aggressive, and how do you start getting back into the market?
Forester: Sure. We're a low PE buyer, and we look at the overall valuation of the market to give us clues as to whether it's time to be a little bit more aggressive or not. We look at price to peak earnings. Historically that's kind of ranged between seven and 20 times. Back in March it hit 8 times. So that's very low, very bottom-end of the range. That told us to get more aggressive, and we did. We're back up now to about 10-11 times, and so we're still trying to average in on getting aggressive. But in the short run, you don't really know where the market's going, so that's why we're averaging in. While we've made some strides that way, we're - on a subjective basis, maybe - we're halfway to getting more aggressive. But we still have some work to do on that and we'll do that over the next quarter or two.
Stipp: Are there any particular sectors where you're seeing this is maybe a better area that maybe we are going to be more aggressive here first? What are you seeing that looks most attractive to you right now?
Forester: We've added some names in tech that haven't run with the rest of the tech guys. We've added Microsoft MSFT - or we've added to Microsoft, I should say. We like the stock. It was beaten down quite a bit this year. But it's in almost a monopoly position, and it does have some economic - it goes down with the economy like anything else. People buy less computers. They've had trouble with Vista and it really hasn't been adopted as much. But they've got a great product on the horizon that'll ship later this year in Windows 7.0. And we think that that will start a new adoption by corporations and there'll be a new spend as people start updating their computers again. We think longer term that's just a great stock.
We also like some of the oil names. We currently own Conoco COP, which is one of the cheaper integrated oils, if you will. It's a lot cheaper than Exxon XOM or Chevron CVX. Chevron's another name that we own. We think that Conoco's got some pretty good upside to it.
Stipp: When you're looking at Conoco, you're sort of looking at the company itself, or are you also making a bet on oil prices kind of rebounding? What's your take on that?
Forester: Oil companies are always about the price of oil. Unfortunately, we can't always tell where oil's going. But one concern we've had, with the Fed starting to print a lot of money and with a lot of deficit spending at the fiscal level, that tends to depress the vale of the dollar. When the dollar goes down, commodities go up. And so this is a way that we're kind of playing, if you will, the stimulus packages.
Stipp: Yeah. Certainly something on a lot of investors' radars. Tom, thanks for you insights today. Thanks for joining us.
Forester: Thank you. Great being here.
Stipp: This is Jason Stipp for Morningstar. Thanks for watching.