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Bill Nygren and Ron Baron Agree - Stocks Are Undervalued

March 16, 2013

Fidelity brought together five top mutual fund managers to help assess whether we have reached a turning point where the bull market for bonds ends and a long term bull market for stocks begins.

Topping the list of experts were Ron Baron and Billy Nygren. A couple of their comments are as follows (link to the entire article at the bottom):

Bill Nygrenimages?q=tbn:ANd9GcRxd4gX_QxDZflK-6heiAY[/b]At Oakmark, we think many stocks look attractive, even if the “new normal” crowd is right that we’ll have negligible economic growth. Companies are holding lots of cash, but they’re not necessarily investing it internally. Instead, we believe management teams will be giving that capital back to shareholders.

We believe one result of this allocation decision should be better-than-average dividend growth. Another might be share repurchases, which help earnings per share (EPS) grow substantially faster than net income. And we may also see more acquisitions. I think there are a number of reasons we could achieve historically normal EPS growth in a world where there isn’t much GDP growth.

[b]Ron Baron
images?q=tbn:ANd9GcR1Pj2zQWl2xagdEQdnRSo[/b]At Baron Funds, we are positive on the stock market and continue to believe that valuations are attractive. U.S. interest rates remain near historically low levels, and the fixed income markets offer limited inflation-adjusted returns. Investors continue to hold substantial sums in cash, which we believe will eventually be deployed into equities. Regulators are increasing their efforts to make our financial markets function more efficiently and fairly. Our team believes this will help restore the faith of individual and institutional investors in our capital markets.

Although America’s growth during the next few years will probably be slower than in prior decades, we believe that the competitive advantage of our country’s low-cost and plentiful shale energy, at about one-third the cost of shale [b]energy
in the rest of the world, will boost our nation’s growth, as will the cost of electricity in America, which is now about half that of the rest of the world.

At Baron, we think a recovering housing market, which has only recently begun to improve, will also propel our nation’s economic growth. About 40% of our nation’s jobs lost in the great recession were in construction. We think the nascent housing recovery, and a greater need for health care services, will last for many years and will make an important contribution to lowering unemployment. We also like firms involved in electricity transmission, health care, asset management, hotels, and many other areas.

Link to the full article:_[www.fidelity.com]

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