David Dreman recently had an interview with Fox Business. This article will highlight his thoughts from the interview and conclude by reviewing Dave Dreman’s top holdings. The video can be found here. In the interview, he hinted that he liked Wells Fargo & Company (WFC, Financial) and PNC Financial Services (PNC, Financial) even though thee are not part of his top holdings.
Dreman began by saying that after a recession, PE ratios are unreliable. While PEs of 17 look high normally, when earnings drop due to recession, higher PEs exist and are justifiable. Prices are simply being forward looking to when earnings will eventually normalize. A PE of 25 might be fine during recession because earnings are very low. There is a disconnect between current earnings and stock prices.
Dreman thinks that there could be another shock to the economy. Maybe a double dip recession, but if there is another dip, it won’t be as bad as we have already experienced. However, the stimulus would prevent any big second dip.
A lot of the major companies will have good earnings over time, especially if there is inflation 2 or 3 years out. Dreman referred to this as an “inflation boost”. Inflation will help the earnings of good companies. He is among a long list of gurus such as Warren Buffet that see higher than normal inflation around the corner. Dreman’s real fear is that there has been so much spending. The treasury has said that $21 trillion has been poured into the economy. We are going to have major inflation when employment gets better because of this.
Dreman does not expect the consumer to come back for several years. The consumer is still overleveraged and this needs to correct first before the consumer starts spending again. The monetary and fiscal stimulus should keep the economy on track till the consumer can take over.
Dreman states that the economy will come back. But it will take time. His opinion is that there will be a U-shaped recovery but it could take years. The real decline happened with the destruction of the financial system. That is over now though. There will still be bank failures, but catastrophe was averted. The previous administration stepped in to stop the panic (and destruction).
Until the 1990s, banks were better regulated. Banks could not become investment banks. Banks could not become overleveraged and this was a good thing. There shouldn’t be enormous amounts of regulation going forward, but if we had the rules that were in place for decades, we wouldn’t have these problems.
Dreman’s opinion is that the repeal of the Glass-Steagall Act was a mistake. He thinks that there should be more separation. Commercial banks should be separated from investment banks. In particular, Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses. This is why we have this major banking crisis. Reliquifying the banks was/is the right thing. Going back to the rules from 1995 would be a good idea.
Dreman is using a buy and hold strategy and bought some of the better financial stocks during the panic. The bottom line is that he is buying stocks that will be survivors. He specifically states in the interview that Wells Fargo & Company (WFC) and PNC Financial Services (PNC) didn’t need government help but they had to accept it at the time. In any case, they were survivors. Oil and Gas stocks are another good idea. They are survivors. Oil prices got to low and there will be growth in demand world wide. These were the things he was looking at during the market dip.
David Dreman is the founder and Chairman of Dreman Value Management, LLC and also serves as the firm’s Chief Investment Officer. His Large Cap Value Fund has returned average 17% annually, and Small Cap Value Fund average 16.5% annually since inception in 1991. A regular columnist for Forbes for 25 years, Mr. Dreman’s recent best-selling book, "Contrarian Investment Strategies: The Next Generation?" was published in the spring of 1998.
David Dremans top holdings are as follows:
No. 1: ConocoPhillips (COP, Financial), Weightings: 1.42%
ConocoPhillips is a major international integrated energy company with operations in some 49 countries. Conocophillips has a market cap of $69.4 billion; its shares were traded at around $50.78 with a P/E ratio of 7.67 and P/S ratio of 0.29. The dividend yield of Conocophillips stocks is 4.02%. Conocophillips had an annual average earning growth of 19% over the past 10 years.
No. 2: Altria Group Inc (MO, Financial), Weightings: 1.36%
Altria Group is the parent company of Philip Morris USA U.S. Smokeless Tobacco Company John Middleton Ste. Michelle Wine Estates and Philip Morris Capital Corporation. Their tobacco company brand portfolios consist of successful and well-known brand names such as Marlboro Copenhagen Skoal and Black & Mild. Altria Group Inc. has a market cap of $36.19 billion; its shares were traded at around $18.06 with a P/E ratio of 10.16 and P/S ratio of 1.87. The dividend yield of Altria Group Inc. stocks is 7.78%. Altria Group Inc. had an annual average earning growth of 3.4% over the past 10 years.
No. 3: Devon Energy Corporation (DVN, Financial), Weightings: 1.36%
Devon Energy Corporation is an independent energy company engaged primarily in oil and gas exploration development and production and in the acquisition of producing properties. Devon currently owns oil and gas properties concentrated in four operating divisions: the Northern Division; the Southern Division; Canada; and the International Division. Devon Energy Corp. has a market cap of $28.63 billion; its shares were traded at around $68.4 with a P/E ratio of 12.67 and P/S ratio of 1.88. The dividend yield of Devon Energy Corp. stocks is 0.99%. Devon Energy Corp. had an annual average earning growth of 18.1% over the past 10 years.
No. 4: Anadarko Petroleum Corporation (APC, Financial), Weightings: 1.31%
Anadarko Petroleum Corporation is one of the world's largest independentoil and gas exploration and production companies. Majority of the company'stotal proved reserves are located in the U.S. primarily in the mid-continent (Kansas Oklahoma and Texas) area offshore in the Gulf of Mexico and in Alaska. Most of the company's production is domestic and the remainder is from Algeria. The company also owns and operates gas gathering systems in its U.S. core producing areas. Anadarko Petroleum Corp. has a market cap of $29.3 billion; its shares were traded at around $67.39 with a P/E ratio of 69.45 and P/S ratio of 1.86. The dividend yield of Anadarko Petroleum Corp. stocks is 0.6%. Anadarko Petroleum Corp. had an annual average earning growth of 28% over the past 10 years.
No. 5: Wyeth (WYE, Financial), Weightings: 1.26%
Wyeth is one of the world's largest research-driven pharmaceutical and health care products companies. It is a leader in the discovery development manufacturing and marketing of pharmaceuticals vaccines biotechnology products and non-prescription medicines that improve the quality of life for people worldwide. The Company's major divisions include Wyeth Pharmaceuticals Wyeth Consumer Healthcare and Fort Dodge Animal Health. Wyeth has a market cap of $64.32 billion; its shares were traded at around $49.04 with a P/E ratio of 13.57 and P/S ratio of 2.82. The dividend yield of Wyeth stocks is 2.49%. Wyeth had an annual average earning growth of 5.8% over the past 10 years.
No. 6: UnitedHealth Group Inc (UNH, Financial), Weightings: 1.25%
UnitedHealth Group Inc. offers health care coverage and related services to help people achieve improved health and well-being through all stages of life. The company's products and services reflect a number of core capabilities including medical information management health benefit administration care coordination risk assessment and pricing health benefit design and provider contracting. With these capabilities it is able to provide comprehensive health care management services through organized health systems and insurance products. Unitedhealth Group Inc. has a market cap of $28.22 billion; its shares were traded at around $24.67 with a P/E ratio of 7.96 and P/S ratio of 0.35. The dividend yield of Unitedhealth Group Inc. stocks is 0.12%. Unitedhealth Group Inc. had an annual average earning growth of 30.4% over the past 10 years.
Disclaimer: The author of this article owns WFC.
Dreman began by saying that after a recession, PE ratios are unreliable. While PEs of 17 look high normally, when earnings drop due to recession, higher PEs exist and are justifiable. Prices are simply being forward looking to when earnings will eventually normalize. A PE of 25 might be fine during recession because earnings are very low. There is a disconnect between current earnings and stock prices.
Dreman thinks that there could be another shock to the economy. Maybe a double dip recession, but if there is another dip, it won’t be as bad as we have already experienced. However, the stimulus would prevent any big second dip.
A lot of the major companies will have good earnings over time, especially if there is inflation 2 or 3 years out. Dreman referred to this as an “inflation boost”. Inflation will help the earnings of good companies. He is among a long list of gurus such as Warren Buffet that see higher than normal inflation around the corner. Dreman’s real fear is that there has been so much spending. The treasury has said that $21 trillion has been poured into the economy. We are going to have major inflation when employment gets better because of this.
Dreman does not expect the consumer to come back for several years. The consumer is still overleveraged and this needs to correct first before the consumer starts spending again. The monetary and fiscal stimulus should keep the economy on track till the consumer can take over.
Dreman states that the economy will come back. But it will take time. His opinion is that there will be a U-shaped recovery but it could take years. The real decline happened with the destruction of the financial system. That is over now though. There will still be bank failures, but catastrophe was averted. The previous administration stepped in to stop the panic (and destruction).
Until the 1990s, banks were better regulated. Banks could not become investment banks. Banks could not become overleveraged and this was a good thing. There shouldn’t be enormous amounts of regulation going forward, but if we had the rules that were in place for decades, we wouldn’t have these problems.
Dreman’s opinion is that the repeal of the Glass-Steagall Act was a mistake. He thinks that there should be more separation. Commercial banks should be separated from investment banks. In particular, Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses. This is why we have this major banking crisis. Reliquifying the banks was/is the right thing. Going back to the rules from 1995 would be a good idea.
Dreman is using a buy and hold strategy and bought some of the better financial stocks during the panic. The bottom line is that he is buying stocks that will be survivors. He specifically states in the interview that Wells Fargo & Company (WFC) and PNC Financial Services (PNC) didn’t need government help but they had to accept it at the time. In any case, they were survivors. Oil and Gas stocks are another good idea. They are survivors. Oil prices got to low and there will be growth in demand world wide. These were the things he was looking at during the market dip.
David Dreman is the founder and Chairman of Dreman Value Management, LLC and also serves as the firm’s Chief Investment Officer. His Large Cap Value Fund has returned average 17% annually, and Small Cap Value Fund average 16.5% annually since inception in 1991. A regular columnist for Forbes for 25 years, Mr. Dreman’s recent best-selling book, "Contrarian Investment Strategies: The Next Generation?" was published in the spring of 1998.
David Dremans top holdings are as follows:
No. 1: ConocoPhillips (COP, Financial), Weightings: 1.42%
ConocoPhillips is a major international integrated energy company with operations in some 49 countries. Conocophillips has a market cap of $69.4 billion; its shares were traded at around $50.78 with a P/E ratio of 7.67 and P/S ratio of 0.29. The dividend yield of Conocophillips stocks is 4.02%. Conocophillips had an annual average earning growth of 19% over the past 10 years.
No. 2: Altria Group Inc (MO, Financial), Weightings: 1.36%
Altria Group is the parent company of Philip Morris USA U.S. Smokeless Tobacco Company John Middleton Ste. Michelle Wine Estates and Philip Morris Capital Corporation. Their tobacco company brand portfolios consist of successful and well-known brand names such as Marlboro Copenhagen Skoal and Black & Mild. Altria Group Inc. has a market cap of $36.19 billion; its shares were traded at around $18.06 with a P/E ratio of 10.16 and P/S ratio of 1.87. The dividend yield of Altria Group Inc. stocks is 7.78%. Altria Group Inc. had an annual average earning growth of 3.4% over the past 10 years.
No. 3: Devon Energy Corporation (DVN, Financial), Weightings: 1.36%
Devon Energy Corporation is an independent energy company engaged primarily in oil and gas exploration development and production and in the acquisition of producing properties. Devon currently owns oil and gas properties concentrated in four operating divisions: the Northern Division; the Southern Division; Canada; and the International Division. Devon Energy Corp. has a market cap of $28.63 billion; its shares were traded at around $68.4 with a P/E ratio of 12.67 and P/S ratio of 1.88. The dividend yield of Devon Energy Corp. stocks is 0.99%. Devon Energy Corp. had an annual average earning growth of 18.1% over the past 10 years.
No. 4: Anadarko Petroleum Corporation (APC, Financial), Weightings: 1.31%
Anadarko Petroleum Corporation is one of the world's largest independentoil and gas exploration and production companies. Majority of the company'stotal proved reserves are located in the U.S. primarily in the mid-continent (Kansas Oklahoma and Texas) area offshore in the Gulf of Mexico and in Alaska. Most of the company's production is domestic and the remainder is from Algeria. The company also owns and operates gas gathering systems in its U.S. core producing areas. Anadarko Petroleum Corp. has a market cap of $29.3 billion; its shares were traded at around $67.39 with a P/E ratio of 69.45 and P/S ratio of 1.86. The dividend yield of Anadarko Petroleum Corp. stocks is 0.6%. Anadarko Petroleum Corp. had an annual average earning growth of 28% over the past 10 years.
No. 5: Wyeth (WYE, Financial), Weightings: 1.26%
Wyeth is one of the world's largest research-driven pharmaceutical and health care products companies. It is a leader in the discovery development manufacturing and marketing of pharmaceuticals vaccines biotechnology products and non-prescription medicines that improve the quality of life for people worldwide. The Company's major divisions include Wyeth Pharmaceuticals Wyeth Consumer Healthcare and Fort Dodge Animal Health. Wyeth has a market cap of $64.32 billion; its shares were traded at around $49.04 with a P/E ratio of 13.57 and P/S ratio of 2.82. The dividend yield of Wyeth stocks is 2.49%. Wyeth had an annual average earning growth of 5.8% over the past 10 years.
No. 6: UnitedHealth Group Inc (UNH, Financial), Weightings: 1.25%
UnitedHealth Group Inc. offers health care coverage and related services to help people achieve improved health and well-being through all stages of life. The company's products and services reflect a number of core capabilities including medical information management health benefit administration care coordination risk assessment and pricing health benefit design and provider contracting. With these capabilities it is able to provide comprehensive health care management services through organized health systems and insurance products. Unitedhealth Group Inc. has a market cap of $28.22 billion; its shares were traded at around $24.67 with a P/E ratio of 7.96 and P/S ratio of 0.35. The dividend yield of Unitedhealth Group Inc. stocks is 0.12%. Unitedhealth Group Inc. had an annual average earning growth of 30.4% over the past 10 years.
Disclaimer: The author of this article owns WFC.
