Thomas H. Forester, Chief Investment Officer, Forester Capital Management
Travelers (NYSE:TRV) is a top portfolio pick from this experienced professional value investor.
Thomas H. Forester, CFA, is the Chief Investment Officer of Forester Capital Management, Ltd. Previously, he managed over $1.4 billion for Scudder Investments, investing in value stocks at the firm’s Dreman Value Advisors.
Prior to that, Mr. Forester managed assets at Peregrine Capital Management and Thomas White International.
He received a B.A. in economics from the University of Colorado and an MBA from the Kellogg School of Management at Northwestern University.
This highly experienced portfolio manager picks Travelers (NYSE:TRV) as a safe bet for today’s market.
“One of the companies that we own is Travelers (NYSE:TRV).
And again, this is another long-term holding. Travelers (NYSE:TRV) is a property/casualty company, largely selling to businesses and institutions.
They’ve done a very good job of being able to choose the customers that they have — to watch the rates that they charge these customers.
They’re looking at profitability, so they’re not going to just take on anybody. They want to find that good mix of acceptable risk and good premium.
So there’s a recipe to that, and each insurance company has their own recipe.
Travelers (NYSE:TRV) has been very good at watching the profitability of the policies that they retain. And it’s more of an art than it is a science, but they’ve done a very good job of managing that.
Their investment portfolio is conservative, and their loss ratios are good.
So it’s a solid insurance company that has grown steadily along.
It hasn’t seen the ups and downs that the banking industry has had.
We like that.
It’s done well over the years, and we think it’s a stock that’s going to stay in our portfolio for quite some time.”
Chief Investment Officer Thomas H. Forester cautions investors on tech names.
“We do have some tech names, though we’re underweight tech.
Oracle (NYSE:ORCL) is one name that we still like.
And we like the software names.
We recently sold Microsoft (NASDAQ:MSFT), and that was a valuation issue — that it’s just gotten just too expensive.
We originally bought Microsoft at like $12 way back in 2009 or something like that when everyone said it was dead. So we made quite a bit on that.
Oracle is a software company.
It makes the kind of software that runs companies’ businesses.
It’s a subscription model, so you’ve got recurring revenues.
Their issue has been one of growth.
But they’ve been able to either raise prices or find new customers and continue to have some growth. And it’s all recurring, so it’s pretty steady.
And we think that even in a recession their business will not get hit nearly as much as, say, the hardware makers.
And you’re seeing companies right now, whether it’s Micron (NASDAQ:MU) or even HP (NYSE:HPE), a lot of these companies, when you hit a recession, when things start going down, they actually start losing money.
We don’t think a company like Oracle will see that sort of thing.
They’re not as operationally leveraged as a manufacturer would be, like a Hewlett Packard or a Micron that makes DRAM.
You can see these companies that are cyclical, when you do hit a recession, you end up seeing them go from making a couple bucks a share to losing a couple bucks a share.
And if something like that were to continue for a few years, you start wondering about the viability of a company like that.
As value managers, we don’t want to be in that kind of a situation.
We like the fact that Oracle has recurring revenues, recurring customers.
So a company like that is something that’s conservative and fits into our portfolio and the types of things that we look at.”
While Travelers (NYSE:TRV) is a current buy for this highly experienced Chief Investment Officer, he warns investors about today’s market.
“Be cautious right now.
Find something that has solid earnings, a solid balance sheet, something that if they need to weather a storm, they can.
That’s not going to work every day, every week, but we think over the longer run that that will work tremendously well.
We’re concerned about the economy here.
Who knows where the economy is going to go.
But if you look at the money supply, M2 — M2 growth has been negative the last, I don’t know, 11 months, something like that.
Generally, that means that you’re heading for a recession or in one.
We’re going to put out a piece next week — we do a quarterly piece — and one thing I was looking at was, whether it’s truck loads and rail loads, the growth there has gotten negative as well.
And that’s just not something you generally see in a healthy economy.
If you look at the leading indicators, those have been predicting a recession for a while now.
So we’ll see if we actually get one.
But we think this is a time to be cautious.
We’ll see where things play out.
But if you look at the Federal Reserve, for example, the Fed has been pumping money into the economy since 2009.
And every time that they try to pull back from it, they can’t do it; they can’t finish the program.
So they’ve printed $8 trillion, $9 trillion.
And every time they try to take that off, it lasts a few months. Then the market goes down a little bit and they have to jump back in.
We think that the Fed is in a difficult place right now because you have inflation.
So, in general, they’re supposed to be fighting that. People get very upset about runaway inflation, so the Fed needs to protect against that.
At the same time, it’s concerned about the stock market and the banking system.
And so, the banking system says, flood everything with money. But inflation says, “Oh, you better stop flooding everything with money.”
So they’re in a little bit of a predicament.
We think the tea leaves are concerning us about going into a recession right now. And we’ll just see over the next six months to a year.
We’ll see how things look at the end of the year.
But there are a lot of concerns out there. So we would suggest people be cautious at this time.
Obviously, our approach that has downside protection to it, we think, fits in quite well in these sorts of markets. And we also think this could be going on for quite some time, but we’ll see…
However, we also think — and look forward to — when there finally is capitulation in the market and when things get cheap and values go down like they did in 2008 that our hedging will stop, and we look forward to going long the market at that point and maybe even leveraged long.
So we look forward to those days.
We just don’t think the valuations are there right now, and that’s why our hedges are on and that’s why we think that hedging is going to play a big part over the next few years.”
Get the complete portfolio picks from Chief Investment Officer Thomas H. Forester by reading the entire interview, only in the Wall Street Transcript.
