Registered Rep.: What is your outlook for the stock market?
Craig Callahan: We are bullish for the next year based on our valuation methodology. In early July, we measured stock prices, on average, to be about 30 percent below our estimate of intrinsic value.
RR: Do you favor any industries or sectors?
CC: At ICON, we believe markets experience themes, meaning certain industries lead for typically one to two years. Cyclical industries were part of the leadership off the market low of March 9, 2009. Although that theme was interrupted briefly earlier this summer, we expect that leadership to resume over the next year. We're just as bullish internationally as we are domestically over the next year.
RR: What about emerging markets?
CC: We do not view emerging markets as a separate asset class. We look first for industry themes and then look to put our money in companies based in countries with favorable valuations.
RR: Many observers are skeptical of the economic recovery.
CC: I am a value investor, not an economist, but, broadly speaking, each economic recovery and expansion is unique, and one recovery is rarely similar to the next. In the 1990s for example, the expansion was heavily driven by technology, a sector which would later experience its own unique bust. By the early 2000s many investors kept asking, “When is technology coming back?” Incorrectly thinking the recovery and expansion of the 2000s had to look like the technology-driven recovery and expansion of the 1990s, many investors missed the opportunities before them. Now, many observers think housing, which fueled the last expansion, needs to rebound before we can experience any kind of economic recovery. I disagree. I don't have a strong feeling yet as to whether any single sector or industry will be responsible for the next recovery, but, as I suggested earlier, it probably will not be housing precisely because each recovery and expansion is different from the previous one.