The biggest U.S. companies are poised to gains as investors pull money out of bond funds and seek safety, quality and yield, said Robert G. Hagstrom, manager of growth equities at Legg Mason Capital Management.
“There’s a pond full of high-quality, big-cap, multinational stocks that I think will easily double over the next five years, that are going to give you tremendous returns relative to bonds, relative to cash, and I think that’s the next strategy,” he said in a radio interview on “Bloomberg Surveillance” with Tom Keene.
Companies such as Cisco Systems Inc., the world’s largest maker of computer-networking equipment; Abbott Laboratories, the maker of drugs, medical devices and nutritional products; and Medtronic Inc., the world’s biggest maker of heart devices, trade at prices that suggest earnings won’t grow for years, Hagstrom said.
In a 25-year career “this is the easiest analytical time I’ve ever had looking at stocks that are mispriced,” Hagstrom said. “Psychologically, it’s challenging because so many people are turned off from the stock market.”
As the Standard & Poor’s 500 Index fell 38 percent in 2008, its worst performance in 70 years, investors shifted money from stock mutual funds to bond and money-market funds. This year through October, $29.7 billion was withdrawn from stock funds while $267 billion was added to bond funds, according to the Investment Company Institute in Washington.
Falling prices for U.S. Treasury and municipal debt since early November curbed demand for bond funds, and large U.S. companies are the most compelling alternative, Hagstrom said.
“That’s going to lead you into the S&P 500, if not more specifically the S&P 100, big multinationals” with dividend yields of 2 percent to 4 percent, he said.
Legg Mason Capital Management, with $15.5 billion under management as of Sept. 30, is a unit of Baltimore-based Legg Mason Inc.
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