

On the Money -- Roundtable Part II

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DID SOMEONE SAY "THEME PARTY"? Naw, we didn't serve fondue, or dance to the hits of the 'Fifties, or come dressed as -- perish the thought -- our favorite hot-shot investors. Instead, we invited some of Wall Street's best and brightest to bring their favorite themes -- investment only, of course -- to the 35th annual Barron's Roundtable, which convened Jan. 6 in lower Manhattan.

It was quite a party. The worldly Marc Faber brought plenty of doom and gloom, along with animated talk of a boom -- in Asia's emerging markets. Abby Joseph Cohen, the scholar-in-residence at Goldman Sachs, brought a flawless memory for economic facts and financial figures, and a keen interpretation of same. And Mario Gabelli, sharp as ever, probably brought dozens of stock picks, as usual, but was kind enough to leave a few in the coatroom. After all, we had only nine hours, on that wintry day, to grill and drill this loquacious, provocative crowd.

Last week's Barron's featured the Big Picture views of the whole Roundtable crew (you'll find the full guest list on the following page), as well as the stock-picking turns of John Neff, Barton Biggs and Scott Black. This week, the formidable foursome pictured nearby gets its turn at bat.

Barron's:Mario, what stocks have you brought us?

Gabelli: First, I want to talk about old age, dividends and inflation. There are approximately 200 million vehicles on the road in the United States. The average age of a passenger car is 9.3 years, up from 8.1 years at the beginning of the 1990s. Light trucks are getting older, too. When I was growing up in the Bronx, a car lasted for 50,000 miles. Fifteen or 20 years ago, it lasted 100,000. Today, a new car will last 170,000 miles. In addition, years ago you used to get a two- or three-year warranty. Now, it's five years. So cars between five and nine years old are the sweet spot for parts consumption. Between 1996 and 2001, cars in the sweet spot declined 2.2%, to 61 million units. In the next five years, they are going to grow 15%, to 70 million. This is good news for Genuine Parts.

Q:We wondered where you were going with this.
Gabelli: The stock sells for 31.50 or so. The company pays a dividend of $1.16 a share, and dividends have grown for the past 30 years. The current yield is around 4%. The payout ratio is about 50%. The balance sheet is terrific. Debt is about $775 million. Earnings for 2002 probably will be a bit more than $2.10 a share, rising to $2.30 in 2003 and around $2.50 in 2004. Revenues will grow 4%-5% and earnings about 7.5%-8%. Genuine Parts is a purveyor of expendable auto components. The company is a leader in its market. If inflation picks up, parts prices will rise, and its growth will rise more.

Q:Where is the stock headed?
Gabelli: If you can find 8%-10% growers with good balance sheets and predictable earnings visibility, even with some quarterly earnings hiccups, a multiple of 20 times earnings isn't far-fetched. You could be looking at a $50 stock in a couple of years. Plus, you get the dividend.

Neff: There is some evidence that Detroit is building a better car. Would that change the sweet spot any?

Gabelli: That's why the sweet spot moved from two to five years to six to 10.

Black: I owned Genuine Parts, but we sold it around 35 a share. The company's growing the top line by only 3%-4%. Formerly, it had been an 8%-9% grower.

Gabelli: We expect auto-parts sales to grow by 5% a year -- and that's with inflation of 1% -- over the next five years.

Now, to reiterate my view of the world, we're in a soft economy, but we'll get a bunch of fiscal stimulation in the form of tax cuts for the consumer and the business person, as well as something for the investor. We worry about higher oil prices acting like a pickpocket in Times Square. If the price of crude falls to under $25 a barrel, the world will reflate. Regulatory obstacles to business will be re-examined in 2003. No. 1, the Telecommunications Act of 1996 is re-examined. The opening salvo was launched today by the Federal Communications Commission, echoing a commitment made by [FCC Chairman Michael] Powell in the fall. The FCC is going to revisit the concept of unbundled networks, which would help the regional Bell companies by allowing only full, facilities-based competitors to enter the market. In the utilities area, the 1992 amendment to the PUHCA, or Public Utility Holding Company Act of 1935, which created all the opportunities for investment bankers to blow smoke up the portals of the utility companies, is going to be re-examined.

Q:How will the energy-trading scandals affect the industry?
Gabelli: Companies are going back to basics. They're going to return to a regulated monopoly business where they can earn 11%. But utility regulation is going to change. Institutions will be allowed to own more than 10% of the shares of any one utility. Then we're going to have an energy policy that will enable us to address the world of $90 oil that Marc commented on. [In the first installment of the Roundtable, Faber prophesied oil would hit $60-$90 a barrel in the next 10-15 years, as demand from Asia surges.] We're going to produce more, conserve more and find alternatives such as fuel cells and wind power.

Q:There's been a lot of that here today.
Gabelli: We're also going to re-examine tort reform. And I want to talk about deals, deals and more deals. In the past year or two, acquisitions have been limited, because companies were concerned about being labeled serial acquirers like Tyco and WorldCom. HSBC's acquisition of Household International sounds the gong for a new wave of deals. This should benefit lots of my companies. Let's turn to your TV set. Advertiser-supported media is going to do quite well in 2003. And in 2004 we'll have the Olympics, the election and economic stimulation.

I'm recommending the small-television-station owners, because the FCC is going to change several rules. They're going to raise the ownership cap, making it possible for a given operator to own perhaps 50% of total households, versus the current 35%, at a given time. They will permit duopoly in small markets, meaning an operator will be able to own two TV stations. Third, they'll probably come out with a better ruling on whether cable operators must carry digital signals. Finally, television-station operators are finding new sources of revenues.

Q:Which station owners do you like?
Gabelli: The first has done a pretty good job of damaging shareholder values. It's Young Broadcasting, YBTVA. It closed Friday at 13 a share. It has an equity market capitalization of approximately $260 million and net debt of about $600 million, for an enterprise value of $860 million. Young made an acquisition in San Francisco, taking a TV station away from NBC. Bob Wright [chairman of NBC] didn't forgive them, so he changed NBC's affiliation. Young paid about $750 million-$800 million for the station, and should sell it for $300 million-$400 million -- take a huge loss, sell it to NBC and apologize. That would drive the stock from 12 to 40. Right now Young has 11 television stations, reaching 6.1% of TV households -- six ABC affiliates, three CBS affiliates, one NBC affiliate and an independent in San Francisco, KRON. If you took the broadcasting cash flow of all of these stations except San Francisco, and applied it to all of the company's debt, you'd get the San Francisco station for free.

Q:What's your next pick?
Gabelli: Liberty, not Liberty Media, which I'll talk about in a minute. Liberty's symbol is LC. The stock trades on the New York Stock Exchange for 39, and there are 19.8 million shares outstanding. The company's got a $770 million market value, $60 million of cash, and $50 million of other assets which are being converted to cash. Thus, you're really paying $660 million. Liberty has 15 affiliated television stations. The company has not done a good job of managing shareholders' money, but they're generating significant cash flow. They will generate a couple of hundred million dollars over the next three or four years. Earnings will climb from $1.60 a share in 2002 to $2 to $3. The company is controlled by the Hipp family in South Carolina.

Mario Gabelli

Q:What do you think of Liberty Media?
Gabelli: Be patient. Now, a kind word for Tribune. The stock is 47. There are 330 million shares outstanding. Earnings of $2.20 a share are going to $3.50 a share. Dennis FitzSimons [the current CEO] is going to succeed John Madigan.

Among utilities, I like DQE, formerly known as Duquesne. DQE has 586,000 electric customers in the Pittsburgh area and a propane business that serves 70,000 customers. The company is shedding assets. It's selling most of its water-utility business to Philadelphia Suburban for $205 million. It's lowering debt, which will fall to $800 million in a couple of years from a current $1.3 billion. Management got spooked by the rating agencies, so the investment bankers convinced them to sell some stock. They sold 17 million shares last year at $13.50 a share. We bought a basketball, and we're still nibbling.

Q:What's the stock price?

Gabelli: Around 15.50. The company cut its dividend in October, to a dollar a share. As debt gets paid down, the dividend will rise. Plus, this is a consolidation play. Somebody will take them over.

Neff: What's the P/E?

Gabelli: DQE probably earned $1.30 a share in 2002. It was a hot summer in Pittsburgh, so earnings may be flat in 2003, except for interest expense. The stock trades for 12-13 times earnings. At eight times Ebitda [earnings before interest, taxes, depreciation and amortization] I could do an LBO [leveraged buyout] of this company, but that will not happen now. It might take a year and a half to get a deal done. At that multiple, the stock is worth in the low $20s.

Neff: Is this a 4%, 5%, 6% grower?

Gabelli: Yes. It's best to buy an index of utility stocks. The regulated business will grow by 5%. Payout ratios will return to more historic levels, and you could get a very good return on these stocks.

My next stock, Westar Energy, formerly Western Resources, is not without controversy. Its former CEO was indicted. The new CEO, Jim Haines, is a good chap. Westar, symbol WR, has 74 million shares outstanding. The stock trades for 10, giving the company a market value of $740. It pays a dividend of $1.20 a share. Westar has $3.6 billion of debt, but Kansas's regulatory commission has told the company to get that down to $1.8 billion. The company owns 45 million shares of Oneok, worth $1 billion. Somehow, they have to monetize it. They own Protection One, a protection company, which they will also sell or otherwise deconsolidate. I would then suggest to the chairman that he reduce the dividend to 60 cents, but pay shareholders a 60-cent stub. The company's regulated business has a book value of $16-$18 a share, on which it can earn 11%. The company can earn about $2 a share. Two years from now, you'll double your money and Westar will be merged with someone else.

Q:Mario, have you actually suggested this?
Gabelli: I haven't talked to Mr. Haines at all. He'll read it when this is published. The company doesn't have a debt problem, it has a cosmetic problem. By cutting the dividend to 60 cents, you throw a bone to the regulators, much as Con Edison did in New York in the 1970s. The regulators didn't like the former CEO, but Haines is a former regulator and has credibility.

Black: A lot of these electric utilities make about 13%-14% on book. They're leveraged roughly one-to-one on a debt-to-equity basis. They're making 6.5%-7% on total capital, but they've been destroying capital for years because their returns are below a normalized cost of capital, which is 8.5% or 9%. Maybe as stocks they go up, but as an industry this is a lousy play and it has been historically.

Gabelli: I don't know what you are talking about. I think you can make a lot of money in this area. Once the PUHCA rules, guys like Warren Buffett and I are going to put tons of money into the group. And we're going to earn 20%-25% on our investment. Look, there's weakness in utilities if inflation goes to 6%-7%, because there's a lag effect for adjusting rates. But local distribution is still a terrific business, whether it's electric or gas.

Next, I've got a small-cap stock: Verizon Communications. It has only 2.7 billion shares, and trades for 40.50. However, the stock will be up today [indeed, Verizon closed up 3.62, to 44.07 on Jan. 6, although it has since backtracked]. The FCC has just proposed changes that will help the RBOCs [regional Bell operating companies]. The competition that was fueled by Wall Street's greed is dying, and the Bells are going to get stronger. Verizon can earn about $2.80 a share this year. It will probably grow by 6%-7%, maybe a little faster. The stock yields about 3.75% and sells below the S&P's price/earnings multiple. I could also make the same case for SBC Communications and BellSouth, but Verizon's enough for now.

Q:That's restraint.
Gabelli: Barton talked about the attractiveness of consumer staples. [Last week's Roundtable installment featured Barton Biggs' stock picks, including Kraft Foods, PepsiCo, Coca-Cola and Colgate-Palmolive. ] I've got three more names. Del Monte Foods sells for 8. There are 210 million shares outstanding. So that's $1.6 billion in market value. The company has $1.8 billion of debt. Del Monte is a producer of consumables such as pet foods, tuna and vegetables. Revenues for the year ending April 2004 will be about $3.4 billion. Earnings will be 80 to 90 cents. The stock could trade for the same multiple as Ralcorp, a producer of non-branded staples. If that happens, it goes to 15-16 in two years.

Campbell Soup is another potential winner. The stock is 24, and the company has a $10 billion market cap and $3.5 billion of debt. They are getting themselves ready for a sale.

Q:What is going to turn this company around?
Gabelli: It's got better management, better products. It's moving into Europe. The chairman, George Sherman, did a pretty decent job in his former life, running Danaher. Management is grooming Campbell for a takeover, which could happen in the low 30s. We think it will happen a year from now.

Black: The company's condensed soups have been losing share for a long time. This is a classic marketing problem.

Gabelli: It's a matter of execution. This is a terrific category, with seven or eight companies. There's Unilever and Nestle and PepsiCo in the $100-billion-market-cap category. There are a whole bunch of companies in the $10 billion-$20 billion market. There is another round of consolidation occurring. Campbell is on my list.

My next stock is ketchup -- any color, any flavor, any price. Yes, H.J. Heinz. The stock is 33, and the symbol is HNZ. Heinz has $4 billion of debt and a $15 billion market cap. After the spinoff of its SKF subsidiary, which was merged into a subsidiary of Del Monte, Heinz will have earnings of about $2 a share. That will grow by about 7%-8% a year, and cash flow is excellent. A good part of Heinz's business is in Europe, where earnings will benefit from a declining dollar.

Q:Please tell us about Liberty Media.
Gabelli: There will be a lot of acquisitions and financial transactions in the world of entertainment. Walt Disney and Vivendi Universal are thinking about transactions. I'll start with Vivendi, because it is the least controversial [general laughter]. The stock is around 17. There are 1.1 billion shares outstanding. We think the company is worth about euro35 a share. We like their strategy. Vivendi has a very good business in wireless telecom in France. They could always pick up the phone and sell it to Vodafone. Canal Plus, their cable business in France and elsewhere in Europe, is wonderful. There's the entertainment business in the United States, which is terrific, particularly the sci-fi and cable-channel networks. Jean-Rene Fourtou, who succeeded Jean-Marie Messier, is liquefying the company. We've been buying the stock.

Time for Liberty Media and John Malone [the company's chairman]. Here's the math: 2.7 billion shares outstanding at 9 a share comes out to $25 billion in market value. Liberty is invested in other companies whose stocks are going to rise. Plus, it will benefit from more merger activity and more favorable regulations. It's got a great collection of assets.

Q:What happened to Malone? He used to be a good investor.
Gabelli: Malone made the dumbest investments in the world. He invested in telecoms and made a lot of mistakes, but let's deal with the deck we have. It's a pretty interesting deck. Is he going to team up with Barry Diller to go after Vivendi? Is he going to put QVC and Home Shopping Network together? Is he going to do something with Bob Wright? Will he be in the forefront of the re-engineering of other companies? Whatever the case, the stock is cheap at 9, and gives you the equivalent of an active index fund in the media/entertainment area.

Black: What does he do with the company's AOL holding? [Liberty Media owns 170 million AOL Time Warner shares.] I own Liberty as well, and it's got a breakup value of $14 a share, conservatively speaking. But there's this huge holding in AOL.

Gabelli: AOL is driven by AOL. If it were just Time Warner, the stock would sell for a higher price. Those of us who owned Time Warner made a lot of money on this deal [the January 2001 merger of AOL and Time Warner], because our stock got up to 90-100, and we sold it. They marked it up, and we moved it down. We started buying it back around 18 to 21, and the stock is around 11-12 today. There are about 4.4 billion shares, times 12 a share, which is $50 billion in market value. It's got another $30 billion of debt, so that's an enterprise value of $80 billion. Looking at their non-AOL businesses, you get a value that is higher than $80 billion. Cash flow is very good. The company is planning to spin off Time Warner Cable. They'll buy Cablevision. You knew I would get that in today! [Gabelli predicted at the 2002 Roundtable that Cablevision eventually would be sold.] The question is, can they revitalize the company and maintain AOL's subscriber base? Can they continue to create new services that are unique at AOL? Can they get cash flow from transactions?

Samberg: And the answer is?

Gabelli: I don't know. I was never one pushing the AOL model.

Schafer: My first recommendation is Becton Dickinson, which I've followed for more than 20 years, but never owned until recently. The company has put together a superb management team led by Edward Ludwig and a new CFO, John Considine. It has regained financial control of its business, restructured its manufacturing, reduced sales incentives and invested in new products. As a result, it is poised to accelerate sales and earnings growth.

Becton Dickinson is in Franklin Lakes, N.J., where it built a huge, fancy building. The company grew 4% or 5% a year, and about two years ago the stock sold as high as 49. Now it's around 30.50. I've seen three or four CEOs in the past 20 years, and until I went to visit them about two months ago, I didn't think they had their act together. But they do. This company is the worldwide leader in needles. It makes about 14 billion a year. Recent legislation has mandated the use of safety needles, which reduce transmission of diseases. They are a lot more expensive, which means higher margins. This has been a growth engine for Becton Dickinson. The company also has a bioscience business, which grows about 10% a year.

Now Becton Dickinson is ramping down its capital spending. Here's a $4.3 billion company, which generates $900 million a year in gross cash flow. Even after capital spending and dividends, it generates $500 million of free cash, or more than $2 a share. At 30 a share you've got downside protection, both because of the cash-flow nature of the business and the fact that they keep buying back stock. Recently, the company, which has the leading share of needles for diabetics, introduced a blood-glucose monitoring machine. This is a very competitive $4 billion market, and Hoffmann-LaRoche and Johnson & Johnson have a strong hold on the business. But if Becton can get just 10% of the business, $400 million, that will add 10% to sales. This product line, along with other innovative products, might increase sales growth from 6% in recent years, and 8% in the fiscal year ended September 2001, to 10%-plus. Earnings-per-share growth could ratchet up to 12% to 15%.

Q:Where do you see the stock?
Schafer: If this comes to fruition, the stock could sell for more than 20 times next year's $2.30 to $2.40 a share, or close to $50. This year, the company has said, it will earn $2.07. Becton was hyped in the early 1990s, but the new CEO, who came up through the finance division, and the new CFO, who used to be at American Home Products, want to underpromise and overperform. It is a low-risk stock, which could go up 50% in the next 12 to 18 months.

Neff: Does diabetic blood-monitoring require you to prick the skin?

Schafer: Yes, but because of their technology, it's a much smaller needle. Frankly, this is going to be the first in a series of products in the diabetic area. Long term, they could come out with a product you would implant under your skin. Instead of pricking yourself all the time, you could just measure your glucose level externally.

Oscar Schafer

Under the old management the company defined its business so narrowly that it only made needles. They didn't look at themselves as having a diabetic franchise. The new man has empowered divisional heads to redefine their business, and that's why they're spending a lot.

Samberg: It is an opportunity, but it is also a risk, because people are looking at new ways of doing things. They are looking at doing without needles. Products are being developed whereby a patch can be implanted under the skin to measure glucose levels directly.

Schafer: My second recommendation is ICN Pharmaceuticals. A new CEO and new COO were installed to replace a controversial CEO, Milan Panic.

Q:The former prime minister of Yugoslavia?
Schafer: Yes. ICN sold as high as 52 a share in 1998, and recently bottomed at 6.50, after a series of earnings disappointments. This is a $600 million specialty-pharmaceuticals business. It has 80 million shares and an 80% ownership in a company called Ribapharm, whose current income is a royalty stream from a hepatitis drug sold by Schering-Plough. This product faces potential generic competition, and Schering also has a competitor in a recently launched product from Hoffmann-LaRoche. If new management successfully executes its strategy of selling non-core assets and consolidating manufacturing and the supply chain, and ICN gets normal specialty-pharmaceutical margins, earnings in two-three years could be more than a dollar a share. The stock sells around 11. The royalty stream from Ribopharm, after R&D expenses, adds another dollar, although in the face of competition, that could be substantially less. I put little or no value on the current royalty stream. [Last week Hoffman-LaRoche introduced its hepatitis drug at a 43% discount to Schering's product.] Longer term, other products in the Ribopharm pipeline will make a contribution to both companies. So on a long-term basis, you're paying little for the pipeline. Recently, ICN moved to throw out the Ribopharm board, and three of the top managers of Ribopharm threatened to resign. I'm not sure of the outcome, but most scenarios favor the 80% shareholder.

Neff: Tell us about the new CEO.

Schafer: His name is Rob O'Leary. He worked at American Medical International, and after that ran a hospital-purchasing group and was on the board of ICN. The COO is Tim Tyson, formerly the No. 3 guy at Glaxo SmithKline. I give these guys very high grades. I have known Rob O'Leary for 10 years, though I met Tim Tyson only recently. I'm visiting the company later this week in California.

My next pick ought to be familiar to Meryl, as she recommended it here several years ago. It's R.H. Donnelley, publisher of the Yellow Pages, which has proven to be among the most recession-resistant of all media. This is because the Yellow Pages delivers a higher return on investment for advertisers, so businesses are less likely to cut spending on it. In contrast to the newspaper business, which runs classifieds on a weekly basis, people make annual commitments to the Yellow Pages. Rarely do they cut back. The most direct way to participate in the business is through Donnelley, which was spun out of Dun & Bradstreet in 1998. Donnelley owns half of the economics of SBC's Chicago Yellow Pages, and recently agreed to purchase Sprint's directories in a transaction worth about $2.25 billion, thus transforming itself from a sales agent with a few markets into the largest standalone U.S. publisher of the Yellow Pages. The deal effectively turned Donnelley into a publicly traded leveraged buyout, with interest coverage of only about two times [cash flow to interest expense]. But because of the steady growth of the business, they should be able to support the increased leverage. Donnelley will generate roughly $4 a share in after-tax free cash flow on a pro forma basis, allowing the company to pay off its debt relatively quickly. The stock sells for about 29.

Q:Isn't there a lot of competition?
Schafer: There is another player called Yellow Book, which has expanded the market but really hasn't hurt Sprint's Yellow Pages. After-tax free cash flow should increase to $5 per share by 2005. The company isn't covered by any major sell-side firms but this should change over the next several months, as brokerages such as Goldman Sachs, which now owns a big economic state in the company, pick up coverage. We expect RHD to trade in the mid-40s within the year.

Q:Oscar, does the Internet have any implications for this business?
Schafer: The Internet never hurt the Yellow Pages business. It hurt classified ads, through job sites like Monster.com.Eighty percent of the users of the Yellow Pages intend to make a purchase when they open it up. Sixty percent really do.

Moving on, five years ago I recommended Shire Pharmaceuticals at a price of about 20 a share. By March 2000, it had reached 70, almost like a biotech or Internet stock. Now it is back to 20 or so, and as the story goes, it's a better buy today. The company, located in Britain, acquired a U.S. company called Richwood Pharmaceuticals, and with it got into the ADHD, attention-deficit hyperactivity-disorder, market, with a product called Adderall. In 1999, it acquired Roberts Pharmaceutical, and in 2001 paid $4 billion for a Canadian company called BioChem Pharma. In both cases the company attempted to lessen its dependence on Adderall and diversify into new therapeutic categories such as oncology and anti-infectives. However, Adderall grew so fast that it remained the dominant product, accounting for approximately 50% of Shire's sales and more than that of earnings. Now, with a generic Adderall on the market, and Eli Lilly about to launch a competing product, investors are worried about the company's vulnerability. Also depressing the shares is Shire's delay in introducing a new product for kidney disease.

Q:Shouldn't the market be worried?
Schafer: The company has brought out a new form of Adderall, and has converted 90% of patients to this formula, which also may have generic competition in 2005. As far as Lilly's product is concerned, it has an inferior label and an inferior safety profile, and will expand the market. Finally, Shire is going to go after the adult ADHD market, which currently has a treatment level of only 5% of the eight million U.S. adults who apparently suffer from ADHD. This compares with only 2.6 million children being treated.

As for earnings, in 2003 Shire should earn about $1.70 a share, up from $1.45 in 2002. Since the company is spending 50 cents a share to build up its European operations, its true earnings power is more like $2. The company has $3 a share in cash. At current prices, you're paying eight times earnings, net of cash. If the stock gets halfway back to its high of 70, it's at $35.

Q:Felix, you're next.
Zulauf: We have run a European long/short equity fund since the middle of 1998, which has compounded 20% per annum. I do not believe a long-term investor will make money in this market, because it is a secular bear market. So we trade intermediate-term moves of several weeks to several months. We have some positions we have held for years, but they are the exception rather than the rule. Theme No. 1: The stimulation provided to the world economy, primarily from the U.S. and eventually from Europe, should it work, will work best in emerging economies. In Europe, a group of Eastern European countries will join the European Uunion in 2004. The list includes 12 countries -- Poland, the Czech Republic, Slovakia, Hungary and others. We have some Eastern Europe plays.

Q:Let's have some names.
Zulauf: My first pick is the leading Hungarian pharmaceutical company, Gedeon Richter. The company produces mainly generics in virtually all fields -- cardiovascular, central nervous system, contraceptives and so forth. Total sales are 100 billion Hungarian forint, or about $500 million in U.S. dollars. About 25% of sales goes to Russia and former Soviet Union countries, 30% goes to the European Union and the U.S., 27% goes to Hungary, and the rest goes to emerging countries like Poland, Romania and Vietnam. The company has a strong balance sheet, with 93% equity capital. Return on equity has been 18% to 21% in recent years, and could be a little lower in coming years because equity is rising steadily. Growth should remain in the upper single digits, and could accelerate from 2004 on. Generics are gaining market share everywhere, especially in countries where living standards are rising.

Q:What do earnings look like?
Zulauf: Gedeon Richter earned 1,330 forint in 2001, and 1,400 in 2002. This year they should earn about 1,500, and next year, 1,700. The stock is trading for 14,900, and book value is 9,000, which means the price-to-book ratio is 1.6. The company is selling for 10 times trailing 12-month earnings. Its market capitalization is $1.2 billion, and the free float is 73.5%. The rest is owned by the Hungarian government. As Hungary joins the EU, it has agreed on certain tax benefits for Hungarian companies, as well as companies that invest in Hungary and create jobs. If you invest more than euro40 million in productive assets by 2005, and increase your workforce by 500 employees within two years after that investment, you're basically tax-free.

Felix Zulauf

Q:For how long?
Zulauf: The company will be effectively tax-free until 2011. Right now, it's paying taxes. And labor costs are about 30%-35% of what they are in Western Europe.

Schafer: Is the stock traded in Hungary?

Zulauf: It trades in Budapest. A lot of the emerging-market funds own it. My second stock is also a play on Eastern Europe. It's an Austrian bank, Erste Bank, which means First Bank. The stock sells for euro65. Erste Bank is the biggest bank in Austria today. It has a good domestic branch network and is a universal commercial bank. It has built a strong position in Eastern Europe.

Two years ago, Erste Bank bought the largest Czech bank, and last year it bought the largest bank in Slovakia. It bought both for very cheap prices, and asked the government to clean the first bank of nonperforming loans. The bulk of Erste Bank's business is in the Czech Republic and Slovakia. It also owns banks in Croatia and Hungary. Only one-third of profits come from Austria, while two-thirds come from Eastern Europe. Indeed, it is the biggest Western bank in Eastern Europe. The stock is the second-largest stock-market index component in Austria, with a weight of 20%, and is the largest index component in the Czech Republic, with a 28% weighting. By applying Western management know-how and technology to Eastern Europe, it is very successful.

Q:Tell us about the financials.
Zulauf: The bank's market capitalization is euro3.8 billion, and the free float is 41%. The biggest shareholder is the Austrian Savings Banks, which own almost 40% of the stock. The bank's cost-to-income ratio is in the high-60% range, and declining. Management targets 65% for 2005. Earnings were euro5.50 a share last year, and they should make euro6.50 this year and euro7.20 next year. Erste Bank trades at 10 times earnings for the trailing 12 months, and yields 2%. Growth is in the low double digits, and the stock is trading for only 1.1 times book.

Q:What's a typical P/E for European banks?
Zulauf: The European banks typically trade for about 1.8 times book. This is cheaper, and has better growth. Another of our investment themes is buying fallen angels with improving fundamentals. T-Online is a stock that we like to play on the long side when the markets are having a good rally. And at some point this year, we expect the markets to have a good rally. T-Online is Germany's biggest Internet provider, with over 12 million subscribers. New subscriptions are growing at a rate of 20% year over year. The company has two subsidiaries -- one in France and one in Spain, but both have marginal losses. The Internet is a simple business -- subscribers pay for access, content providers pay licensing fees and e-commerce provides transaction fees. That's basically it. T-Online is more than 80%-owned by Deutsche Telekom. Only 10.5% of the stock floats freely, so it is a stock that can move if things really improve, as we think they will.

Q:Will Deutsche Telekom sell its stake?
Zulauf: At some point that may come, because Deutsche needs to pay down debt. But it doesn't want to sell at this price. The interesting point is that the infrastructure is built. It requires only maintenance -- capital expenditures of euro80 million per year. The business so far has been growing strongly, even during Germany's recession. T-Online has a dominant, almost monopolistic position in Germany, as all competitors are losing money. AOL is losing money like mad over there.

Q:Is this dial-up service only, or is there broadband access?
Zulauf: They have it all. About 40% of users go through Deutsche Telekom, but they use other channels, as well. T-Online had negative free cash flow last year of euro110 million. This year, because the big write-offs have ended, they will be free-cash-flow positive by euro200 million. Next year they'll probably do euro400 million, and then it goes higher and higher. This is really a turnaround from a free-cash-flow point of view. The market cap is euro7 billion, and book value is euro6.4 billion, or euro4.60 per share. With the stock at euro5.50, it's trading only slightly above book, and for more than half of book is cash.

Q:What has been the historic range on the shares?
Zulauf: The IPO was priced at euro30 in the spring of 2000, and Deutsche Telekom should have sold more into the market. The shares traded up to euro48, then down to euro5 in the fall of 2001. They rallied to 14 in the spring of '02, and declined to euro5 again in December. The stock seems to be trying to build a bottom.

Black: What is the company's penetration rate in Germany?

Zulauf: There are 32 million Internet users in Germany, out of a population of 80 million. And that's growing. My third theme is slower private consumption. The consumer is the weak point in our economies, particularly in the U.S. We usually play European stocks, but we can invest up to 20% of fund assets outside Europe. I can't resist mentioning Starbucks, the biggest and most successful coffee-shop chain in the U.S. It has about 11% of the U.S. retail coffee market, but that market seems saturated. There are not enough street corners left for Starbucks.

Neff: But they are still getting growth, and the damn stuff costs $4 a cup or something. How do they do it? My daughter spends $4 a cup, and she's cheap.

Zulauf: Your daughter can afford it, but maybe some others will not be able to afford it much longer. I'm not saying the business goes down the drain, but the company is trying to keep growing by going into international markets. It has started in Europe and the Pacific Rim, and is diversifying into some non-coffee products. But it is losing money in 26 countries overseas. Despite these efforts, revenue growth has slowed from over 70% per year in the early 1990s to slightly below 20% now. There are two problems: International expansion has been unsuccessful, and the product expansions into tea and ice cream and such are not working well.

Consensus estimates are that the company could earn 54 cents a share for 2002. The stock is trading for 21, near its historic high of 25, giving you a trailing price/earnings ratio of 39. This year, the consensus expects Starbucks to earn 67 cents, a gain of 24%, which implies a P/E of 32. I doubt that can be achieved. This is a good company with a strong balance sheet and virtually no debt. But, as John mentioned, Starbucks coffee is expensive, and some consumers will probably buy less. If we assume a 15% growth rate for the next few years, fair value would be 13 a share. With a 10% growth rate, fair value is 8. So I think the stock is a short.

Q:Do you have another short?
Zulauf: Another one is Porsche, the German car manufacturer. It is trading for euro410 a share. Porsche was founded in 1937 and is the most profitable car manufacturer in the world. The Porsche and Piech families own 100% of the 3.1 million common shares and 13% of the 3.7 million preferred shares. About 48% of sales come from North America -- the U.S. and Canada. About 27% come from Germany and 14% from the U.K. Porsche did virtually everything right in recent years. Return on equity is 30%, a peak. The company just launched the Cayenne, a high-priced sport utility vehicle with a price tag of $60,000 to $90,000. The first year is sold out. Perhaps more important is what's happening with their traditional cars -- the 911 and the Boxster. The new 911 is expected to arrive in mid-2004, putting more pressure on an already weak market. Resale values were the highest in recent years among all cars, and those prices are starting to come under pressure. If the second-hand market weakens, that will backfire for new products.

Q:Apparently, the Porsche cult has been upset by newer kinds of cars.
Schafer: The fact is, most people who have Porsches are in families that also have SUVs.

Zulauf: But it's clear that Porsche is just about the last manufacturer to introduce an SUV. And its price segment is only the top 3% of the whole SUV market. They're targeting a very tiny market. This morning, the company announced sales figures for North America, which is half of their market. For the first time, they were weak numbers. Sales overall were down 22% from a year ago; the 911 was down 15% and the Boxster 29%. We have seen the market weakening in Germany for a long time. I think it will weaken in the U.K. as well

Gabelli: How many units do they sell a year?

Zulauf: About 30,000 911s, and 20,000 Boxers. Last year, according to consensus estimates, net income was euro4.8 billion and earnings per share were euro28, up from euro17 the year before. Expectations for this year are euro36, and for next year, euro39. The stock sells for 14.6 times trailing 12-month earnings and 4.9 times book value.

Gabelli: Do they have an unfunded pension-plan liability in the United States?

Zulauf: Yes, they have. I can't give you all the numbers, but there are some risks.

Schafer: If the company can get 1% of the SUV market, that will be a big number. The question here is timing.

Zulauf: The problem is, they are probably killing interest in their traditional products.

Gabelli: Absolutely not. The SUV and the 911 and the Boxster are totally different parts of the garage.

Zulauf: Porsche traditionally does best very late in the car cycle, because that's when luxury items sell best. Even if the company can keep earnings at current high levels, the current price implies a growth rate of 17% for the next 10 years. That's a very high number for a cyclical car company. If growth were 12%, which is still a high number, fair value for the stock would be euro250 instead of euro410.

Black: By way of comparison, what is BMW's price/earnings multiple?

Zulauf: Ten times earnings. And BMW is broader-based and therefore less risky.

Q:Last year you made a call on the oil market by buying some Russian oil stocks. How did they do?
Zulauf: I recommended one oil company, Surgutneftegaz. Compared to the price of oil, it was a disappointment. It was up 15% or so.

Schafer: It went from 21 cents to 24 cents. It was up 16.5%.

Zulauf: The stock is still very cheap, and I agree with Marc that in the second half of this decade, the price of oil expressed in U.S. dollars will be a lot higher. All these stocks, including Russian oils, will be a lot higher. But we are in the business of making money short term, so we don't want to stick with positions for 10 years. But if you want to be a long-term investor, that's probably one of the best areas in which to put your money. But the one really long-term theme I'm recommending is gold. Historically, it's been a hedge against inflation and fiat currencies.

Q:Mostly, it's been a hedge against capital gains.
Zulauf: That's been true in the past 20 years, but it's changing. The price of gold moves in steps. From 1971 to 1980, the price went from $35 an ounce to $850. From '80 until the past few years, it fell from $850 to $250. Having put in a bottom around $250 an ounce, it's now trading $100 higher. We all know the history. Now the central banks in the U.S., Japan and, later, in Europe are trying to solve our economic problems by throwing money at the system. The end result will be more and more new money, without a counterbalance in the real economy. They created money out of thin air, which means the value of paper currencies goes down. That's the history of fiat currencies.

The whole process has been accelerated by the problems in the U.S. Personal consumption has been going up over the past 20 years. Instead of solving the problems of underinvestment and rebalancing the economy, which would be painful for a while, the central bank just throws money at the system and entices consumers to take on more debt. At best, the U.S. is in for a long period of stagflation, very low growth or worse. At some point, the world will begin to understand that the U.S. economy is fundamentally much weaker than generally believed.

Q:Then what?
Zulauf: The U.S. is the largest debtor nation. About $3 trillion are held by foreigners, if calculated at the purchase price, and foreigners are still buying U.S. assets. Last year they bought about $45 billion of U.S. equities, but that will change at some point. When people realize there are fundamental problems in the U.S. economy, the dollar will begin to decline in a major way. The process actually started in 2001. Other central banks will at some point then try to support the dollar, because if it declines too much, it hurts their exports. They will be forced to adopt the same policy as the U.S. central bank, and you will have the whole world creating more fiat currencies. That's when gold will really run.

I use a timing model -- gold versus stocks, or the Dow Jones Industrial Average divided by the price of one ounce of gold. In 1929 you bought gold and sold stocks. The ratio was at 15 to 1. In 1942 you sold gold and bought stocks. The ratio was 3 to 1. In 1966 you bought gold again and sold stocks. The ratio was 28 to 1. In 1982 you sold gold and bought stocks because the ratio was 1 to 1. In 2000 you bought gold and sold stocks, because the ratio was 45 to 1. It's now 25 to 1. I don't know exactly how low it will go, but I'd guess somewhere between 1 to 1 and 1 to 3. We'll see in 10-12 years. That's why gold is my long-term call.

Q:Are you talking about buying gold itself, or futures?
Zulauf: You buy real gold. In real terms, after accounting for inflation, it's about at the level where it sold in the 1930s. In actuality, it's where it was in the early 1970s. It's dirt-cheap.

Q:But you've got to store it. You've got to pay interest for the storage. You don't get any cash flow from it.
Zulauf: If owning gold is not attractive, you buy gold stocks. But that's a different ballgame because you have corporate risks, managements that could mess things up, companies with liabilities. There is not much gold around. All the gold mined in the world equals 143,000 tons. That's a cube of 20 meters. At current prices, that gold is worth $1.5 trillion. Compare this to the U.S. debt of $31 trillion, and it's tiny. It's peanuts.

Gabelli: The last time gold was at $400 an ounce, the XAU [the Philadelphia Stock Exchange Gold and Silver index] was about 180. Gold today is $355 an ounce, and the XAU is at 80. The contracts haven't moved.

Zulauf: Well, the XAU is composed of different sorts of gold companies, and the heavyweights are those that hedge. They don't benefit from the rise in gold prices. Placer Dome and Barrick Gold hedge. They do not move up with the price of gold. Among the large-cap stocks, Newmont Mining has started taking its hedges off. It wants to go fully unhedged.

Gabelli: The index has changed since 1994 because of mergers.

Black: Isn't there one fallacy in your reasoning, Felix? Let's assume M2 or M3 [measures of money supply] grew by 7% or 8%, which is what happened in the past year. What happens when you're getting productivity gains of 4% and 5%? Ultimately, you're not going to have inflation.

Zulauf: The policy of the U.S. central bank is going to destroy the dollar. Confidence in the U.S. currency at some point will collapse, and you'll have a run on dollars. Money can't go to other currencies, because they have to support the dollar. Gold will act as a monetary currency -- a currency without the liabilities of ill-guided central bankers. Another way of looking at it is to say the U.S. has underinvested in capital investment to supply the goods that U.S. consumers are demanding. You have spent your money by buying on credit instead of investing. The Chinese are investing. They are building an empire.

Samberg: With our money.

Q:Felix, do you like any gold stocks?
Zulauf: I am not a stockpicker in this field. I would just go with names that don't hedge -- for instance, GoldFields, Meridian or Newmont. Buy them and hold them. They will all be 10-baggers over the next 10 years.

Q:Thanks, Felix. Art, what have you got to say?
Samberg: I'm more optimistic than I have been in the past two, three years. But I am not a raging bull.

Art Samberg

Q:If you were more pessimistic, you wouldn't be here.
Samberg: That's for sure. Many of the right things have been done to stimulate the economy. I don't worry about a short-term implosion. What happens with Iraq is the right question. I can think of no other reason why an economic recovery hasn't begun. The area that I would normally talk about, technology, doesn't look any better. There is not much going on in technology. Barton suggested earlier that when economic activity picks up, capital spending picks up, and technology is a proxy for capital spending. Yes, but that's never been the best way to invest in these stocks. The best way has always been to spot trends. Find good companies with good products and lots of leverage. The next new thing is the Internet all over again.

Q:What do you mean?
Samberg: Unique content is developed for the Internet, which is sort of what happened with cable companies like Nickelodeon and ESPN. When video on demand is finally real -- it's probably two years away -- maybe we will have something to drive things again. In the meantime, it's a morass.

Q:There are a couple of reasons besides Iraq why the economy is not booming. One is that most of the productivity gains of late have come from payroll reductions. That's not an economic stimulus by any means. Then, as you mentioned, there's little capital investment.
Samberg: Here's what I worry about long term. When I was in China last fall, I heard executives from Solectron say they've gone from zero to 3,000 workers in China in the past two years. Meanwhile, the company's total worldwide employment has fallen from 90,000 to 60,000. In the next two years, they said, there would be 20,000 people working in the facility we visited. It is a real challenge to create high-wage jobs in the rest of the world, not just in the United States. It is a problem in Mexico. It is a problem in Eastern Europe.

I think oil prices will stay up because the sources of energy are in politically unstable countries. Nobody ever would have said that of Venezuela, but Venezuela has become a freak show.

Q:That's what makes natural gas attractive.
Samberg: That's one of the areas I like. In tech, the only thing I'll mention is disk drives. It was a crummy pick last year in all regards, other than that the fundamentals played out. There was an interruption in the second quarter when IBM announced it was getting out. Whenever a major player gets out of a business, inventory gets dumped on the market. In a more rational world, people would realize that that just accelerates the consolidation, and they would look through it. But we are in a data-point-driven market, so the stocks actually went down. Confirming that there might be a positive trend here, Western Digital, Maxtor and Hutchinson Technology all preannounced better earnings.

Q:Exactly what did they say?
Samberg: The preannouncements were major. Maxtor reported 6% gross margins in the September quarter. In the December quarter, margins rose to 15%-16%. In Hutchinson's case, the change was just as dramatic. They announced they would earn 50 to 65 cents in the December quarter and 24 cents in the quarter they reported on Nov. 14. The estimate for that quarter had been 10-to-15 cents. The stocks moved up.

Now they've consolidated. Why? Seagate Technology came 'round with an IPO and started to talk about inventories creeping up again. The first calendar quarter is always down seasonally and sequentially for this business. It will be down about 10% sequentially this year. There is a lot of fear that inventories will blow up again and the story will be over. I don't think it's true. The pricing-discipline story remains intact, relative to prior cycles, when the industry almost went under and inventories ballooned to eight to 10 weeks. They will top out here, and you'll see decent demand again in the second half. These companies are not going to add capacity and shoot themselves in the foot any longer. They can beat earnings estimates on a consistent basis for the next 12 months. The Street thinks Maxtor will earn 25-35 cents. In my view, they can easily do 40 cents.

Neff: Is there a price at which you'd buy Seagate?

Samberg: Yes, right right around here. The stock is around 10.50 a share. The stock now sells for 0.7 times sales. It's a good one to put away for a while.

Black: I own Maxtor and Western Digital. I saw Seagate. All the good news is out on the company's gross margins. They are already over 26%, the highest level in the industry. There's no more real operating leverage. But Maxtor and Western Digital are turning around. They have rising operating leverage.

Samberg: No doubt. But if Seagate blows it, it's over for all of them. So you need the discipline at Seagate to make the Maxtor story work. It will work anyhow, but it won't work nearly as well.

Q:What have you got that's new? These are last year's picks.
Samberg: I know, but I'm bitter that the stocks didn't work. This year, I have Boston Scientific. Health care is an interesting area. A lot of stocks are going to work, including drug stocks, where you'll get some dividend relief. Plus, some, like Pfizer, will have new product flow. Boston Scientific is a medical-device company. About 25% of its sales come from stents. That's where the action and sex appeal is. They have a new product cycle, which is something I always like. The stock was the second-best performer in the S&P last year, so people are starting to anticipate part of the story. But I don't think they really have it figured out yet.

Boston Scientific has a new drug-coated stent coming. I think they have the best stent platform in the industry -- an industry they share with Johnson & Johnson and Guidant. They use the same drug on their stents that Guidant was going to use. Guidant didn't get good results because they just smear the drug on. Boston Scientific uses a polymer to coat the stent, a far better approach. We've spoken to a lot of clinicians. The data looks good. Results from the European trials will come back at the end of this month, and from the U.S. trials, at the end of the second quarter. Hopefully, they will roll this product out at the end of the fourth quarter, or the beginning of the first quarter of next year.

Q:Is Johnson & Johnson's product out already?
Samberg: It's out in Europe. It will be out in the States around the end of the first quarter. They will have a lead. However, the expectations, at least ours, are that the stent market will go from $1.4 billion to as much as $3.5 billion-$4 billion in 2004, because of this drug-coated aspect. Boston could get 50% of the market. They've got what appears to be a really terrific product. Stents are 25% of their sales, or about $750 million. They sell stents for about $1,000. The price of the drug-coated stent will be about $2,500, however. My social conscience makes it difficult to say this, but the drug, and application of it, cost maybe $50. So the contribution to margins is going to be obscene. What's really happening is a device company is becoming a drug company, and that doesn't happen very often. The company earned about a dollar last year, and it will do about $1.25 this year. In 2004 earnings could be much higher than anything Wall Street has baked in. The stock trades for 43.

Neff: The standard estimate is $2, and it could be double that, in which case the stock is a home run.

Samberg: Anyone who has had one of these put in knows it is a miracle thing. I think Boston Scientific is going to be a huge stock for the next two years.

Q:Have J&J's sales in Europe been disappointing?
Witmer: It's a little different. They're slow on the uptake in Europe. But we are quick adopters here.

Samberg: As noted, I like upside surprises in earnings. In the energy area, gas appeals to me most. The large, integrated oil companies have had no interest in looking for gas in the United States. They don't think they can find enough gas here to make an impact on their bottom lines. They haven't looked. The El Pasos of the world haven't spent a dime in this area for the last two-three years. Because of the very difficult credit markets last year, and because it was very, very difficult to hedge, the small guys didn't do much, either. As a result, the middle third of the market, independents with market caps of $1 billion-$2 billion, have been able to acquire assets.

Q:Which ones are you recommending?
Samberg: There are two good companies, XTO Energy and Chesapeake Energy. I like Chesapeake because I've known the CEO for 10 years. The company increased its production in the past 12 months by more than 13%. It's highly levered to gas. Something like 94% of their production is in the mid-continent region of the U.S., which is a really good area to be in. Chesapeake uses leverage, so debt is two-thirds of the balance sheet. But no debt rolls off until 2008. The average finding cost is good, and the company covers its fixed charges by 3-to-1. The numbers are very compelling. At $3.50 per mcf [thousand cubic feet], the company makes $2 a share in cash flow and 42 cents a share in earnings. At $4, $2.30 in cash flow, 62 cents. And at $4.50, it makes $2.65 in cash flow per share, and 83 cents. So on an incremental buck the earnings double. Natural gas is about $5 per mcf right now. I don't know why it's coming down. I think it goes up and stays there for probably two years. The last time it went up $10 it crashed back down. But I think this is a long-term investment play.

Q:Where is the stock?
Samberg: The stock sells for $8. I also like Key Energy Services, which is sort of a mundane company in a mundane industry, the workover business. They take trucks out to existing wells and refurbish them. Key has had a roll-up strategy. It's got about 600 active workover rigs and 400 in inventory, and it has refurbished about 400. It has a 45% market share. Key's Ebitda margin at the trough of the last cycle was 18%-19%, which is pretty remarkable. It was about 3% in the cycle before that, four or five years ago. They are trying to build the company out and have added a lot of services. The average age of their trucks is 21 years, but as I've said, they've refurbished 40% of the fleet. Nobody else does that. These things break down all the time. This is a company with a better product. It has about $1.50 a share in earnings power in this cycle. The stock sells at $9, and earnings could climb to $2-$2.50 with some acquisitions. Management is very good. Their rig hours per week peaked at 61,000 in the first quarter of '01 and fell back to 39,000 at the bottom of the cycle in the spring of 2002. They've just started to tick up in the past three-four weeks to about 46,000.

Gabelli: I'm hearing that elsewhere, too.

Samberg: Again, the first quarter is seasonally slow, so it could take a while. People really don't believe that gas is going to stay at $5. Their desire to drill will lag probably by three to six months. But I have a feeling that, by the second quarter, the trends are going to be extremely robust.

My next pick, W.R. Berkley, an insurer based in Greenwich, Conn. The company was very disciplined in the last cycle. Rates have been very strong in the insurance business, including in property and casualty, their business. This company just didn't bother to write bad business. Their written premiums to capital were probably among the lowest in the industry. They've got no asbestos exposure, no exposure to the Twin Towers. Therefore, they have been able to take advantage of the more robust market. So they raised prices, and terms and conditions are improving. The rate of price increases is going to moderate, but terms and conditions will continue to improve. This company earned about $2.95 to $3 in the year just ended. It should do about $4.25 in 2003, and sells at about $39, around nine times earnings. Book value was about $24 at the end of last year, and should exceed $28 at the end of this year. On a price-to-book basis, it's relatively inexpensive. But if business comes through, you could be talking about a company selling for 1.3-1.4 times book, an industry average. Berkley's return on equity is 13%. It's basically a nice little company that doesn't have any of the warts that have kept some of the other insurers back.

From left: Marc Faber, Scott Black, Abby Joseph Cohen, John Neff, Art Samberg, Barton Biggs, Archie MacAllaster, Oscar Schafer, Felix Zulauf, Meryl Witmer, Mario Gabelli

Q:Archie, what do you think of Berkley?
MacAllaster: It's a very s company. It has done an excellent job.

Samberg: That makes me feel better. I still like Northrop Grumman, the defense contractor. The stock is $100. I mentioned it when it was about $120. That was stupid. It is probably worth $130. Northrop has merged with TRW. I think that's a lay-up. These companies had been talking for six or seven years. They know exactly what they bought, so it should be an easy integration process. This is a low-teens top-line growth story for the next three-four years. The company is in all the right places. It's in all the aspects of fighting a modern war.

Q:Art, is it difficult for you -- and judging by these stocks, it probably is -- to make the transition from being a technology and growth-stock investor to a value investor?
Samberg: I wouldn't call Boston Scientific value. I'm just trying to adapt. To slavishly follow an investment philosophy in the technology industry is certain death. But long-term, I'm as excited as ever.

Q:Good for you. And thanks.