Sarah Cater, CEO of $34 billion Causeway Capital Management, is a global value investor. And good on her for winning the Morningstar Mutual Fund of the Year award in 2017.
Ketterer is a traditional value investor looking for corporate transformation.
U.S. stocks will end next year flat, he said, as the economy weakens and then picks up again, while European stocks are likely to rise slightly.
Two of her favorite European stocks are French railway company Alstom and British insurance/money manager Prudential.
TheStreet.com: What is your investment philosophy for picking stocks?
Ketterer: We are looking for companies with very low prices. We use the standard definitions: earnings yield, price-to-cash flow, earnings estimate.
Many companies are earning less than they should be. They experience some headwinds.
When a company is undervalued, there is usually something wrong – management mistakes. Maybe a purchase wasn’t processed correctly. There is a whole world of stocks where things have gone wrong.
The question for us is whether they have the ability to turn around and implement operational improvements. We also want a return of capital – we want returns and payments, especially dividends.
TheStreet.com: What is your outlook for the US stock market in 2023?
Ketterer: I think it ends the year about flat, [with stocks slipping in the first half of the year and recovering in the second].
In the first half of the year, the Federal Reserve will be tightening. This may be difficult for companies. Demand will decrease as consumers tighten their belts.
After that, the economy starts to grow again, and cycles lead the market up.
TheStreet.com: What is your 2023 outlook for foreign stock markets?
Ketterer: Assuming there are no new negatives from the Russia-Ukraine conflict, it should be a moderately positive year for European markets after how weak they have been this year. Not a burner, but slightly better than the US.
TheStreet.com: Where do you think the best buying opportunities will be in terms of sectors?
Ketterer: As a recession takes hold, investors don’t want to own cyclicals, and earnings begin to suffer. Consumer preferences, financial services, materials tend to have the best returns. Sometime in 2023, it should be a good time to be on a cycle.
Street.com: How do you see U.S. value stocks versus growth stocks next year?
Ketterer: If interest rates stabilize [at high levels]It is good for value stocks. [That’s because when rates are high, value stocks’ earnings are valued more highly than growth stocks’ earnings.]
Growth stocks have outperformed the stock from 1980 to 2021. The stock is currently bullish for one year. That sounds like a start.
TheStreet.comWhat is your favorite couple?
European stocks are much cheaper than the US, so we look for low-income companies there.
1. French Railway Company Alstom (Alcee) . He had a problematic purchase last year. Then the stock fell.
But management is very capable. The company now has a better order book and significant improvement in cash flow. The stock may increase from 60% to 80% in the next two to three years.
Part of the reason why the rail sector can grow is because of the demand for green transport. Management can continue to make this a better business.
2. Intelligent (PUK) – Get a free report, a British insurance and asset management company, with operations in Asia and Africa. It is in growth frontier markets such as Indonesia, India and Vietnam. Those are the most significant contributors to revenues.
They have named a new CEO and will have another round of restructuring and cost cutting. That boosts cash flow and revenue. The stock has significant growth potential over the next two to three years — 50-60%.
It doesn’t take much to pick it up. But they have to look at reopening in China, where their business has suffered.