Microsoft's Golden Goose May Go Away: Herro

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Oct. 21 (Bloomberg) -- In today’s “This Matters Now,” David Herro, chief investment officer at Harris Associates, talks with Tom Keene about stock valuations in emerging markets and Europe and why he finds good value in U.S. stocks and global blue chips. He speaks on Bloomberg Television’s “Bloomberg Surveillance.”

Good morning, everyone.

I'm tom keene.

This matters now to david herro, an active manager, which means he picks stocks.

Less japan, dramatically less emerging markets, and more europe.

The troubled banks of switzerland has is attentive.

You are an into national investor.

Why is there no value in emerging markets?

The prices are too expensive for what you are getting.

Value is simply defined as what you are getting for what you are paying.

When you look at the prices go of emerging markets, the quality emerging-market names, qualities that find good returns in good corporate governance, fairly independent of government influence -- and that is a big one in emerging markets, because the governments like to tinker with a lot of these businesses.

What about europe?

In europe we are starting to see still good valuations for blue kit -- blue-chip companies.

These are companies that are based in europe but have business operations all over.

Credit suisse is a good example.

Here is a company that is divided into two businesses.

A private bank/asset manager, and then investment bring -- and an investment bank.

It is not as variable as it was, and they have this annuity-like cash flow stream coming from the private bank that will be held by the interest rates a little higher, if this was frank begins to weaken and equities perko.

I know, david, you like recurring revenue streams.

You see james gorman at morgan stanley doing just what you said -- de-risking and going to wealth management.

Is that the new structural trend?

At this stage, the market still does not know what to think of it.

They are not really willing to pay for stability.

But i think at some point, you will see a higher multiple applied to these more stable income streams.

Is there value in america?

Of course.

Equities in general.

Global equities as an asset class.

They have had a bit of a run.

Still, especially where we are in the economic cycle, the global economic cycle, where we should see accelerating earnings growth, i think there is good value in american stocks and global blue chips in general.

What about microsoft, those kind of trouble names we talk a lot about?

I think the problem with microsoft is not necessarily technology but the way they recycle their cash that they generate.

Which they don't recycle to you.

They don't do it very well.

All the ancillary investments.

What -- one could argue they make so much money, so what if they burn a little?

Cause they make so much.

My point, all that money they make, the golden goose may go away.

David herro from oakmark.

Scarlet fu has briefed me.

Coming up, diddy.

This text has been automatically generated. It may not be 100% accurate.

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