We will have interview with bob iger at 3:30 p.m. eastern time.
There goes the opening bell.
If you are still a bull, you have been happy with stock buybacks.
Apple has led the way with up to $18 billion in share buybacks, but so far equity companies have bought back 211 billion dollars in shares.
I want to bring in a portfolio manager at steeple necklace -- steeple necklace, and you have been quite bullish.
You like the stock buyback?
They are ok, but we are getting to a point with regard to valuation were buybacks and many companies just do not make sense anymore.
Does it become like financial engineering?
It is more than financial engineering.
The multiple is way too high.
Let's look at where the market is.
If forward-looking multiple, 15 and a half times.
You're looking at revenue growth within the s&p 500 of roughly 3%. we believe the market probably has around 5% to 6% in it over the course of the next five to six months, but valuations are not cheap and you want to be more cautious, move up the quality spectrum, move your portfolio from more volatile stocks.
I wanted to ask more about valuations.
I was looking at the trailing p /e for the s&p 500, on a trailing basis, about 17.5, and it is a far cry below where we were in, say, 1999, but it is sort of in the middle.
I am curious for you, where the sweet spot would be in valuation -- where is the tipping point where it becomes overvalued?
What does overvalued mean to you?
The pendulum swings both way.
I would be concerned if the multiple got to 18 times forward-looking -- you have to look at profitability.
Right now, profit margins are at an all-time high.
It is two standard deviations above its norm.
If that is what is normalized, that would be somewhat disruptive to the overall earnings picture and the overall market.
That is somewhat of a concern.
At this point, you have earnings growth and economic growth that has been moving along quite nicely.
We would be somewhat overweight equities.
We are not raging bulls by no measure.
I do not know if there are any raging those right now.
The reason you have that, if you look at peripheral that, there is a bubble right now.
If anyone overseas thanks the sovereign market -- thinks the sovereign market is cheap, they have to have their head checked.
Any kind of correction -- you saw it -- portugal went up 14, 15 basis points, and the market went down 1%. he started getting correction there, you could have a direction here in the equity market.
We all know that.
You have to put emphasis on stock picking an individual companies, and one company you like as pepsico, and if you compared to coca-cola, it is now at a premium which is a significant reversal from it does count as recently as may of 2012. is pepsi doing enough to stave off nelson peltz's calls to break off the company?
I own both of them.
To answer your question, eventually i think the beverage business will be broken off and there will be a spinoff.
Our price target on pepsi is about $106. the multiple is roughly as forward-looking as 19 times.
It is trading more or less now in historical range.
We believe there will be cost savings even if you do not get the split and the divestiture.
Consensus estimates are somewhat low when they will be competing over the next level.
That is interesting.
You do believe there should be a split.
And you think pepsi management is wrong, then?
I absolutely believe pepsi management is wrong and valuation would increase significantly if they split the company.
Cost efficiencies -- i do not really see that in the cards, and i believe over the course of the next 12, 18, 24 months, the corporate advocates will win out on this.
It will be a slow, methodical process, but it will happen.
So, this is as good as it gets for ingenuity and -- ingenuity and pepsi.
I think so.
You get another three or four quarters of cost savings and eventually they will get their way.
What about the more existential question -- as an investor you are not always asking these questions, but "is this week" had a cover -- business week" had a cover on coke talking about the soft drink business dying because of concerns of health.
Are they doing enough when your core product is in a tricky position?
Revenue growth for pepsi in aggregate should be roughly between 2% and 4% -- the valuation at this point, it looks again is trading at a discount.
Are they doing enough?
Of course they can do more.
Will they do enough?
We will have to see.
As a value investor, this companies consistently growing, consistently profitable, well-capitalized, so why not?
Maybe that is why coke is not trading at as high of a premium.
It does not have the snack business.
Also the break up potential.
The back of potential will drive the stock growth, and you also have earnings support.
Coca-cola has been struggling, do we believe as well that will be a turnaround.
We think it will take longer.
That has to be the magic to live -- magic bullet.
Companies are looking for the magic will -- sorry to cut you off, it is a consumer staple, and this one fits the bill.
Dividend growth will be between
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