Contrarian To The Core

After 20 years, T. Rowe Price's Brian Rogers still gets a high from depressed stocks

There were few stock market enthusiasts in the summer of 1981. Long-term Treasury rates hovered around 14%, the economy was falling into recession, and equities looked downright dismal. But Brian Rogers, then an intern at a management consulting firm in Boston, was captivated. "There was a contrarian appeal," recalls Rogers, who, after graduating from Harvard Business School in the spring of 1982, shunned the then-glamorous world of consulting in favor of money-management firm T. Rowe Price (TROW ).

More than two decades later, that spirit still serves him well at the $18.9 billion T. Rowe Price Equity Income (PRFDX ) Fund, the firm's largest offering. He has managed the portfolio which, since it opened in 1985, has racked up impressive gains by picking up stocks other investors have trashed. From its inception, the fund has posted annualized returns of 13.4%, trumping other large-cap value funds by 1.7 percentage points a year. "Invariably, we're looking at companies where investors are concerned about the prospects," says Rogers, who also serves as T. Rowe's chief investment officer. "That concern creates opportunity."

Indeed, Rogers favors stocks with high dividend yields and historically low price-earnings ratios -- characteristics typical of companies under a cloud of bad news. For example, he scooped up shares of Coca-Cola (KO ) in late 2004, after worries about its leadership and financial prospects drove the shares down from 54 to around 40. At that point, the stock was trading hands for just 18 times earnings and yielding 2.5%, well above the Standard & Poor's 500-stock index. Those cheap valuations, combined with the company's strong cash flow and topflight brand, gave Rogers the confidence to jump in as others were bailing out.

Today, Coke trades at 44. But he thinks that, like most of his purchases, it's an investment worth holding on to for at least three years. Of course, he'll sell a stock sooner if its valuations appreciate more quickly or hold it longer if he believes there's room to grow. The fund's annual turnover runs between 15% and 30% -- meaning his typical holding period is between three years and six years. "There are some stocks we've held for 20 years and some we've undoubtedly sold in a couple of months," says Rogers.

His emphasis on dividends also makes this fund a smart choice for income-oriented investors. Rogers aims to keep the fund's payout 25% higher than that of the S&P 500 in the long term. Currently the fund yields about 1.9%, compared with 1.6% for the index.

Like most other contrarian investors, Rogers has a few surprises in his portfolio. Media and pharmaceuticals -- the traditional stomping ground of growth investors -- look especially appealing right now, he says. As such, he likes Time Warner (TWX ), Viacom (VIA ), Wyeth (WYE ), and Abbott Laboratories. "Growth stocks are cheap by historical standards," says Rogers. "I have no idea if it will work out in 2005 or 2006, but I feel like it's a good bet." The records show Rogers' bets often pay off.

By Adrienne Carter

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