Fox Business News"Fox Business" May 20, 2008
On the May 20 broadcast of "Fox Business," Nick Calamos shared his view of the economy, the equity markets and where the Calamos investment team is finding opportunities.
The co-chief investment officer of Calamos Investments expressed a cautious view of the economic environment. "We think … this will be a sideways market for a number of years because the economy is up against some pretty strong headwinds."
Nonetheless, the equity markets represent a better relative opportunity than bonds and money markets for the Calamos team. Nick said, "We're finding a lot of stocks with free-cash-flow yields that are very high and still growing." In fact, in the wake of recent sell-offs, the Calamos investment team is in a buying mood. He noted, "Stocks have felt a lot of the pain and in some sectors they've been hit very, very hard. We're seeing some good opportunities."
Technology companies are particularly appealing to the Calamos team, and represented more than one-third of Calamos Growth Fund as of March 31, 2008. Nick said, "Our favorite stocks right now are in the technology sector. Our investment team has focused on finding productivity enhancers, and also [on] areas where consumers … will continue to spend on the right products."
Nick singled out Dell Computer as a company that has met his team's criteria, "Dell looks very interesting to us," he said, citing the company's free-cash-flow-yield of about 10%, cash flow growth of 3 to 4 percent a year, and stock buy-backs in the 3 to 4 percent range. "We think of it as bond yielding 10% and growing another four to eight percent." Top-line growth and conviction in Michael Dell's ability to fix some of Dell's cost problems further the company's appeal, in Nick's view.
Another company that meets Calamos Investments' criteria is eBay. Nick said, "During recessions, consumers tend to go to garage sales more, and this is the ultimate global garage sale." He said that he believes eBay is "a company that's considerably better on about every metric relative to the market as a whole, trading at the same multiple. We think it's a cheap stock with a lot of upside and will be somewhat resistant against a slowdown in consumer spending. " When asked by Fox Business anchor Brian Sullivan about eBay's string of acquisitions, Nick noted that the team had been concerned about the flurried pace, but now believe that eBay is "doing some of the right things." Nick said, "When you are in the internet space, it is the wild west frontier of the globe. You need to be pretty aggressive and forward looking."
Nick also discussed ITT Educational Services, a leading company in the for-profit school sector. This sector has come under pressure due to investigations about the management of some grants and scholarships. Nick noted that he didn't think that ITT was immune to these pressures, but said that he believes ITT is "on sale right now." He said, "the stock price has reflected a lot of the concerns…this is a very well run business [with] very high return on capital." Although he believes ITT will be a less profitable business because "it looks like school loans are going to be part of their cost structure now," the company's "very high free-cash-flow yield and decent growth" prospects make this an attractive choice.
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1 As of March 31, 2008, the top 10 holdings in the Calamos Growth Fund, followed by percentage of assets represented, are: Apple, Inc., 4.14%; Gilead Sciences, Inc., 3.57%; Google, Inc., 3.52%; Research in Motion, Ltd., 3.49%; Nike, Inc., 2.75%; Amazon.com, Inc., 1.79%; Smith International, Inc., 1.52%; EMC Corp., 1.44%; Honeywell International, Inc, 1.36%; Nintendo Co. Ltd, 1.34%.
Important Fund Information
The Fund may invest in mid-size and small companies which present greater risk and higher volatility than investments in larger, more established companies. The Fund may also invest up to 25% of its assets in the securities of foreign issuers. As a result of political or economic instability in foreign countries, there can be special risks associated with investing foreign securities, including fluctuations in currency exchange rates, increased price volatility, and difficulty obtaining information.