CNBC"Closing Bell" October 9, 2006
Nick Calamos Speaks to Mid-Cycle Slowdown, Shifts in Market Leadership
On CNBC's October 9 broadcast of "Closing Bell," Nick P. Calamos, CFA and Co-Chief Investment Officer of Calamos Investments, discussed his view that the economy is entering a period of mid-cycle slowdown—an environment he believes will favor steadier, traditional growth investments over cyclicals.
Calamos said he believes the mid-cycle slowdown will set the stage for a change in market leadership.
"This has been a tough market for growth investors since 2000. Value stocks and cyclical stocks have significantly outperformed growth stocks; and at the same time, large-cap stocks have significantly underperformed the small- and mid-cap stocks. We're big believers that the mid-cycle slowdown that we see here will cause a shift back into the big-cap growth stocks that are trading at market multiples or less."
In such an environment, he said he believes large-cap companies in sectors such as financials and technology will be well positioned. "We don't think we're going to see a recession, just a slowdown," he said. "And, the cyclical earnings for companies in the energy and industrial sectors—even the commodity sectors—will start to run negative year-over-year."
He said he expects that the traditional growth companies that generate "more stable earnings year-over-year are going to look very good."
Calamos said his team has found a number of opportunities to invest in these types of businesses. "This is a great time to buy attractively priced, good companies at what we feel are bargain prices, with a lot of upside potential and limited downside risk." Calamos spoke to examples in the technology sector, including Oracle and Microsoft, citing these companies' stock buy-backs, high return on invested capital, new product cycles and product upgrades.
He also discussed Home Depot, an "unloved stock" in the market that meets his team's criteria. For Calamos, the stock's price reflects the negative sentiment surrounding the company, but overlooks Home Depot's above-market return on capital, as well as its earnings growth and strategic plans to expand its wholesale distribution business with contractors.
Consistent with the firm's economic perspective, Calamos said the firm's investment management team is currently underweighting the energy sector. "We think that we've seen the peak in earnings for this cycle, or are very close to it." However, in order to manage event-driven risk, the Calamos portfolios do include stakes in the energy sector. "More Mid-East tensions could change the equation pretty quickly," he explained. "We think [we] need to be underweighted at these levels, but [we] still need to have some exposure."
For more on Nick Calamos' view on the market and long-term investment opportunities, please visit our commentary section.