Marian Kessler // Co-Portfolio Manager // Becker Value Equity (BVEFX)

Comments & Outlook

We talk to companies such as FedEx Corp (NYSE: FDX), Visa (NYSE: V) and 3M Co (NYSE: MMM) frequently because their operations offer an excellent snapshot of logistics and transportation activities, global consumer and enterprise transactions, as well as consumer and business spending. They’ve all been saying that the US is okay, but that Europe is definitely in recession.

They’ve also told us the Far East is holding up better than the headlines indicate. Operating margins are also holding steady.

One of the consistent themes is that earnings growth is increasingly coming from share repurchases. Companies hoarded their cash after the recession and have been surprisingly reluctant to make acquisitions or even increase their dividends. Many are now using their capital to buy back stock, and that’s going to continue to drive earnings growth more so than revenue.

Investment Strategy

We focus on high-quality stocks that have fallen out of favor with the market, but we don’t buy turnarounds or speculative names. We buy these stocks at steep discounts to their historical norms.

Most important, we only buy companies that have a clear strategy for stabilizing or improving their fundamentals. That’s because cheap stocks can turn into value traps, if earnings or margins keep deteriorating.

Portfolio Picks

We just added Vodafone Group (NSDQ: VOD) to our portfolio by swapping out of our position in Verizon (NYSE: VZ). Vodafone’s shares are depressed, and the stock’s dividend currently yields around 5.7 percent, so it offers a better value than Verizon. Vodafone is one of the largest wireless companies in the world. It has a solid balance sheet, and we think it will be able to monetize its 45 percent stake in Verizon Wireless.

Teck Resources (NYSE: TCK) is an underfollowed Canadian coal company. It’s one of the largest and lowest-cost producers of metallurgical coal, which is used mainly to produce steel. The stock is down 50 percent over the past 18 months because of macro worries over growth, rather than the company’s fundamentals.

Coach (NYSE: COH) has hit hard times because of increased competition from competitors such as Michael Kors Holdings (NYSE: KORS), but it has extremely attractive margins and recently launched a very promising line of men’s products. We also expect it to continue expanding internationally.

Lewis Kaufman // Portfolio Manager // Thornburg Developing World (THDAX)

Comments & Outlook

There’s a disconnect between the strong gains in emerging market stocks and the decelerating growth in major developing-world economies. Brazil and India both slowed significantly in 2012, and that will likely remain the case this year. China’s economy has probably bottomed, but we expect it to stabilize rather than reaccelerate.

By contrast, Southeast Asia offers one of the few pockets of growth in the world and could even surprise investors by growing faster than projected, particularly the Philippines. The island nation has a large population working abroad that’s sending money home, which is then getting redeployed in the domestic economy.

Investment Strategy

We’re focused not just on generating long-term capital appreciation, but also managing the volatility inherent in emerging market stocks.

An emerging market investment is a combination of the stock and the underlying currency in which it’s denominated. In the developing world, a currency’s performance tends to flow through to that country’s stock market. While we accept volatility in share prices, we try to avoid investing in a stock or currency that’s going to permanently impair capital during a period of duress.

As such, we favor financially sound companies that generate strong free cash flow without relying heavily on leverage. And we look for underlying currencies that face less risk of devaluation and countries that have relatively low current account deficits.

Portfolio Picks

PT Mitra Adiperkasa Tbk (Indonesia: MAPI) owns and operates department stores and specialty stores in prime locations in many of Indonesia’s premier malls. Additionally, they’ve licensed a number of top Western brands that resonate with Indonesia’s youthful population. The country’s strong consumer economy should enable the company to grow revenue by at least 20 percent annualized over the next several years.

Although casino operator Naga- Corp (Hong Kong: 3918) is domiciled in Cambodia, it primarily caters to Vietnamese consumers who travel to its NagaWorld resort to gamble. Vietnam does not yet have a well-developed stock market, so this stock offers an alternative way to gain exposure to Vietnam’s consumer story. The company generates copious free cash flow, and its shares trade at a substantial discount to the casinos in Macau.