The following is an excerpt from today's Barrons on-line magazine. This is an interview with John B. Fields, the manager of the Decatur Total Return and Income funds, dividend-oriented funds.
Q: Next?
A: The third one is a little more controversial, Pharmacia & Upjohn. This one trades at a little over 19 times 1998 earnings, and those are depressed earnings. The whole world knows this has been a tough integration. They have been missing the numbers, particularly because of a lack of sophisticated currency hedging, and they obviously are exposed to the currency moves that have been going on. The yield today is over 3%. So we are essentially paying no premium to the market on what we think is depressed earnings.
What everybody is missing is not too long ago they announced a new chief executive. It is completely unrealistic to think this guy can do anything in the couple of months that he has been on the job. But he is one of the best in the business, from American Home Products, which has a reputation for running a very tight financial ship, which this company is going to need. The new-drug pipeline is weak vs. other drug companies, but when you get to 1999-2000, there are some potential winners in the pipeline. And then we have an incredibly depressed stock with no expectations. We think new management is really going to be implementing tighter financial controls and a good plan over the next six months. But none of that is priced into the stock today. So, it has very low risk, but we think tremendous total return potential, and we are collecting a 3% yield while we wait.
[P.S. The new CEO is Fred Hassan.] |
