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Templeton manager still finding bargains

Sees opportunities in wireless, drug stocks

INVESTMENT REPORTER

Despite volatility in recent months, there are still bargains to be had in the stock market, especially in wireless and pharmaceutical issues, says the manager of Canada's biggest mutual fund.

"We couldn't own those stocks, usually," because they were overvalued, George Morgan, head of the $9.7-billion Templeton Growth Fund, said in a conference call yesterday. "Now we're getting an opportunity to buy."

In fact, Mr. Morgan said he's been "nibbling" lately at wireless stocks, such as AT&T Wireless Services Inc., because the "valuations are effective and the price collapse is way overdone."

He also said there's been some "angst" about pharmaceutical companies, relating to their future profitability and patent expirations. Mr. Morgan said the stocks have fallen as a result. "We're paying a lot of attention to that because we think a Bristol-Myers [Squibb Co.] for example . . . is very much at a buying point."

At the same time, he's been trimming his exposure to stocks such as Samsung Electronics Co. Ltd. of South Korea because the stock doubled since he bought it, he said. "That's an awful lot of profit that I don't want to let slip."

He's also sold some basic industry and chemicals stocks because in some cases they "are reaching their full five-year potential of our models, so we're happy to take a little money off the table."

So far, the fund has 33 per cent of its assets in the United States, followed by 35 per cent in Europe and around 20 per cent in Asia. The rest is in Latin America and other emerging markets, Mr. Morgan said.

Lately, he said he hasn't been able to find many bargains in the United States. "The U.S. market, for us, remains by and large . . . quite expensive no matter what yardstick you use. It's not cheap unto itself and it's not cheap to the rest of the world."

He feels the same way about Canada, saying he hasn't found "any striking bargains."

Japan, too, is a place investors should be cautious about. Mr. Morgan said the economy in Japan "is something of a disaster." The country's economy has been in a decade-long bear market.

Meanwhile, the European markets provide an "attractive proposition" for investors, because of a drop in taxation and the euro being a cheap currency, he said.

Don Reed, president and chief executive officer of Franklin Templeton Investments Corp., agrees. "We are finding a lot of value in Europe right now versus many other parts of the world," he said, adding that the markets in general are quite cheap.

Being a value player has paid off well for Mr. Morgan over the long run. While the average global equity fund over the past three years for the period ended Feb. 28 has yielded an average annual return of 1.5 per cent, Templeton Growth has moved up 7 per cent.

But this pales in comparison with the AGF International Value Fund, Canada's second-largest fund, which is up 16 per cent a year on average over the three-year period.

Mr. Morgan believes the Templeton Growth Fund, which in spite of its name is actually a value fund, will continue to do well because he believes value will continue to outpace growth. "We are into somewhat tougher times. I don't think we're going to see . . . hordes out there buying everything and anything upon sight again," he said.

Mr. Reed, who runs the $5.1-billion Templeton International Stock Fund, said he's now picking up many growth stocks that have fallen to value-stock levels. "Value investing has been very strong over the last year and a half or so."

© 2007 The Globe and Mail. All rights reserved.

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