Michael Embler, 43
Chief investment officer, Franklin Mutual Advisers, Short Hills, N.J.
1988 Vice-president, Dow Jones Federal Filings Inc., and co-founder, The Daily Bankruptcy Review1992 Manager of a "special situations" investment fund, Nomura Holding America Inc.
2001 Joined Franklin Mutual, where he manages $9 billion (U.S.) in funds, including the Mutual Beacon Fund for Franklin Templeton Investments in Toronto
HOW TO FIND STOCKS CHEAP "When we buy a stock, the first thing we think of is, 'How much money can we lose?'" mopes Embler. Forget sexy, tight-fitting names that have been overpriced by hype, like Lululemon or Google. He usually sticks to dreary old cheap sectors like forestry or hardware retailing. "We look for a material discount to intrinsic value," says Embler. One yardstick that particularly excites him is cash flow per share over share price, the so-called cash flow yield. If he sees an annual yield of 8% to 12%, he gets animated. . .and shifts slightly in his chair.
UNFASHIONABLE, AND PROUD OF IT Embler doesn't care that his unfashionable stock picks make him look like the guy in a headband, denim jacket and flared pants. Making money off dogs takes "possibly 10 years," he says. "We're not momentum players." In the short term, however, he's not afraid to mix it up with companies if he thinks they're playing investors for suckers. In 2004, he pumped more than $250 million (U.S.) into bonds of HealthSouth, the scandal-ridden U.S. hospital chain. He demanded accelerated repayment because the company missed deadlines for filing financial statements. Eventually, he and other vulture investors settled, and his funds collected a reported $13 million (U.S.) as a special payment. "We've been known to get feisty," he admits.
THE CASE FOR MICROSOFT "Here's a company that everybody hates," Embler rejoices. Investors have grown weary of Microsoft's lacklustre returns and its failure to halt Google's dominance of the Internet. But they're ignoring the still-awesome cash-generating power of Microsoft's software licences, says Embler. "If Microsoft shut down tomorrow and there was just one employee left to cash cheques, the payments would continue for 20 years."
ANY OTHER STOCKS LOOK GOOD OR BAD? Another Embler fave is Home Depot, with its dark, cluttered shelves and irritable investors. Sure, "it may be dead money for two years," but he reckons that Robert Nardelli, ousted as CEO in January and paid a gargantuan $210 million (U.S.) in severance, actually brought the company into the 21st century. "They didn't even have e-mail," says Embler. He thinks the freewheeling retailer needed Nardelli's rigorous General Electric-style focus on costs and technology to fight off the rival Lowe's chain.
BECAUSE WE'RE WORTH IT Mutual Beacon's yearly management expense ratio is a steepish 2.7%, but the fund has been a top-quartile performer among U.S. equity funds in Canada for seven of the past eight years.
THE BOTTOM LINE
Franklin Templeton Mutual Beacon Fund
1 year % 5 year %Average annual compound returns 11.7 6.9
(to July 31, 2007)Index 8.4 3.2
(Globefund U.S. Equity--Pure)
© 2007 The Globe and Mail. All rights reserved.
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