US equities are most attractive asset class, says ClearBridge Advisors’ Hersh Cohen

Cheap valuations and rising yields currently make US equities the best asset class in the world, says Hersh Cohen, who oversees $48bn as chief investment officer at Legg Mason subsidiary ClearBridge Advisors.

American stocks have discounted a very negative scenario and high quality stocks have discounted the worst possible scenario. We can’t find any areas of the market that are overpriced. But companies are flush with cash and are being aggressive with dividends and share buy backs. Even some great cyclical companies are now trading at levels that look very attractive.

We like the blue chips where price-earnings multiples are compressed and expectations are low and can’t really get any lower, giving us limited downside.

Walmart has done a wonderful job of navigating the current crisis. It has done everything right both for shoppers and shareholders. Microsoft, on the other hand, is just a cash machine. Its earnings keep rising every year and so do its dividends, which now stand at 3%. Plus it will be launching the new Microsoft Office software fairly soon.

Exxon is a business that makes money in all environments and does the right thing for shareholders.

We think the surprises over the next six months will be on the upside. But after the second half of the year, when austerity measures become more real, the situation will become increasingly uncertain.

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