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MONDAY, FEBRUARY 1, 2010

BARRON'S ROUNDTABLE

The New Normal

By LAUREN R. RUBLIN

In the final installment of this year's in-depth conversation with Wall Street
luminaries, Bill Gross, Meryl Witmer, Archie MacAllaster and Fred Hickey discuss
their investment recommendations. Gold, anyone?

YES, IT'S A YEAR -- and maybe a decade -- for belts and suspenders. It began with a bang, as the bull
whizzed past Go without even pausing to pick up his $200. Then stocks suddenly stumbled and tumbled, as
Wall Street woke up to the economic messes both here and abroad.

The members of the Barron's Roundtable warned it wouldn't be smooth sailing for the market -- or investors --
when these Street seers met Jan. 11 with the editors of your favorite newsweekly. No surprise, their concerns
about the economy and the markets, aired in the past two issues of Barron's, underly their investment
recommendations for 2010, in particular those of this week's stars: Bill Gross, Meryl Witmer, Fred Hickey and
Archie MacAllaster.

Bill, head honcho at Pimco, the bond powerhouse in Newport Beach, Calif., begins the proceedings with a
description of what his firm calls "the new normal" -- slower growth in the years ahead than the abnormal
growth of the mid-2000s. Accordingly, he emphasizes "stable, conservative income generation" -- and several
bonds and exchange-traded funds that offer appropriately juicy yields.

Meryl, a general partner of Eagle Capital Partners in New York, canvasses the earth for intriguing investments,
and that includes what's inside it -- namely, salt. This year she shares her upbeat and well-researched views not
only of a leading salt producer, but a German biotech outfit and several undervalued insurers.

Fred Hickey is the New Hampshire-based editor of the High-Tech Strategist. Just don't mistake it for bedtime
reading, or you'll never fall asleep. Fred says he's sworn off short-selling in a world in which central bankers
print money, though that is a decision he may yet regret. Instead, he's buying gold stocks big and small, for the
coming "crazy" stage of the gold rally, and a handful of technology companies whose true value inexplicably
remains hidden.

Few folks know their way around financial stocks as well as Archie MacAllaster, head of New York's MacAllaster
Pitfield Mackay. The Roundtable ends, in print and person, with his astute analysis of several beaten-up banks

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and insurers, some selling nicely below book value, whose glory days might not be over, no matter the market's
current view.

Visit the Barron's 2010 Roundtable page. Barron's: Bill, given your concerns about the economy, where
would you invest this year?

Gross: Pimco is a "new normal" company. We believe the new normal means slower growth in the years ahead,
including the second half of 2010. There are three reasons for this. One is deleveraging -- paying down debt -- a
process now under way. No. 2 is re-regulation, which hasn't taken place yet. No. 3 is de-globalization. Various
countries around the world will produce slower growth than what we've grown used to, and this leads to lower
returns on assets. We are beginning to see evidence of these things in the bond market, where yields on 10-year
Treasuries are around 3.5%. The G7 economies [economies of the world's most industrialized nations] could
grow 4% to 5% in the first quarter or half of 2010, so the new normal isn't an immediate outlook. It is a
longer-term, you-better-be-careful type of outlook.

A year ago Pimco's recommendation, and mine, was to shake

hands with the government -- that is, buy what the government
was buying. The U.S. and other governments have purchased
$1.5 trillion to $2 trillion of assets, which has propelled not just
the bond and mortgage markets, but all asset markets higher. In
a sense, the global economy has been salvaged, and we are all
the better for it, at least in the short run. This morning we talked
about the possibility that government stimulus ends. In that
View Full Image
case, all investors, not just bond investors, should seek
Brad Trent
The Final Four: Bill Gross, Meryl Witmer, Archie safe-harbor assets and be careful about which government they
MacAllaster and Fred Hickey tell where to invest in shake hands with. Money should gravitate away from
2010.
governments that abused their deficit privileges, such as the
United Kingdom and maybe the U.S., to those such as Germany that have much lower deficits. All risk assets
have benefited tremendously from the liquidity push. From this point forward, be careful if liquidity is
withdrawn in the U.S. and U.K. A bird in the hand -- that is, dividends -- is to be favored relative to the growth
rate in the bush. In both fixed income and equity, look to stable, conservative income generation.

Where do you expect to find it?

Gross: Despite my criticism, my picks are U.S.-oriented and speak to generating stable income in two ways.
The first is through closed-end funds that, as a class, can benefit by using leverage. They can borrow 35% to
50% of the value of their assets at near-zero percentage rates, and reinvest in their asset class at 5%, 6%, 7%,
8%, even 9%. This isn't a time to leverage up but a time to use mild leverage if you can benefit by being a
borrower as opposed to a saver. We like Reaves Utility Income Fund [ticker: UTG]. Utilities are a stable
source of income, although they have had ups and downs. Electric utilities currently yield about 5%, plus or
minus. I know nothing about Reaves from a management standpoint, only that the closed-end fund has a
market value of about $500 million. They did well in the past 12 to 18 months. They weren't forced to liquidate
any positions. The fund yields 7.25%, compared with 4.5% to 5% on most electric utilities.

How does Reaves manage that?

Gross: The extra comes from borrowing at near-zero and

investing at 5.5%. And dividends are taxable at only 15%. Is this

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Chris Casaburi a perfect investment? Will it let you sleep at night if we have
Bill Gross
another crisis? No. But it is a decent way to generate income in a
slow-growth environment where the premium should be on stability.

What would happen if interest rates rose?

Gross: That's not good. The dividend would become less safe, and maybe vulnerable. We are forecasting that
the Federal Reserve keeps interest rates in the 1% range for the next 12 to 24 months. At some point, investors,
or even Main Street, may force the Fed to give them something more. Most of the time we view rates from the
standpoint of what borrowers and banks need in order to regenerate capital. Rate policy is never determined by
the yield Main Street needs on CDs [certificates of deposit] in order to survive. At some point there could be a
compromise, but it isn't one the Fed is used to making or even thinking about. Interest rates can't stay at zero
forever, but they are going to stay low for a long, long time.

Does Reaves sell at a discount to net asset value?

Gross: It sells close to net asset value. My next pick is Pimco Corporate Opportunity [PTY], a closed-end
fund. Don't place an order the day these comments are published. The same goes for Reaves. These are thinly
traded issues, and you don't want to overpay if people bid them up. I have recommended Pimco Corporate
Opportunity in the past. I have been managing the fund for six months or so, but I've been watching over the
nest like a mother hen for a long time. The market cap is $1 billion, and the fund invests primarily in
investment-grade corporate bonds. About 20% is in less-than-investment-grade bonds, but this isn't a junk
fund. It is a high-yield fund. The typical investment is in shake-hands-with-the-government-type bonds, issued
by the likes of AIG [ American International Group], Sallie Mae [SLM] and GMAC. These companies are
either mildly government-sponsored or government supported. This closed-end fund has tripled in the past 12
to 15 months. Shares have gone from about 5 to 15. But here's the key: It yields close to 13%. That includes a
special dividend. Dividends are determined by the board.

Bill Gross's Picks Cohen: What is the yield without the special dividend?

Closed-End Ticker 1/8/10 Gross: The special dividend was 58 cents a share. The regular
Funds Price/Yield
Reaves Utility UTG $19.14/7.5%
dividend is $1.38, so the 12-month yield based on that is about
Income Fund 13%. Next, I have two bonds, including one I recommended last
Pimco Corp PTY 14.60/13.0 year. Some problems in the bond market have to do primarily
Opportunity Fund
BONDS
with the terrible performance of the rating agencies. Not only
GMAC 8% due $95/8.5% didn't they downgrade debt in a timely fashion, but having
2031 downgraded, they don't upgrade when circumstances change.
AIG 8.25% due 93/9.1
2018
Take GMAC. It is 54%-owned by the government, which has
Source: Bloomberg, Pimco invested $20 billion in the company. To think the government is
going to let GMAC go down the drain when it has 20 billion
bucks to lose is sort of a stretch. Yet because GMAC was associated with General Motors, which defaulted,
Standard & Poor's downgraded its credit to triple-C. [S&P upgraded GMAC'S debt to B last Wednesday.] Most
investors can't invest in triple-C-rated debt.

MERYL WITMER Witmer: Such restrictions aren't the rating agencies' fault.
General partner, They are investors' fault.
Eagle Capital Partners, New York
ARCHIE MacALLASTER Gross: That's true. We like the GMAC 8% due 2031. It was a $5
Chairman,
MacAllaster Pitfield MacKay, billion issue. The bonds yield 8.5%. That is a lot for a company

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New York that is 54%-owned by the government. What would investors pay
FRED HICKEY for Fannie Mae [FNM] and Freddie Mac [FRE] debt? They
Editor, The High-Tech Strategist,
Nashua, N.H. are 90%-owned by the government. But the rating agencies
SCOTT BLACK never downgraded Fannie or Freddie, for fear the government
Founder and president, would run the agencies out of town. Instead they downgraded
Delphi Management,
Boston, Mass. GMAC and AIG, another bond I'm recommending, which
FELIX ZULAUF created huge disparities in the market. Fannie and Freddie
Owner and president, 10-year paper yields about 4%, whereas GMAC and AIG yield
Zulauf Asset Management,
Zug, Switzerland 8.5% to 9%, simply because the rating agencies don't think they
BILL GROSS are in the same situation. But they are close to the same thing,
Founder and co-chief investment when you think about.
officer, Pimco, Newport Beach,
Calif.
MacAllaster: Do you like bank preferred?
MARC FABER
Managing director,
Marc Faber Ltd., Hong Kong Gross: I recommended bank preferred stock last year. As a
ABBY JOSEPH COHEN class it was trading for 60 to 70 cents on the dollar. Now many
Senior investment strategist and president, preferreds are trading at par, or 100, but they are still good
Global Markets Institute,
Goldman Sachs, New York investments. I have many bank preferreds in my personal
OSCAR SCHAFER portfolio.
Managing partner,
O.S.S. Capital Management, My last pick is an AIG issue, the 8.25% due 2018. They yield
New York
8.5% today. AIG has received billions of dollars in government
MARIO GABELLI
Chairman, support. The government has invested $45 billion in AIG
Gamco Investors, preferred stock. With that kind of support beneath you , it is a
Rye, New York
comfortable situation, especially given the yield. The
government put billions of dollars more into companies like AIG
Bill Gross: What than it ever put into GM.
Will Drive the Market
In 2010
3:08 There is a difference. Saving General Motors was a popular
Bill Gross, founder and idea. It kept workers on the job. That's not the case with AIG.
co-chief investment officer
at Pimco and Barron's
Roundtable member, believes the direction of Gross: All I'm saying is the government would lose almost $50
short-term interest rates, inflation and quantitive
easing will be the driving market forces in 2010. billion if it decides AIG no longer is worth supporting. It is a
game of chicken. You either call the government's bluff or you
don't.

Faber: Would you buy other AIG bonds?

Gross: Debt of the holding company is the safest. Probably the best value are bonds of AIG's International
Lease Finance.

Faber: GMAC also has an 8% of 2018 that seems to yield even more.

Gross: If you are more conservative, go with the 2018.

Thanks, Bill. Meryl, you're on.

Witmer: My first pick is Compass Minerals [CMP], which trades at 72 a share. It has 33 million shares and
debt of $500 million. Recently volatile results in potash have obscured the long-term positive trends in its salt
and potash operations. Compass owns perhaps the best rock-salt mine in the world, in Ontario, next to Lake

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Huron. The reserves are huge, and unlike most salt mines, capacity can be increased easily due to the width of
the salt seam. Compass expanded this mine from 2.5 million tons in the 1980s to seven million tons, and it is
expanding it to nine million tons. Transportation is cheap and easy over the Great Lakes, to the snowbelt states.

Compass also owns mines in Louisiana and the U.K, and evaporation facilities in the U.S. and Canada to
produce consumer and industrial salts. These are used in food processing, water softening, chemicals and
agriculture. Compass has the leading consumer-salt brand in Canada, Sifto.

Is the salt market growing?

Witmer: Volume usage grows just 1% to 2% a year, and pricing

grows about 3% a year. But Compass' revenue has grown 11% a
year, and its profit 14%, since 2003. That is because the
company has one of the only easily expandable mines, and
captures most of the growth in the rock-salt market. The salt
industry has consolidated, with just a few players selling a
View Full Image product that is economic to sell only to a limited geographic
Chris Casaburi
area.
Meryl Witmer

Compass also produces sulfate of potash, or SOP. It is a

specialty fertilizer that typically sells at a premium of $150 to $200 a ton to commodity potash. This potash is
used to grow green vegetables, avocados, pecan and citrus trees, potatoes and other specialty crops, which
account for 4% of harvested acreage in the U.S. but 40% of crop value. It isn't used on commodity crops such as
corn, soybeans and wheat. Compass produces about half its potash at the Great Salt Lake, using solar and wind
evaporation. It is expanding its evaporation ponds, and has leases on virtually all the commercially viable SOP
production areas of the lake. It also has a nascent document-storage business in the U.K., with virtually
unlimited storage capacity in an old salt mine. That could become a very valuable business in its own right.

Tell us about earnings.

Witmer: There is some variability due to the weather and potash pricing. Compass should earn about $5.20 a
share for 2009 and $6 this year. The company has earnings power of $8 to $9 in 2011 or 2012. The stock sells
for about 72. My earnings estimates reflect capacity additions, normalizing potash volumes and small price
increases in salt. Every 10% increase in the price of salt yields $2 more in earnings.

MacAllaster: What is the earnings breakdown between potash and salt?

Witmer: It depends on potash prices, but it is about one-quarter potash and three-quarters salt. Compass
should trade at a minimum of 13 times earnings. Our one-year target is 100 a share, or more.

My next pick is a Dutch insurer, Delta Lloyd [DL.The Netherlands]. It trades in Amsterdam at 17 euros
[$23.57] a share. It came public in November at €16, with Aviva [AV], the U.K. insurance company, selling
41% of its stake. It still owns the rest. There are 166 million shares. The company caught my attention as a
potential investment when, on the roadshow, the CEO said "we will be delivering sustainable value for
shareholders through a long-term focus." That means "we will make you money and pay it out in dividends."
That's the kind of guy I like.

What sort of insurance does it specialize in?

Witmer: It operates under Delta Lloyd, OHRO and ABM Amro. Life and pension insurance account for 75% of

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its business. It also has an asset-management arm that manages its own assets and retail mutual funds. Its core
markets are the Netherlands and Belgium. It has a strong focus on costs, and capital strength. Ninety percent of
core capital is tangible. And Delta Lloyd has great risk management. The company has grown 10% a year in the
past decade through organic growth and acquisitions. It has a 30-year exclusive agreement with ABN Amro. In
general insurance, it has strong niche positions, and with the Dutch government withdrawing from some
income and disability coverage, that opens opportunities in private insurance. Delta Lloyd could earn about 13%
over time on tangible book value, or €2.60 a share. It should trade at 10 to 11 times earnings. Our one-year
target is €26 to €28 a share.

Genworth MI Canada [MIC.Canada] is another insurance company. It trades on the Toronto Stock
Exchange. Genworth Financial [GNW] took it public July 7, as the U.S. company needed capital.

MacAllaster: Genworth Financial used to be owned by General Electric [GE].

Witmer: Genworth Canada insures consumer mortgages in Canada, whose residential market is safer than
ours. It isn't overbuilt. Lenders have had tougher underwriting standards because they retain most of their
mortgages. Proof of the difference can be seen in 90-day delinquency rates. In Canada they are below 0.5 basis
points [half a percentage point], and in the U.S. they are over 400 basis points.

The Canadian consumer also is different from the U.S. consumer, and not as comfortable with debt. The
mortgage borrower is on the hook for life, and the insurer can garnish his wages in perpetuity. The only way to
escape a secured loan is by filing for bankruptcy, and in Canada little in the way of owned assets are retained.
Also, given Canada's national health system, there are few medical-related bankruptcies. The competitive
dynamic is different, too.

How so?

Witmer: Genworth Canada's main competitor is CMHC, a Crown [government-owned] corporation. Before the
financial crisis, Genworth Canada had grown its market share to nearly 50%. Then it lost share, partly because
it was owned by a U.S. parent with a low stock price. Even though the companies were separately regulated,
lenders were concerned. Plus, the Canadian government guarantees 100% of CMHC's insurance policies but
only 90% of Genworth's. As fear of implosion recedes, Genworth Canada is regaining market share. And, there
is a chance Ottawa brings its guarantee to 100% for all players in the market. Genworth Canada could earn 2.50
Canadian dollars to C$2.80 a share in 2010, and the stock is C$26. It should trade at 10 to 11 times earnings
and earn about C$3 a share in 2011. Our target is C$34 to C$37 a share. The stock yields 3.4% and the dividend
may increase soon.

Meryl Witmer's Picks Schafer: Mortgage-interest payments aren't deductible in

Canada.
Company Ticker 1/8/10
Price
Compass CMP $73.81
Witmer: Good point. Canadians are incentivized to pay down
Minerals their mortgages, and they do. My next stock is Stewart
Delta Lloyd DL.Netherlands €17.16 Information Services [STC], which trades around 11. Stewart
Genworth MI MIC.Canada C$26.00
Canada
is one of three major title-insurance companies in the U.S. The
Stewart Info STC $11.13 others are Fidelity National [FNF] and a soon-to-be-spun-off
Svs subsidiary of First American [FAF]. Title-company results
Biotest BIO3.Germany €37.51
have been poor in the past three years due to losses stemming
Source: Bloomberg
from fraud and poor underwriting in the mortgage-boom years.
Before that, underwriting losses averaged around 5% of

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premiums. It was a nice business. The industry has taken most of the hit with regard to losses bubbling up from
the past. More important, the regulatory pendulum is swinging in its favor, and properly so.

How do you mean?

Witmer: Title companies can write business directly or outside agents can write the business, giving title
insurers a negotiated percentage of the premium, usually 10% to 30%. Some states have mandated increases in
the percentage of premium kept by the title companies. Also, state insurance commissions are putting through
rate increases for title insurers because they want the companies to have increased liquidity. They want no
chance of another title company going bankrupt, because the states would have to backstop the policies and
their own budgets are in deficits.

Stewart also has a hidden asset: tax benefits. The company said it has a $35 million refund from the extension
of net-operating-loss carrybacks enacted by the Obama administration. It should have about $75 million in all,
worth about $4 a share. Add that to tangible book value of $11.50 a share, and you get a true book value of
$15.50. The business should earn 10% to 15% on book and have normalized earnings of $1.50 to $2 a share. At
11 a share it is a real value. Our price target is 15 to 20.

My last pick is a German pharmaceutical company, Biotest

Meryl Witmer:
Mix of Salt and [BIO3.Germany]. I'm recommending "preferred" shares, which
Potash Outperfoms is a misnomer. They have rights similar to common shares, and
2:23
Meryl Witmer, general a better float. The stock sells for €37.50. There are 11.7 million
partner at Eagle Capital total shares outstanding. The company has two main segments:
Partners and Barron's
Roundtable member, discusses Compass Minerals, aplasma proteins and biotherapeutics. Its plasma products are
salt and potash maker, whose shares are expected to
perform well over the next several years.
immunoglobulins, clotting factors and albumin -- all made from
human plasma. The immunoglobulins are used by people with
immune deficiencies, sepsis and various orphan diseases, and by hepatitis B patients after a liver transplant.
The clotting factors are used mainly by people with hemophilia.

Biotest's products are sold mainly in Europe and Asia, but they should have U.S. approval for their main
products early in 2011. The biotherapeutics segment is a research and development company, with no revenue.
It has three drug candidates, with indications for rheumatoid arthritis, psoriasis, multiple myeloma and lupus.
The rheumatoid arthritis and psoriasis markets are well north of $10 billion. The Biotest drug BT-061 is very
promising, as it is active early in the inflammatory cascade and doesn't suppress the immune system like the
drugs it would compete against. BT-061 is in Phase II trials now. Since Biotest's equity capitalization is about
€400 million, the upside would be huge if this gets approved.

Does the company have enough cash?

Witmer: It does. It just sold a business for €45 million. The sale pre-funds a few more years of research-
and-development expense. The biotherapeutics business is spending about €18 million a year on R&D. The
plasma business is a cash cow, and is worth more than the current stock price. Biotest should have after-tax free
cash flow of about €4 per share. That alone could have the stock trading around €48 a share. Plus, if
biotherapeutics were a standalone business with the cash, it would trade at €70 million to €100 million, adding
another €6 of value per share. Add that to my €48 for the plasma business, and you get a price target of €55 a
share.

Is Biotest a takeover candidate?

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Witmer: Before the financial meltdown, the family that controls the voting put it up for sale. Then the stock
price fell and they decided not to sell. Biotest would be a great takeover candidate for someone.

Thank you, Meryl. Let's hear from Fred.

Hickey: I have a couple of gold recommendations and some

tech names. I'm not shorting anything because I don't want to
short in an environment where the Fed is printing money, unless
prices go really crazy. Gold has been up for nine years and is
going higher. I still have a significant position in bullion and the
gold ETF [exchange-traded fund], GLD [ SPDR Gold
View Full Image Shares], but I want to move more into gold stocks this year.
Chris Casaburi
They have lagged the price of gold in the past two years. The
Fred Hickey
price of gold went up 30%, and the stocks fell about 7%, on
average. In most gold bull markets, the stocks will outperform by at least 2-to-1.

That hasn't happened this time because the companies' costs have risen as fast as the price of gold. In the third
quarter of 2009, the average realized price of gold for the companies I track was $965 an ounce. Their
exploration and development costs ran close to that. But this is changing, because the price of gold finally broke
through $1,000 an ounce and leaped to $1,200 in 2009's fourth quarter. It is near there now, after backing off a
bit. The average realized price for my companies is going to increase from $965 an ounce to more than $1,100.
A $135-an-ounce increase will fall through to the bottom line. Gold stocks that have been underperforming are
probably going to outperform now.

Did hedging restrain the performance of some companies?

Hickey: AngloGold Ashanti [AU] had some hedged books, but other than that, there are no more hedges of
significance in the business. I like the large gold stocks and small and intermediate miners, as well. Marc
recommended NovaGold Resources [NG] this morning, but I am not as brave as Marc is. There is a way to
get exposure to NovaGold and other small and medium-sized gold stocks through a new ETF that came out in
November: Market Vectors Junior Gold Miners, or GDXJ. It includes 55 names. The largest position is
under 5%, so you get a lot of diversification. A lot of these companies have lost money. They have negative cash
flow. But as the price of gold rises, investors get interested in the more speculative areas of the market, and
bigger gold miners start taking over other miners. This is a safer way to play it. The expense ratio is 60 basis
points. Market capitalizations of the companies in the ETF range from $200 million to $5 billion. There is also a
mix of silver miners here.

Fred Hickey's Picks Such as?

Company Ticker 1/8/10 Hickey: There's Hecla Mining [HL] and Silver Standard
Price
Mkt Vectors Jr Gold GDXJ $28.21
Resources [SSRI]. I have a bigger position in the large miners,
Miners which you can buy through the GDX [Market Vectors Gold
Newmont Mining NEM 49.62 Miners], but you want to have a position in the juniors in the
Sybase SY 43.78
future. As this bull market matures, it enters different phases.
Novell NOVL 4.62
The final phase is the crazy phase, when gold hits new highs and
Symantec SYMC 18.37
Microsoft MSFT 30.66 investors gravitate to the smaller names.
Source: Bloomberg
Does the junior ETF include South Africans? Hickey: I'd stay
away from South African miners because of country risk. Of the

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companies in the junior mining index, 62% are Canadian, 21% are U.S.-based, 12% are Australian and only
1.9% are South African. Also, I like the silver exposure. Silver typically does well in the later stages of a bull
market in precious metals.

MacAllaster: Actually, silver has done better than gold.

Hickey: But it is still undervalued relative to gold. Silver, platinum and palladium did well because people were
anticipating an improvement in the economy, and these precious metals have industrial exposure.

My second pick is Newmont Mining [NEM], a large gold miner. It has lagged in recent years because its
production has been in decline, and that's the case with the whole gold industry. It is difficult to find gold and
produce it. There are environmental issues. Declining production is an underlying positive for gold. In 2010,
however, Newmont will see a change. The company is bringing on the largest gold mine in Australia. Newmont
produces about 5.2 million ounces a year, and this mine will produce a million ounces a year, for 24 years. Also,
Newmont will have the benefit of higher gold prices. It also has been cutting costs. The stock sells for a little less
than 50. The company is expected to earn more than $3 a share this year, but that is conservative. In the third
quarter of 2009, they made 79 cents, versus estimates of 55 cents. The new CEO, Richard O'Brien, is trying to
keep expectations low. Newmont is going to blow away expectations in the current quarter, and as long as gold
is $1,100 or higher, you'll see some big numbers. Newmont could earn $4 a share in 2010. Put a P/E of 15 to 20
on it, and you have a significantly higher stock price.

What about 2011?

Hickey: That will depend on the price of gold. If gold goes to the levels I expect, it could earn $5 or $6 a share.

Faber: The stock is at the same level as in 2003. The gold price is up three times. This is a very cheap stock.

Hickey: Earlier today we talked about the underlying demand trends in tech. Industry researchers and
companies expect an improvement in enterprise spending after a period of underinvestment. In the personal-
computer market, we are looking not at the 2% to 3% growth seen in 2009 but at 12% to 13% growth. PCs are
getting old. Microsoft's [MSFT] Windows 7 operating system will be another sales driver. Even a company like
General Motors is going to update all its PCs in 2010. That's 100,000 PCs alone.

That said, tech stocks had a big run in 2009. While the Standard & Poor's 500 was up 23.5%, the Nasdaq
Composite was up 44% and the semiconductor sector was up 70%. And that's not off the lows, but for the whole
year. Many stocks now have big P/Es. Amazon.com [AMZN] sells for 80 times earnings. That's dangerous if
the market sells off, as some people here expect. I am trying to find companies that haven't performed as well
and aren't as overvalued on a P/E basis. They won't decline as much if a correction occurs.

Are there any?

Fred Hickey:
Tools of the Fed Feed
Market Growth Hickey: Sybase [SY] is one. It trades for just under 44 a share,
2:59
and has been reinventing itself. It used to be exclusively an
Fred Hickey, editor of The
High-Tech Strategist and enterprise-database software company that competed with
Barron's Roundtable Oracle [ORCL], but now it is in all sorts of hot new areas. It has
member, believes the Fed's fiscal moves have helped
a serious position in enterprise-mobility solutions, such as
rally the market. In 2010, he expects gold stocks to
outperform gold.
business software for BlackBerries. It provides software used in
e-mail, mobile banking and other areas that require you to go back to a database to check sales or inventory
numbers, or whatever.

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CRN Tech, a well-respected trade magazine, ranked Sybase as one of the top 10 tech companies that reinvented
itself last year. The magazine praised its anywhere-mobility office software, which integrates business e-mail
workflow with Apple's [AAPL] iPhone platform. Sybase is working with big partners like SAP [SAP] and IBM
[IBM]. It did very well last year in a difficult spending environment. It didn't miss earnings expectations, unlike
so many other companies. In fact, it raised guidance three times, and in the third quarter, the most difficult for
technology companies, it reported record revenue, operating margins, net income and cash flow, up 95% year
over year. [On Jan. 28 Sybase reported another record quarter and year, earning $2.48 for the full year.] CEO
John Chen, has been at Sybase for a long time. He is a very good manager of costs. And yes, the stock went up
75% last year, but the forward P/E is only 16.9 times. That isn't expensive for a company with this potential. The
price-to-sales ratio is 3, also not expensive. There is talk Sybase could be a takeover candidate.

Gabelli: What is the market cap?

Hickey: It's $3.6 billion. My second tech name isn't as sexy, though CRN Tech also chose it as a winner among
companies reinventing themselves. It's Novell [NOVL]. It sells for 4.62, and was a real laggard last year, up
only 7%. I owned the stock in the late 1980s and shorted it after that. When I first bought it, Novell was known
for its flagship local-area-network product. That business has been tailing off, and has been a drag on results.
The company moved into the open-source Linux operating system a few years ago with the purchase of SUSE
Linux, a highly rated product and that has been growing. It also has strengths in network security and identity
management. One Novell executive has called Novell the arms dealer for cloud computing.

What is the company's financial condition?

Hickey: That's the best part. Novell has a $1.6 billion market valuation and no debt. It has a billion dollars of
cash, and an enterprise value of $600 million. The company earned around 30 cents last year. The forward P/E
is 14 or so. The enterprise-value-to-revenue ratio is 0.7, which you can't find anywhere in the software world.
Their competitors sell at tremendous valuations. The SUSE product line competes with Red Hat [RHT], which
has a P/E of 73 and sells for eight times sales. If Novell gets a lift from enterprise spending and its new product
categories continue to grow, you could see some revenue growth. Reduced costs could help the bottom line. It
may take a while for the story to play out, but the risk/reward is nice.

Symantec [SYMC] is a third company that could benefit from enterprise spending. It trades for a little over 18
a share and the P/E is about 14, very low for a tech company. Based on estimates for the fiscal year ending
March 2011, the P/E is 11.85. Symantec also did relatively well through the downturn. Revenue and earnings
dropped by single digits, and they earned $1.57 a share in fiscal 2009. The company operates in three areas.
Norton AntiVirus is 31% of revenue, and it has a 53% market share. Norton could get a big lift from the launch
of Windows 7. The rest of the business is divided between enterprise storage and security. The storage business
has done well, and should get a lift as enterprise spending increases. Symantec is very profitable. It had 82%
gross margins in the September quarter [and 83% margins in the December quarter, reported Jan. 27]. It has
some net cash. The company generates a lot of cash from operations and recently announced a $1 billion share
buyback. With the Windows 7 push and a pickup in enterprise spending, you could see revenue growth again.
The stock has significant upside.

Black: What is their competitive position in enterprise security relative to Checkpoint Systems [CKP]?

Hickey: Checkpoint is a major player but Symantec is the leader. We talked about the attractions of Microsoft
this morning, and it is my last pick. It is in the midst of a powerful product-upgrade cycle, and Windows 7 hasn't
even hit its P&L [profit and loss statement] yet. We could see some dramatic numbers in the next reported

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quarter. [Microsoft earned 74 cents a share for the December quarter, reported Jan. 28. That was up 57% year
over year, and beat estimates by 25%.] In the September quarter they beat estimates by 25%. The other big
growth engine is Microsoft Office 2010, which will be shipped in the June quarter. And, at the end of the year
they will introduce Project Natal, which generated a lot of excitement at the Consumer Electronics Show. It
incorporates motion-sensing cameras and lets you play X-Box games without controllers. The game guys can't
wait for this product. They think it will be a huge boost to their industry.

Gabelli: It's a plus for Activision Blizzard [ATVI].

How high could Microsoft's stock go?

Hickey: It could go into the mid-40s, from 30.

Black: That would take the P/E above 20, based on estimated earnings for fiscal 2011.

Hickey: But Microsoft is going to continue to beat earnings estimates. It reduced headcount by 5,000
employees last year. The big gain they got in the third quarter was from cost cutting more than revenue growth.
Now they'll get revenue growth.

Gabelli: What is the earnings forecast for the full fiscal year?

Hickey: The estimate for the fiscal year ending June 2010 is $1.83 a share. They could exceed it by quite a bit.

The tax rate on dividends, now 15%, could rise after 2010. Do you think Microsoft will declare another special
dividend this year?

Hickey: It would make sense. They have $36 billion of cash. The yield on the regular dividend is close to 2%.
Cash flow will be enormous in coming quarters.

What are your thoughts on Apple?

Hickey: It is probably the best-positioned technology company. I was bearish on Apple [AAPL] but changed
my tune when I saw the app store a couple of years ago. Since then I have only been long, and I won't short it,
even though the stock has gone up to 200 a share. I would rather buy it after we get that correction we talked
about. The P/E is a little high. But it is going to be a great quarter for them. The PC and the iPhone business are
very strong. They are going to gain share in the smartphone market.

Thank you, Fred. Archie, it's your turn.

MacAllaster: The market is pretty fairly priced. I don't know

whether it will end the year higher or lower, but I do see
bargains in the financial sector, particularly in some
medium-sized life-insurance companies. Life companies tend to
write longer-term contracts than property and casualty insurers.
This was a simple business for many decades. Life insurers
View Full Image basically grow their assets over a long period of time and
Chris Casaburi
earnings tend to follow, though not in lockstep. Many life
Archie MacAllaster
companies were penalized in the stock market along with other
financials. They were knocked down to unbelievable prices. Even big companies like MetLife [MET] and
Prudential Financial [PRU] were selling under 20 a share at one point, and Pru was making $5 a share.

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I'll start with Protective Life [PL]. It is selling for 18 and pays a 48-cent dividend, after cutting the dividend
from 90 cents. Book value is 26.36. Protective is selling for about 5.7 times estimated 2010 earnings of $3 a
share. The company hasn't earned less than $3 in the past six years. In 2007, earnings topped out at more than
$4 a share. Most of these companies had their best earnings year in 2007. The previous high on the stock was
about 50, in '07.

My second name is Hartford Financial Services [HIG]. It took a real beating. It used to sell up around 90 to
100 a share.

And now?

MacAllaster: It's around 26. The company earned $9.23 a share in 2007 and paid a dividend of $2.12. Now it
pays 20 cents. Book value is $38 per share, though it was a good deal higher. They were expected to show a loss
for 2009, but after writedowns they will make about $1 a share. [Hartford raised its guidance Jan. 12 on core
fourth-quarter earnings, to $1.45 to $1.60 a share.]

Hartford was the only one of this group that received TARP [Troubled Asset Relief Program] money. It sold a lot
of annuity business on a very poor basis. A lot of people thought the company would go bankrupt. The stock sold
down to 3.33 a share. The earnings estimate for 2010 is $4 to $4.50 a share. Over a period of two or three years,
these companies will be able to make at least as much as in their best year because they are writing policies
differently now. All of them changed their annuities contracts. That's where the problems were.

Witmer: Are the same guys running Hartford now?

MacAllaster: No. There is a new chief executive who has been there for four or five months. Guess where he
came from? Bank of America! But he is a good guy. Hartford is more speculative then most of my names. I also
like Principal Financial Group [PFG]. It is based in Des Moines and sells for 25.67 a share. It pays a
dividend of 50 cents a share and book value is $27.88.

Gabelli: That's book as of Sept. 30, 2009?

MacAllaster: Yes. The estimate for last year is about $1.30 a share, and for this year it's $2.90. The stock sells
for about 8.9 times 2010 estimates. Principal earned $4.26 a share in 2007 and paid a dividend of 90 cents at
the time. At the end of the latest quarter the company raised its dividend by a nickel a share, to 50 cents, after
having cut it. We hope they all do that. This is a large company, with $120 billion of assets. It has been around a
long time. The high on the stock was 70 a share in 2007.

Next, I like FBL Financial [FFG], the old Farm Bureau Life, out in West Des Moines. It sells for 19 and pays a
dividend of 25 cents a share. Book value is $27.88. Estimated earnings for last year are $1.20 a share, and the
estimate for this year is $2.50. The stock sells for 7.6 times '10 estimates. The company earned $2.73 in 2007
and paid out 48 cents a share then. The high on the stock, the same year, was 42. FBL has assets of about $14
billion, so it's a somewhat smaller company.

Every portfolio manager who wants a stake in the life-insurance industry ought to own both Prudential and
MetLife. Prudential sells for about 53 a share and has a book value of $50. Total assets are about $500 billion.
The earnings estimate for 2009 is $5.50 to $5.75 a share, and for 2010 it's almost the same -- $5.50 to $6. The
dividend's high was $1.15 a share, cut last year to 58 cents. This year it was raised to 70 cents.

Where is the stock?

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MacAllaster: The previous high was about 100 a share, and the stock now trades at 53. Prudential is a buy at
10 times 2009 estimates. MetLife sells for 38, down from an '07 high of 71, and the dividend is 74 cents a share.
Book value is $34 per share. The estimate for this year is -- let's call it $4.20 a share. This is a quality company.
So is Wells Fargo [WFC], among banks. Wells suffered 50% dilution by taking over Wachovia and selling
stock to the public, which increased assets from just over $400 billion to more than $1 trillion. After a 50%
dilution of shares, it has 150% more assets. Management knows how to run this business, and they will make a
lot of money on that trillion dollars. Two or three years from now Wells has the potential to earn $5 or $6 per
share. Previously they had earnings power of $3. The stock is 28.

Archie MacAllaster's Picks What is the bank's real-estate exposure?

Company Ticker 1/8/10 Black: They bought Norwest Mortgage, one of the largest
Price
Protective Life PL $18.15
mortgage originators, and they hold a lot of those mortgages.
Hartford Financial HIG 26.22
Services MacAllaster: No question, they own a lot of commercial
Principal Financial PFG 25.67 mortgages, too. But even if the commercial mortgages go
Group
belly-up and borrowers can't pay interest on them, people in the
FBL Financial Group FFG 19.29
buildings are paying rent all the time. You might have to write
Prudential Financial PRU 53.56
MetLife MET 38.25 them down 20% or 25%, but they aren't going to zero.
Wells Fargo WFC 28.86
Supervalu SVU 12.87
Gabelli: Archie, the number floating around is that about $1.5
Source: Bloomberg trillion of loans are coming due on commercial real estate in the
next two to three years, and the appraised value of the property
is about a trillion dollars. Currently, banks are lending only 50% of appraised value. Somebody has to take a hit.

MacAllaster: Wells Fargo has written down loans.

Archie
MacAllaster: Market
Decline Before Black: They've been taking big provisions for loan losses across
Rebound the board.
1:36
Archie MacAllaster,
chairman of MacAllaster MacAllaster: My last pick is Supervalu [SVU]. I
Pitfield MacKay and Barron's Roundtable member,
recommended it last year, as well. It lost 13%. Kroger [KR] had
believes there will be a market correction in 2010
a very poor quarter and all the supermarket stocks sold off.
before it rebounds later in the year. Expects shares of
life insurance stocks to rise.
Supervalu now sells now for about 12.80. It looks like the
company will earn about two bucks for the past year. It is a cheap stock, selling below book value of $14 a share.
Supervalu is a big company, with $45 billion of sales. It has a lot of debt, but it is paying down debt. It sells for
about 6.25 times earnings. The company earned as much as $3 a share at the peak, and it will get back there.
That's it.

Faber: One more thing: I am surprised nobody mentioned anything today about investments in Japan. It is still
the second-largest economy in the world. There are some very good tech companies in Japan. As a contrarian
play, I would buy the Japanese ETF, iShares MSCI Japan Index [EWJ].

Japan has the biggest debt problem in the world.

Faber: The government has a debt problem but it's offset by a high level of savings among the people. If you're
bearish on the yen you should be bullish on Japanese stocks.

Thanks, Marc and Archie, and everyone.

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