Common Sense Approach Guides Large-Cap Investing Strategy - Harry D. Cohen - ClearBridge Advisors, LLC

67 WALL STREET, New York - March 19, 2012 - The Wall Street Transcript has just published its Large Cap Value and Other Investing Strategies Report offering a timely review of market trends for serious investors. This Large Cap Value and Other Investing Strategies Report contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Protecting Capital During Difficult Times - Large-Cap, Deep-Value - Quality in Large-Cap Investing - Client-Oriented Culture

Companies include: National Grid (NGG); United Parcel Service (UPS); 3M (MMM); Apple (AAPL) and many more.

In the following brief excerpt from the Large Cap Value and Other Investing Strategies Report, interviewees discuss market trends, top picks, and outlooks for the near and long term.

Harry D. Cohen is Chief Investment Officer, a Managing Director and Senior Portfolio Manager for ClearBridge Advisors, LLC. He has 42 years of investment experience, beginning his career with a predecessor organization in 1969 as a Portfolio Manager. Mr. Cohen is best known as the Manager of the Legg Mason ClearBridge Appreciation Fund, which he managed for 31 years. During his tenure as Portfolio Manager, the fund was named to the exclusive Forbes Honor Roll eight times. Mr. Cohen received his B.A. from Western Reserve University and a Ph.D. in psychology from Tufts University. He held a postdoctoral fellowship in neurosciences from the National Institutes of Health at Albert Einstein College of Medicine. Mr. Cohen has been sought after by Barron's, Morningstar, Lipper, Forbes, FundFire and many other organizations for his investment knowledge and market insights. He is also a frequent guest on "WealthTrack with Consuelo Mack" on PBS and has been a guest on "Wall Street Week," among other financial shows.

TWST: Are there certain sectors or areas you like right now more than others?

Mr. Cohen: If you had asked me that six months ago, the answers would have rolled of my tongue. This is much harder. I would have said utilities, I would have said some big-cap tech stocks, I would have said energy. A lot of these stocks had a pretty good run. Now, we're looking across sectors at companies that are selling at reasonable valuations where their earnings yields are two and three times and four times of what's available on 10-year Treasury notes and where we had a chance of getting increasing dividends. That can be in any number of different sectors. There is no one specific sector that we're pounding the table on. I would say it's across the board. Six months or a year ago, we were big on Microsoft (MSFT) and Wal-Mart (WMT). Now, we're holding them, but we're not aggressive buyers right now of stocks. Even though we think the stock market is still reasonably valued, it was dramatically undervalued six months ago, it's gotten more to fair value in our opinion now. We are, however, willing to buy more aggressively during any corrections.

TWST: Is it primarily because of the macroeconomy?

Mr. Cohen: It's price earnings ratio. It's our expectations of forward earnings. It's the fact that earnings yield, that is the inverse of price earnings ratio, give us earnings yields of somewhere between 7% and 8%, whereas before we were getting earnings yields of 8% to 12%. You got really inexpensive stocks before, so the market is still attractive, the risk premium is still very high relative to 10-year Treasury notes, which we use as our proxy for a risk-free security. So we like the market. We're still largely invested, but we're not afraid to nip off some partial positions if this market goes up.

We had a great year last year. We're having a nice year this year. Our general approach is to go against the grain. Having said that, we're not finding a lot of stocks that are overpriced. So the market is kind of in between here. This might not be the greatest story you want to hear, but if you had talked to me six months or a year ago, we were begging people to buy them. For the past two years, really past three years, we had been bullish and having avoided the worst of the crash in 2007, 2008 and early 2009. We got bullish and have been pretty fully invested ever since, and the market now is kind of catching up. People have caught on to the idea the stock market is the most attractive asset category out there versus everything else.

TWST: Would you give us specific stocks you like and tell us why you like them?

Mr. Cohen: We like our companies that have been misperceived for a long period of time when the excesses have been wrung out, where you have long bases, where any disappointed shareholders have been washed out of the stock, where downside is limited, and where things go right, the stocks could really do well. So examples of that would be Microsoft, which we thought at $25 was being given away; Wal-Mart at $50 a share was being given away. Both these stocks were at 50, 60 price earnings ratios back a dozen years ago, but they'd been compressed down to 10 or 11 times earnings.

Meantime, their earnings kept going up, their dividends kept going up. UPS, United Parcel Service (UPS), a company that basically hasn't done a thing since it's gone public, and yet their business model keeps getting better, their dividend goes up every year, it's still got a terrific balance sheet. Most companies with great balance sheets have just been ignored by the market. MetLife (MET) is one that we took a substantial position in when the stock got killed in the past few months, and MetLife, we think, was misperceived by the market. And they got a secondary buying opportunity when the Federal Reserve said they could not buy in shares or raise their dividend because they still had a bank holding company, and they had to pass a stress test. And the stock got killed even though in our view they can easily pass those tests and they will, so the stock has been a recovering candidate since then. We loved electric utilities when nobody was buying them because we thought the yield to Treasury ratio was attractive, and they actually still are. So we like National Grid (NGG), NextEra (NEE), CenterPoint (CNP), Wisconsin Energy (WEC). These are dividend raisers where the yields are still at least twice the rate of 10-year Treasuries, so that's attractive.

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