The Wall Street Transcript Publishes Money Manager Interview With Kermit Eck, Principal At Cooke & Bieler

Eck reports, "We think that diversification is a double-edged sword. You diversify away your risk, but you also diversify away some of your return. I'm not convinced that a typical institutional manager can come up with 135 good ideas, which is probably the number of stocks in a typical institutional portfolio. They probably can come up with 30 good ideas, and the rest of the holdings are there for diversification. Obviously, the trick is knowing which of your 135 holdings are the 30 really good ideas."

Eck talks about Dover Corporation (NYSE:DOV). "They are a holding company with about 50 operating businesses. They are mostly small manufacturing companies that are the leaders in some particular industry. The products tend to have enough technology that they can charge a premium price, but not enough that there is huge obsolescence risk. They are just marvelous asset managers. They tend to buy companies at the right time. They are also willing to sell a company if it's not working out, which doesn't happen very often, because they are also very good operating people. They are also willing to buy back their own shares when the valuation gets low enough."

Eck discusses Eaton Corporation (NYSE:ETN), "a really old economy company, but they make a lot of stuff that we're going to continue to use, transmissions, electrical equipment, hydraulic equipment, etc. I think people are worried that they have too much exposure to the large Class 8 truck cycle, but they've diversified a lot in the last five or 10 years and that's a much smaller piece of their business now and they are selling at very low prices compared to where they've generally been."

Eck asserts, "National Service Industries (NYSE:NSI), is a mid-sized company with four businesses. The main business is commercial lighting. They also have a specialty chemicals business, a uniforms business and an envelope business, all of which are pretty much old economy, mundane kind of businesses. But they earn close to 20% return on equity and they are selling at 8 times earnings with almost a 7% yield because of concerns about the cyclicality of the commercial construction business."

Eck reports on Hubbell (NYSE:HUBb), "which makes electrical enclosures, and other equipment that is used in rewiring buildings to deal with the "networked ecomony." Again, a 20%-return-on-equity-type company, great growth record, no debt, almost a 6% yield, but nobody is very interested; it doesn't have much sizzle. So there are a lot of these out there that we think have been pretty much ignored."

Eck highlights MBIA (NYSE:MBI), "They continue to insure more and more types of financial instruments, including structured finance-type instruments such as mortgage-backed bonds and that sort of thing. It's just very difficult for anybody else to get into their business, so they make a pretty nice return, around 15% return on equity, which allows them to grow at 10% or 12% per year. This certainly seems like a business that should be worth more than 8-10 times earnings."