10 Questions With T. Rowe Price Growth Stock's Robert W. Smith

We own some of the better retailers: Target(TGT Quote), Kohl's(KSS Quote). We own Home Depot(HD Quote), which has been disappointing but we think it will hold together. It's not quite the market-share mess that the market perceives it to be at the moment, but it's got its own issues.

We've been buying Carnival(CCL Quote), which we think is a good play on a consolidating industry. So, we tilted the portfolio toward more economic sensitivity. Over time, our portfolio doesn't change a lot if you ever see how it's characterized in terms of growth and cap, it hasn't changed a ton.

3. What do you make of some of the headline risk companies? Citigroup, your biggest holding, certainly falls into this category.

I think every company we own has headline risk. (Laughs)

In September, everyone was selling risk. We were buying across the board names that we thought that people were unduly punishing, including Citigroup. We added names to our Cendant(CD Quote) position, we added some to our Tyco position.

These are what I would call our pseudo-troubled names. I still think that those companies have a way to go back. There's a huge number of companies that are trading at really low multiples and they have issues, but over the next 12 months people will realize the cash flow is real.

Take a Pass on These Fund Turkeys Some pretty bad funds are adding fees and loads. Here are some fund dishes best avoided.

Breaking the Buck Is Hard to Do Money market funds will cut fees to protect principal.

Are Funds Buying the Wireless Rally? Growth funds still like pricey Qualcomm, Janus still owns Nokia and Motorola is now a value play.

While they're not super-growth companies, they have moderate growth. But they're very cheap, that we'll see valuations rise in those companies, like Citigroup, Tyco and Cendant.

In general, the implications of Enron just decimated the looseness of which some of the companies were run. So we'll leave the year with tighter-run companies, tighter, less profitable companies. (Laughs) But that's a good thing going forward for investors. The risk premium will narrow for those companies -- they'll have to earn it, but it will happen.

There's a lot of short-term mispricing going on. The reality is that the market is also a leading indicator. The market sent Tyco down before Tyco had issues. And so I was wrong to hold it and the market was right to sell it. So, it's not always advantageous to go against what the market says. But I do think we're in a period where there is a lot of short-term opportunity.

With Citigroup I think they just need to get the Grubman issue behind them. It's a company that has taken market share, shown good growth, and is well-positioned for an economic rebound around the world. Citigroup is at 11, 12 times earnings, and it has done well both from a return point of view. It trades from a very big discount -- I know part of it's because it's a financial, but a diversified financial poses much less real risk than a mono-line financial. Over time, the market will afford it a slightly higher multiple.

I do think they'll be a settlement, some one-off charges. [This interview was conducted Friday morning, before reports of a possible settlement.]