Talking Value With Tweedy's Bob Wyckoff

In your American portfolio you have a few stocks that have been under a bit of scrutiny lately, like MBIA (MBI Quote) and Freddie Mac (FRE Quote). What's your rationale behind holding these names?

We've owned Freddie and MBIA for quite some time. When the accounting scandal broke in Freddie a while ago, we did a tremendous amount of work here looking into the company. When the dust finally settled we came to the conclusion that it still looked reasonably cheap. There are people out there who believe the growth rates of these companies have to slow, and I think that's true. But from the current valuation levels, even if the growth rate slows it still looks good.

In terms of MBIA, they have come under a lot of scrutiny of late by Eliot Spitzer over a few transactions. Again, we have done a lot of work on our own, looking at those transactions in order to get comfortable with them. They had a modest earnings restatement, but some of the current management were not even around when some of these transactions occurred. We are comfortable with the stock. They are one of the dominant municipal bond insurers out there and we think it's trading at a reasonable level.

You also own Pfizer (PFE Quote), which, along with other members of the drug sector, had some problems last year but lately has been seeing some renewed interest among investors.

Actually, we inherited a position in Pfizer through our position in Pharmacia when the companies merged some time ago. We think it's one of the cheapest diversified drug companies at a forward P/E of 13. Pfizer has a terrific array of drugs. There is no question some of them will be under patent pressure in the years ahead, but we are going to stick with it.

I'm just taking a look at Tweedy's global fund, which is outperforming the U.S. fund year to date, and it looks like you own a lot of companies based in the Netherlands and Switzerland. What are the Dutch doing right that the U.S. isn't?

We don't make country allocations. That's not the way we invest. We invest bottom-up. It all starts with valuation. We are driven by price.

That said, we are comfortable looking in markets such as Switzerland and the Netherlands. We think they do a good job industrially. Our largest position in the global value fund is the Dutch bank ABN Amro (ABN Quote). We also own Heineken and Akzo Nobel, which are based in the Netherlands.

We've always had fairly significant exposure to the Netherlands and Switzerland. And as you know, we are long-term investors. Turnover here is pretty low at Tweedy.

So what would it take to reopen the funds?

I don't know what will happen to create idea flow externally. But it could be a combination of a market correction or a significant improvement in fundamentals. Or just greater volatility within the market, where the compression of valuation we talked about might widen. Just because we view the market as being fully valued does not mean there are not cheap stocks out there. We just need a little more divergence between stock prices in the market.