The State of the Stock Market

NBCi presents

July 23, 1999

Kemper Funds Vice-Chairman Robert Froehlich chats about the state of the stock market.

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CNBC: Welcome to CNBC.com's MoneyTalk Live! Our guest today is Kemper Funds Vice-Chairman Robert Froehlich. He's here to take your questions on the latest trends in stocks and the markets. Robert J. Froehlich is vice-chairman of the Kemper Funds Group and a managing director of Scudder Kemper Investments, Inc. He represents Kemper Funds on Committees that are responsible for analyzing the world environment to identify events and trends that provide investment opportunities, and helps formulate global investment policy.

Robert Froehlich: It's great to have the opportunity to be here, and I hope to give you some insights on what's to be happening in this volatile market over the next six months.

Jeff: What importance would you put on the PEG ratio when buying a stock along with Return on assets and Equity?

Robert Froehlich: Well, I think that the PE ratio is a good historic measurement to look at but it should not be the only measurement that you look at. I think it's not a good idea to look at one indicator to decide you don't want to buy a stock. For example, we find ourselves in an environment with no inflation. If you have no inflation, you have the best quality earnings that the market can derive, thus, PE ratios always tend to rise in a low inflation environment. Thus, if you were sitting on the sidelines today, you just might be missing some of the best investment opportunities money can buy.

RG: How do you feel about big tech stocks like AOL, DELL, Microsoft, and CISCO since there valuations are considered high?

Robert Froehlich: Well, their valuations are only considered high if you consider them from a historic perspective. I think investors should spend more time looking forwards, and not looking backwards. If you believe in the technology revolution, if you believe that the internet is going to continue to change our lives for the better, And if you believe in the global marketplace, There is unlimited potential for these high flying technology stocks. And I don't care what their current valuations are, I think they have tremendous growth potential Because of the unprecedented global marketplace, and because of the unprecedented technological revolution that is just beginning.

Robk: Any IPO's in registration that you're looking at?

Robert Froehlich: Well, not any specific ones, but I'll tell you the sector in the IPO market that we're paying close attention to and that's in the biotechnology and medical area. There has been a tremendous amount of research and development into this sector generating a lot of good ideas for new companies which will be on the cutting edge of the medical industry and we think they may hold some of the best promise in the IPO market in the near term.

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