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On Wednesday, September 18 at 8 P.M. EDT, Elizabeth Bramwell, president and chief investment officer of Bramwell Capital Management, joined Worth OnLine for our live chat show, "Conference Call." Following is a transcript of the live event, edited for clarity. The opinions expressed are those of Elizabeth Bramwell, and do not represent the views of Worth, Worth OnLine, or Capital Publishing. WorthOnLne : Welcome to "Conference Call," Worth OnLine's live chat show series.Every week we give readers the opportunity to chat with the leaders in money and markets. Our guest tonight is Elizabeth Bramwell, president and chief investment officer, Bramwell Capital Management. Tonight Ms. Bramwell will offer her approach to investing opportunities outside of technology in sectors ranging from retailing and healthcare to entertainment and financial services. The floor is now open for questions... CapManage : We'll be talking largely about non-technology growth stocks. A tangential group would be the financial outsourcing companies. Outsourcing is a big theme today, and I think we'll see much more going forward as companies try to keep their competitive edge in the global markets. Going back to outsourcing, I like such companies as Computer Sciences (NYSE: CSC), which does outsourcing for corporations worldwide and governments. It has some interesting software it recently aquired that processes insurance injury claims. Other companies in this category include: Automatic Data Processing (NYSE: AUD), which handles a large percentage of payroll checks. BMBear : How to value a particular growth rate in deciding price to pay? CapManage : We try to buy companies at discounts to their future growth rates. Pimmfox : What's your criteria for a growth company? Are there some specifics we should be aware of? CapManage : Pimm--Criteria for a growth company would include opportunities to grow from new products and geographic expansion. We are in a global economy, especially given free markets and the opportunities to sell abroad are substantially greater than they were 10 years ago. We are in a period of tremendous technological, economic, and social change. The opportunities for new products are quite substantial. One company which we had been acquiring on this approach was Red Lion Hotels (NYSE: RL), a regional hotel chain in the Pacific Northwest. We were buying it at a 25 percent discount to growth based on 1997 earnings. In the last two weeks, Doubletree (NASD:TREE) announced an a planned aquisition of Red Lion (on the planned aquisition) for about $30 a share. That was a substantial gain from the low 20s at which it had been selling. Pimmfox : OK, but specifically, do you look for companies with specific earnings' records? Do they need to be profitable for say the last five years? CapManage : No, they don't. Although generally they are. Our assumption is that ultimately, water seeks its own level. But we don't want to be rigid. There are some companies in biotech that have attractive products where the research and development expenses have been substantially greater than any revenues. User676000 : Which ones? CapManage : Some companies we like are Biochem Pharma (NASD:BCHXF), which has one of the three ingredients for an AIDS cocktail. Another would be Neurex (NASD:NXCO), which has a potential drug for severe chronic pain. BMBear : What about building materials and oil services now? CapManage : We think that interest rates will stay at about the levels they are -- inflation rates, also. In this context we look for continued gains in housing-related stocks such as Home Depot (NYSE:HD). We also note that both political parties are talking about expanding the deduction for capital gains on the sale of a residence, which we think would be positive for housing as people try to optimize their investments in their homes. As we speak, the oil service stocks have had some good moves recently. We think they are moderately attractive at this point given the significant reductions because of technology in finding oil. Pimmfox : So you try to identify specific companies rather than whole industries? CapManage : Pimm--yes. We try to be opportunistic in stock selection. We think the market is a market of stocks. RONVE : Talk about Neurex, please. CapManage : Neurex is a company that has potentially attractive products. We think it has a place in a diversified portfolio. Pimmfox : Yes, let's get some specifics on Neurex. They're based in Menlo Park. Lewis1000 : But aren't the real growth opportunities in commodities in the emerging markets? CapManage : Lewis: We think emerging markets have attractive growth rates. Those growth rates, assuming political stability, offer growth opportunities for our U.S. globally-oriented companies. We think that as demand grows, however, that supply will increase to meet demand. So we are not generally looking for significant inflation on a secular basis in commodities. JRUBENR : What should I look for in an emerging markets fund? CapManage : JRUBENR: We think emerging market funds are useful vehicles for increasing eexposure to higher growth economies. Generally, we would prefer to buy these funds at discounts to their net asset values. And generally, these funds will reflect the percentage importance of given companies -- ie, telephone --to the overall markets. We would analyze countries like companies, and we would focus on political stability, favorable taxes, work ethic of the population, and ability to attract capital. User676000 : If you had an extra $50,000 to put somewhere, where would it be? CapManage : With $50,000 to invest, I would diversify across three funds, or perhaps more, depending on one's own comfort level. One has to analyze their own individual needs. for the longer term investor. My preference would be to invest in growth funds. In picking funds, I would look at the one-year and three-year records and the YTD. SEHak : What do you think about J.C. Penney? CapManage : SEHak: I don't hold JC Penney (NYSE:JCP) just now, but the company is doing a good job and showing above average sales trends relative to the industry. RRMADN : How would you compare your investment approach with Michael Price? CapManage : Michael Price has a viable value approach where the focus, I believe, is more on the historical data. Growth investors focus more on future earnings growth. I think both the value and growth camps would like to buy stocks at discounts to their perceived respective values or growth rates. RandStar : Ms.Bramwell, have you an opinion on "the Gap"? CapManage : The general expectation for the Gap (NYSE:GPS) is for longer term growth -- some 15 percent. Its new format -- Old Navy -- is doing quite well. The company has a brand name that has global recognition. User676000 : Which growth sectors are you favoring now? Plus which stocks are you heavily weighted in? CapManage : At the end of August, the largest holding in the fund was Eckerd Corp. (NYSE:ECK) It is a drug chain based in Florida and covering much of the Southeast. Other large holdings were Computer Sciences, Walgreen (NYSE:WAG), Robert Half (NYSE:RHI), Red Lion Hotels, Johnson & Johnson (NYSE:JNJ), General Electric (NYSE:GE), Regal Cinemas (NASD:REGL), Illionois Tool Works (NYES:ITW), and Northern Trust Company (NASD:NTRS). As of Sept. 18, we continue to have positions in these stocks. Patch111 : Ms. Bramwell, do you think that the huge trade deficit hurts US growth stocks? CapManage : Patch: The trade deficit moves around from month to month, but we anticipate that the U.S. will continue to do well in shipping technology, airplanes, agricultural products, and a number of other products and services. We think the dollar does have an influence -- short term -- on earnings translations from overseas back into U.S. dollars, but different parts of the world move in different directions. Over time, we anticipate our experts to continue growing. Also, on the other side, we anticipate more components -- ie, in technology --for communications and computing, to continue increasing. RRMADN : Do you have any favorite books on investing? CapManage : I do enjoy reading Peter Lynch's books, I think they are quite enjoyable and I think even teenage children would enjoy them. Patch111 : Do you think market "analysts" in general hurt the market and make it harder on the small guy? CapManage : Patch: I think that sometimes there will be analysts who aren't terribly insightful. But generally, I think they try to do a good job. Ultimately, the market adjusts and creates opportunities. WorthOnLne : Would you talk a little about your opinion of the current state of the economy? CapManage : I think the 4.8 percent growth in GDP in the second quarter was a high point. But I am looking for continued growth of 2 to 4 percent going forward. A lot of money has been made in the capital markets. Some of this is being spent to buy automobiles and houses. I am looking for inflation of some 2 to 3 percent, although this is high relative to the CPI that came out, I believe at 1.2 percent last Friday. I am looking for interest rates to stay about where they are. The historical spread between interest rates and inflation rates is very wide. Unless there is a real pickup in inflation, in reality, I would think the prudent thing would be to hold rates where they are so that we don't possibly trigger deflation. So, I am also struck that both political parties are in favor of growth. I think that the assumption that 2.5 percent growth is some magic optimum number is flawed. If we have higher growth, I understand that if unemployment rates go down a full percentage point, that the reduction to the federal deficit is 50 billion dollars. As a result of higher tax revenues from employed individuals and higher profits from greater growth and reduced unemployment benefits and other expenditures such as food stamps. Incrementally, there would also be reduced deficits at the state level. RRMADN : Do you have an opinion on technical analysis? CapManage : On technical analysis, we don't use it in a significant way. But we do watch volume trends and I think some of the mathmatical theory learned in universities can now be used in studying patterns in stock behavior. BERNSTP : How much of your fund is invested overseas? CapManage : BERNSTP: It is hard to identify exactly how much of our fund is invested overseas because many of the U.S. companies we invest in have substantial export sales and also substantial sales from plants overseas. Generally, we estimate that our foreign exposure is about 35 percent. The fund can be 25 percent invested in foreign securities, but at this time our exposure is less than 5 percent. We think there are substantial opportunities in achieveing foreign exposure to faster growing markets by investing in U.S. domiciled companies. Tbshea : Where do you see the real values and growth? CapManage : I think one area where value and growth are overlapping is how they look at our global brands. As Michael Price said on Wall Street Week last week, perhaps a new paradigm has been set with the Gillette (NYSE:G)/Duracell (NYSE:DUR)potential merger. PETEHILL96 : Does that merger mean a further consolidation in distribution channels? CapManage : PeteHill: I think the Gillette/Duracell provides some distribution synergy in distribution channels both in the U.S. and overseas. Also, I would hope that Gillette will facilitate more R and D funding to Duracell for rechargeable batteries. Patch111 : Ifeel like the market is run by Madison Avenue. We buy because we need to have, ie: big run ups. CapManage : Patch: The market adjusts continuously for changing opinions. And in the short term, it can become unbalanced. But generally, I think the market moves on profit growth. Swampfo579 : What are the prospects for small stocks in the next few months? CapManage : Swampfo: Stock prices move with profits. Faster growing companies over time will appreciate faster than the average. The S&P 500 index in the past few years has grown in profits at a double digit rate. I think that has encouraged people to invest in index funds with the expectation of continued double digit gains. Going forward, I think S&P profits will grow in the high single digits. And many companies, particularly smaller growth companies with new products and markets, can do better than the overall index funds. However, I think that the growth rate of the S&P may grow somewhat faster on a secular basis going forward as a result of a lower payout of dividends and more money being invested internally, more stock buybacks, and increased exposure on the part of large companies tooemerging markets with faster growth rates. Mykl888 : What is your most recent and big addition, and your view of the market (eg high/low, etc). CapManage : MYK: We acquired Computer Sciences initially through owning Continuum that was acquired by Computer Sciences. We have continued to add to the surviving company. We think the market will continue to move forward. Looking into 1997, assuming that both politicalparties favor economic growth, anticipate that in 97 the S&P 500 can produce some 10 percent returns which includes about a 2 percent dividend yield. This assumes no major changes in inflation and interest rates or political disruptions globally. An area I think is attractive is the area of outsourcing employees. This is a global phenomenon. These companies have had big runs, and as we speak today, these stocks have had some profit taking in the last few days. Generally, we expect more outsourcing not only of clerical people, but also professionals such as accountants, which would be represented particularly by Robert Half RHI. On assignment, the Lab Support Co. and Manpower (NYSE:MAN) which would benefit from a turn in the European economy. PETEHILL96 : Is there any limit to cap size of company you can invest in? CapManage : PeteHill: The fund has no restriction on the size company invested in. The median market cap at the end of June was $1.7 billion, but the fund owns companies as large as IBM (NYSE:IBM) and a few selected stocks under $50 million. When these work, they can be significant contributors to overall performance. Mykl888 : What are the growth rates like for these outsourcing companies and what profit margins? CapManage : MYK: The growth rates on the temporary help companies that we own range from 15 to 40 percent. The margins vary, depending on the specific kind of employee. ROBERTS GM : Could please tell me what occured with Hershey Foods recently (from 91 1/8 & now at 46 1/8). CapManage : Hershey Foods (NYSE:HSY) just split 2 for 1, I believe on Monday. The company appears to be doing quite well with some new products, including a low fat product. The stock is selling at a premium which probably mirrors the current interest in strong brand names. Mykl888 : How saturated or mature are the markets at this point? CapManage : The percentage of jobs outsourced today in the U.S., I believe, are about 1.5 percent. In Europe, where laws are much more rigid with regard to permanent employees, the temp work force can go up to some 5 percent. One recent commentary was that 10 years from now was that the percentage of the U.S. workforce working on a staffing basis could be some 6 out of 10 workers. Seems sort of incredible, doesn't it? Something at least provacative. RRMADN : Do you use any derivatives to hedge risk? CapManage : The fund does not use derivatives. This is a highly specialized area. Anna Lyze : What type temporary help companies have the highest margins? CapManage : The highest margins in personnel placement would be in the professional Mykl888 : Is temp help/outsourcing sector your biggest play now, with best risk/reward potential? CapManage : Temp help is a large category, but actually retailing, which is a huge field, was 18 percent of the portfolio at the end of August. We particularly like luxury goods and such companies as Tiffany, Sax, and such apparel manufactures as Nike (NYSE:NKE) and Oakley (NYSE:OO) would fit this theme. We also like certain category killers such as Just For Feet (NASD:FEET), and PetsMart (NASD:PETM). Tsevang : What about Bramwell No-Action Letter? CapManage : The No-Action Letter basically confirmed my ability to use my prior experience in running the Gabelli Growth Fund. And basically I had managed the fund from inception and was its president and sole portfolio manager from inception. I think all funds are run by individuals and that it is important to distinguish that it is the individual fund managers who produce the results, rather than the overall organizations. The No Action Letter basically provides better information flow that should facilitate individuals making investment decisions. WorthOnLne : That concludes this edition of "Conference Call," Worth OnLine's live weekly chat series. The Worth staff extends its appreciation to Elizabeth Bramwell for being our guest this evening. Thanks for joining us. ----------------------------------------------------- You can reach The Bramwell Funds, Inc. by calling: 1-800-BRAM CAP (1-800-272-6227) ----------------------------------------------------- Copyright 1996 Capital Publishing Limited Partnership. All rights reserved.