Barton Biggs Says U.S. Stocks Are `Very, Very Cheap'

By Nick Baker and Kathleen Hays

Oct. 24 (Bloomberg) -- U.S. and European stocks are ``very, very cheap'' after the Standard & Poor's 500 Index lost 40 percent this year, the worst annual drop since 1931, according to Barton Biggs, managing partner at hedge fund Traxis Partners LLC.

``U.S. and European markets have blown out to record levels of attractiveness versus bonds,'' Biggs said in an interview with Bloomberg Television. ``We're at very, very cheap levels.''

The S&P 500 trades for 11 times estimated profit for the next 12 months, while Europe's Dow Jones Stoxx 600 Index fetches 7.7 times earnings, according to data compiled by Bloomberg. The S&P 500's dividend yield is 3.46 percent, compared with the 10- year Treasury yield of 3.69 percent, the data show.

``One of these days, even if the world is going to hell, we will have a tremendous run-up,'' said Biggs, 75. ``There is an extreme level of pessimism and almost despair. As long as I have been in the business, those have always been good signs.''

The investor said large, ``high-quality'' U.S. companies including Cisco Systems Inc., 3M Co. and Procter & Gamble Co. are the cheapest in the world. ``And if you've really got the intestinal fortitude, these emerging markets have been absolutely crushed,'' he said.

Biggs was wrong in February when he said the U.S. stock market is ``at or very close to an important bottom.'' The S&P 500 has since plunged 35 percent.

Russian shares are ``dirt cheap'' because oil has plunged more than 50 percent in less than four months and Prime Minister Vladimir Putin ``acted like a jerk,'' Biggs said. The hedge-fund manager also said he favors India because it will be ``the next China.''

Russia's Micex index has retreated 73 percent in 2008, while India's Sensitive Index lost 57 percent. Both measures had surged sixfold since the end of 2002.

To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net; Kathleen Hays in New York at khays4@bloomberg.net