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Company has done very well at executing their growth strategy in the US. As a value investor, it is difficult for her to buy a stock that is trading at 40X forward earnings, even though their growth outlook is quite strong. Too expensive for her. Canadian market is pretty well tapped out and so now it is the US and are starting to look at international expansion, but that is in the very early stages. In a couple of years they will likely start opening some stores.
Have done a great job with product innovation. Same-store sales were negative or very weak last quarter but recently announced numbers for November, which were encouraging. About 40% of earnings actually come from Europe. Competition in the US is always quite intense. Emerging markets is a target that they are aiming to grow in. Very attractive yield. If you are going to buy it, she would buy it now with its pull back. (See Top Picks.)
On her watch list. Recently announced a big jet order. C series will be launched over the next couple of years.. Typically when a manufacturer announces a new model, there could be risks as to timing and manufacturing problems that could be encountered. Feels this is an overhang. As the economy picks up she would expect their global jet business to improve. Would like to see a few more C series announcements and wait until closer to the launch.
All the large-cap tech names are trading at pretty attractive multiples. Now paying dividends (over 4%) which tells you they are no longer considered a typical growth company. They are such a dominant player in their space with over 80% plus share. They can’t grow when their end market, PCs, slows.
Very attractive yield at over 9%. Market was fearful they would have to cut the distribution because of natural gas prices. Management realizes the importance of the distribution. Issued some equity and sold some non-core assets and cutting back some of their growth CapX in order to protect the distribution. Thinks natural gas prices have probably seen their lows and will slowly increase over the next couple of years.
Has been coming to life lately. Newman management has done a good job at trying to decrease the sensitivity to equity markets and interest rates, but the exposure is still there. Because the economy globally is not picking up, central banks have felt the need to keep interest rates lower than they should be. She prefers staying in banks.
Likes the rail group as kind of a soft cyclical as they carry a lot of goods and traffic. As long as the economy is not going into recession, traffic and volume growth tends to be positive. Anything that is kind of cyclical she would wait until there is clarity on the fiscal cliff. There is no point rushing in.
IT services that provides outsourcing as well as systems integration and consulting. Likes the Logic acquisition that closed in August, which expanded their geographic exposure and is a big component of their revenue base. Management has a proven track record of buying underperforming companies at attractive prices. Management is stating earnings will be up 25%-30% a year from now. Trading at about 11X forward earnings.
She sees catalysts in each of their divisions to get them going again. Suffered through a lot of patent expiration in Pharma and feels these are largely behind them. Also, sees some of the positive effects of new product launches contributing to earnings now. Consumer division will still be a drag for the next couple of quarters but the problems are being addressed. Acquisition they made earlier this year on medical devices expanded their emerging-market exposure. Again increasing their dividend, like they have for the last 50 years.
4th quarter same-store sales growth in China was down a negative 4% because of the slowing Chinese economy. Feels that this figure will be positive next year. They still see lots of growth in China and will be focusing on the tier 3-6 cities for unit growth. Also focusing on India and Russia for the next decade.
Markets. There is still a lot of uncertainty with regards to the fiscal cliff and is hopeful something will be resolved before year-end and then we will have more clarity going forward. That will be a boost in confidence and then we will see the market continue to go higher. We are getting positive economic data coming out of China indicating their economy is stabilizing and maybe slowly improving. Also, German confidence this morning was higher than expected.