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This railway had the biggest exposure to coal. There has really been a slowdown in coal production and shipments, so the company had some fairly significant damage. Recently the whole sector has tended to trade off a little bit. He prefers Union Pacific (UNP-N) whose volumes are more diversified. As a category, these railways are not cheap but they tend to reward shareholders every year with a dividend increase.
There are big expectations baked into this story. $45 billion worth of CapX per annum for a long period of time to take off huge oil reserves from the ocean floor. Company has not executed well. Also, issues of political interference. Thinks this will be a “show me” story.
This company came from a monopoly position and is now trying to move into new markets. Has a ton of cash. Feels it has to reinvent itself and to figure out whether it is going to be a growth company or is going to be a slow and steady dividend aristocrat type, which pays dividends and buys back shares regularly. Doesn’t think this is a long-term secular growth story. He would stay away.
Had a virtual monopoly in terms of US communications. As communication networks slowed down, growth opportunities have slowed. They tried to fix this with bolt on acquisitions and broadening of product offering. A lot of their acquisitions have proven not to be good. A company that he is watching but has not pulled the trigger yet is IBM (IBM-N) which is a share buy back story and a dividend grower. A little expensive now but definitely watch it.
(A Top Pick Dec 20/12. Down 11.29%.) Regards this one as the best-of-breed. Best of dividends and best balance sheet. This is the first one to move into different asset classes, so it has the potash and oil/gas assets. A diversified resource play. Expects volatility but longer-term it is a play on commodities. Likes this long-term.
(A Top Pick Dec 20/12. Up 15.73%.) The story that is overhanging this company is the liability issue around the Gulf of Mexico oil spill. He understands that unless the US government can prove gross negligence, which is very difficult to do, the company is adequately provisioned from a liability point of view. Settled 3 lawsuits today and as the process continues, you will see the stock move higher on the back of higher dividends and share buybacks.
Banks are a proxy or a way to play the underlying growth of an economy. He is not very overweight on Indian banks, but because of the currency drop, there are some very good opportunities in India. Not sure the banking sector is the best one. Probably some of the industrials would be better in India.
He is not the best person to talk about gold as he is not a gold bug by any stretch. Issues on this company are much more company specific. Bad hedges that went wrong, management got blamed and there was a rotating door and Peter Munk is now leaving. The underlying issue is really a fundamental macro one. The company’s future is tied to the price of gold and if gold is not going to go up, then the earnings are not going to go up. He personally feels we are seeing inflation, but because of the way it is calculated, it is not reported and not going through.
Why is this company climbing so much faster than ManuLife (MFC-T)? If you look back pre-crash days, ManuLife was a $42-$44 stock and it really rose to the highs on the back of variable annuity growth. However, variable annuities provided a guarantee to policyholders on certain levels of payout. Ultimately, that was the noose upon which the company got hung. Response by management was to hedge the book aggressively and this has effectively insulated the company from downside but they did it at the bottom of the market. Now the upside associated with the rising capital markets is not as direct as expected, because so much of the book has been hedged. Companies that have less hedging have performed much better.
Tends to be a cyclical company. Much smaller than many of the railways. The extension into Mexico is done through land lease from the Mexican government. This effectively ties the railway to the inter-trade between Mexico and the US. Trade volumes intermodals are definitely going to be a growth story. Longer-term, this will be a little volatile but it will definitely benefit from resurging Mexico as well as the strength in the US. Thinks there is more upside here.
Believes this was the only large cap British bank that did not cut their dividend. Had some struggles during the recession. Very good balance sheet. The UK is starting to exit the recession and, given the strength of the London capital markets, an increase in interest rates is going to create a lot of employment in London, which will be good for this bank. Also, exposed globally.
