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We are getting closer to the time when the US banks will be taking a leadership position as the Fed starts to tighten. That is a matter of great debate as to when. When that happens, the money centre banks will participate, and perhaps become a leadership group. This is not a bad choice, but feels that Citigroup (C-N) is probably a little better positioned to benefit from a recapture of the valuation spread.
The company is more attractive than its stock. Global leasing is improving really dramatically, and this company is in the midst of that improvement. Stock has moved quite nicely and now trading at about 18X earnings. They don’t pay a dividend. He would rather play this on the other side, through a REIT, and get some distributions.
CSX (CSX-N) or Union Pacific (UNP-N)? Using this as a constructive way of playing the strength of the US economy is proving not to work out. The US economy is not as strong as some had thought. They have a headwind in coal where about 20% of the revenue comes from that source. Oil only represents about 2%. Union Pacific is probably a little better run in terms of operating ratios, but a little more expensive. He would probably pass on both of these.
CSX (CSX-N) or Union Pacific (UNP-N)? Using CSX as a constructive way of playing the strength of the US economy is proving not to work out. The US economy is not as strong as some had thought. This one is probably a little better run in terms of operating ratios, but a little more expensive. He would probably pass on both of these.
A very well diversified company. They have their aerospace side where they’ve had a few missteps over the last couple of years and had to go back to the drawing board. Have also had a little bit of trouble internationally. They own Otis and Carrier which are tied to residential and commercial buildings. They’ve also had trouble in China which has slowed down. There had also been management problems. When he saw the changes that were being made, he felt that he would stay with the company, thinking that the market might build back in some of that multiple spread that was lacking. That is exactly what happened. At this point it is probably fairly fully priced. However, they are starting to gain some traction in their technologies.
Dropped about 10% off its highs. This is in the face of some of their competitors reporting results that have largely been panned by the market. This company’s results were quite good. The opportunity on this company is immense. There is a lot of runway here. A lot of the 10% fall back is market related. A little bit of nervousness because of their peer group. Longer-term he feels this is a stock that is going to do quite well.
Right now this is more if a consumer and diagnostic company. Has done quite well. Is very, very steady. Have increased their dividends 43 years in a row. A nice holding for somebody who wants to buy something and just stay with it over the long-term. However, the valuation is not cheap. Well-managed and should do well over the long-term.
(A Top Pick April 30/14. Up 10.28%.) Thinks the market is cautious on this because of the troubles they had in 2008. He still believes there is a bit of a wait-and-see attitude on it. Well-managed. From a fundamental standpoint it is quite attractive, trading at about 10X earnings. Off the 2008 situation they have a tax credit, a deferred tax account, which is worth $7-$8 a share. The property/casualty area is quite constructive.
(A Top Pick April 30/14. Up 10.58%.) Bought this basically on the back of what he expected and still expects, i.e. a long term secular move in terms of the housing market and household formation. Looking at statistics, household formation in the US right now is running somewhere around $1 million a year, and the run rate of $1.5 million a year is needed to keep up with the immigration and population growth. Well-managed and produce a good product. Have done well and thinks they will do better.
Sold his holdings about a year ago. They recently made a huge announcement in terms of selling off the assets of GE Capital. This had been a problem through the 2008 time period because it was a financial hiding out as an industrial. The selloff is going to hurt earnings because GE Capital is a big contributor to earnings. They are offsetting that in large part with a huge buyback.
His feeling on this is that you are probably better off buying the car rather than the stock. The company has a tremendous amount of optimism built into the stock price. They produce a wonderful product. But looking at the stock in any way, they are many, many hundreds of times more expensive than Ford (F-N) or General Motors (GM-N). Thinks the market got carried away with their response to the product, and bid the stock up to levels that is pure speculation.
A pharmacy benefits manager (PBM) which basically creates a large buying pool on behalf of their holders. Thinks this whole group is interesting, but he has chosen to play it by owning CVS Health (CVS-N), which owns a company called CareMark, a competitor of this company. He would prefer CVS Health instead.
Feels that people are questioning the long-term viability of this company’s model, in terms of monetizing the different initiatives that they have. Also, their dedication to good management, expense control, etc. He thinks the company is responding. What it is doing behind the scenes is getting less and less expensive, because they are growing. Have brought on a new CFO to handle their cost control. There are going to be some good things from this company.
Markets. Earnings, revenues, forecasts, etc. were pretty predictable as the bar was set quite low. Through the 1st quarter, expectations fell and fell and fell to the point where they were negative coming out of the 1st quarter. He also sees that the themes are exactly as he had expected, i.e., a lot of conference calls are citing revenues as being tough comparisons, because of foreign exchange translations. For the most part, the street is shrugging that off. His expectation is that the US$ will resume its strength against the euro. Pleased the market is taking a bit of a breather here. We are in a situation where the economy is tepid and not doing all that well. Corporate earnings are not barn burners by any stretch. A lot of growth is going to come from organic growth, company specific growth, so you have to find the stories that have catalysts and you have to do some work.