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Hunter Harris was with CN, and then went to CP. There is no question that from an operational standpoint, things improved, but he would argue from a pretty severe trough when all the rails were pretty distressed. He is a result oriented individual, but takes a short-term view using quarterly results. Prefers a longer-term individual.
He would not be a buyer of this. People love the product, but you have to be extremely careful not to link the quality of the product with the quality of the stock. The price tag is just too high. You are paying $650,000 of market cap for every car produced. Putting that in context, with GM you are paying $4000.
This has been a wonderful performer on a stock basis. One thing that has always been a bit of a pause for him is its valuation. It has high expectations of future earnings, cash flow and revenue growth, and has satisfied those expectations, but at the very minute it doesn’t, there is a freefall waiting to happen before it moves back into a normalized valuation. Because of this, he has not participated.
From a PE valuation standpoint, refiners tend to work together. You see spreads widen or narrow off the raw product of oil, into the different commercial products. This company has been a good performer over the years. Not having great visibility into the cycle and to the spreads, he would probably pass on making this a core holding.
Probably the most levered bank to interest rate moves, so if you expect interest rate moves and want to participate, management has been quoted as saying that for every 1% move in interest rates upwards, it accrues $5.3 billion to the bottom line. This works out to about $.50 a share, and even at a modest multiple of 10 or 12 times, you are looking at $5-$6 for every 1%. A good place to be.
A very good company, and active in both the analog and digital side. It is struggling a little bit on margins on the analog side, and doing well on the digital side. What gives him pause is the multiple. It has done wonderfully, but is trading at about 22 or 23 times earnings, which is way out of his league. He doesn’t want to pay that on what is going to be a cyclical story.
(A Top Pick March 23/16. Up 44%.) Has been involved with for a long time. Their holding of Booking.Com has been a major home run for them. It was involved in hotel reservations, especially European operations, where there are not a lot of chains, but single owner proprietor hotels, which need exposure.
(A Top Pick March 23/16. Up 9%.) Does clinical trials for the major drug producers, which is about 75% of their business. It’s been mildly disappointing. A very good company. They are growing their cash, which may lead to a dividend being paid in the near future. Very active in buying back shares. It has lots of potential.
(A Top Pick March 23/16. Up 26%.) This, along with MasterCard (MC-N) is really taking over the world in terms of converting everyone from cash to plastic. A couple of things that are really helping are its dominance in the debit card world, and the purchase of Visa Europe. Europe is a very, very big opportunity for them. Europeans spend more of their transaction dollars in actual currency as opposed to cash.
There has been food inflation in the environment for some time. This is a company, along with a great many other consumer packaged good companies, that struggles for growth. If they can eke out low single digit growth in many, many of their categories, it is a win for them. As an owner of the stock, you have to be very, very careful, because a lot of these companies have been labelled as stable and good dividend producers, but have been bid up, and you are paying 16, 17 and sometimes 20 times earnings for a company that is growing at 2%, 3% or 5%, a huge risk. He would stay away from the sector.
This has been on a valuation ladder. For a lot of years it was the darling as a high, high growth company, and deservedly so with a very high multiple. Then it went out of favour and earnings didn’t grow as fast, and it went down the ladder on valuation, to what would now be described as old tech, trading in a low teen multiple. It is now back up the ladder, but in anticipation of new things happening. Some of those new things are happening, but haven’t shown up yet on the income statement. We are really not seeing earnings growth, the way you would expect for a company trading at the multiple it is trading at. He would step aside on this.
Hold or sell? You have to look at the market every day by asking yourself how should you deploy your capital for today and into the future. In this case, you would ask yourself how is the $52 best deployed. In this case, not in this company. It has had some great success, but he questions where they go from here and are they controlling their existing space.
Market. The long-awaited recovery from 2008 started to take place some months before the election results were in, but the Trump victory, and more importantly the double win by the Republicans in the Congress and Senate, were the catalysts to accelerate the market’s confidence that things would change and that we would get more of a pro-growth, pro-cyclical type of market. The S&P 500 has been flirting with the record high of $2400, and wouldn’t be surprised to see a break out above that by year-end. We went 5 quarters in a row from middle to late 2015 to 2016, with falling earnings year-over-year. That has changed with this quarter looking at 12.5% growth in earnings in the US, probably 10% for the full year, and there is still that confidence that the regulation and the long-awaited tax reform will be a boost for earnings. He sees a pretty good economic outlook for the US.