Eric J. Marshall, President and Co-Chief Investment Officer, Hodges Capital
Eric J. Marshall, CFA, currently serves as President, Co-Chief Investment Officer, and Director of Research for Hodges Capital Management.
He joined the firm in 1997 and also serves on the board of directors of the firm’s parent company, Hodges Capital Holdings. Mr. Marshall holds a B.A. in Finance from West Texas A&M University.
In this 2,738 word interview, exclusively in the Wall Street Transcript, Eric Marshall explains the investing philosophy of Hodges Capital for investors.
“…We’re very much bottom up; we focus entirely on what’s going on with the fundamental earnings picture of the companies that we follow. And we do pay attention to macro factors, such as what’s going on with interest rates in the Fed because they affect how risk is priced out in the market.
But we don’t spend a lot of time trying to forecast the macro environment.
What we’re really trying to forecast is what does the fundamental backdrop look like for each of the individual companies in our portfolio over the next 12 to 18 months, and then make the best risk/reward decisions in the portfolio based on that.
…When we look at multiples right now, relative to where interest rates are, we think that given the current backdrop for inflation rearing its head, there’s not much room for multiples to expand.
Also, higher corporate tax rates and higher capital gains taxes potentially could also be headwinds for multiple expansion.
So really, what this means as investors, is we want to be focused on businesses that have pricing power and have the ability to leverage their cost structure in an inflationary environment.”
This leads Eric Marshall of Hodges Capital to some interesting stock picks:
“One area that we particularly like in the material space is companies that make things like cement.
One of the stocks that we own in three of our four funds is a company called Eagle Materials (NYSE:EXP), and they are one of the largest producers of cement in North America.
They also are a leading provider of gypsum wallboard. But the interesting thing about cement is we haven’t really added any meaningful cement capacity in the United States over the last 20 years.”
Eric Marshall also likes a well known retail name:
“One that’s definitely kind of a turnaround but you don’t hear a whole lot of people talking about is Nordstrom (NYSE:JWN).
And that’s one that’s very unloved, and kind of hated. But we see that there are some valuable assets there. In a post-pandemic world, we still think over the next 12 months consumers are going to get back out and update their wardrobe. Nordstrom is kind of a higher-end luxury retailer, where you have aspirational customers realizing value.
And that’s one that looks very inexpensive to us.
It’s been flying underneath the radar and it is in a turnaround situation, but one that we think has a pretty good risk/reward. We believe that they have the balance sheet to make it through.”
The current market has created some investing dilemmas for Eric Marshall of Hodges Capital:
“…There’s certainly been far more upside surprises over the last several quarters — almost to an extreme.
At one point, we looked at our coverage universe and about 85% of the companies that our team of analysts follow saw earnings come in better than expected in the most recent first quarter. And I think in a lot of cases, management teams have given very conservative guidance because they lack visibility and because of the timing of the economy reopening.
Also, they lack clarity to what’s going to happen with federal policies that are currently underway from tax reform to other regulatory items.
There’s just a lot of uncertainty out there. And that set conservative expectations. So I think that’s why you saw so many companies beat analysts’ expectations over the last couple quarters.
In many cases, the stocks didn’t even go up when the companies beat expectations because it was such a widespread phenomenon that occurred.
Where if you didn’t beat expectations that was almost like missing expectations, and if you just met expectations, something must be wrong. And that’s something that will probably continue for the next couple quarters.
I’ve talked to a lot of management teams.
Our investment team this past year made over 3,200 contacts across over 1,000 different publicly traded companies. We’re constantly talking to management and we do get the sense that the guidance that’s made public on these quarterly conference calls is very conservative.
In many cases, it’s much easier to paint a picture for a company to exceed expectations than to miss expectations.
And that’s kind of become the new phenomenon on Wall Street.”
Eric Marshall has identified a fintech hidden inside a very old Wall Street name:
“We’re looking for companies that can actually prevail under difficult conditions like that and then actually emerge, maybe in a little bit better competitive situation than they had before the pandemic.
We also like NCR (NYSE:NCR), a company that makes point-of-sale equipment like cash registers, and they also make ATMs. But we also see a real recovery in things like self-checkout at retail, and we think that’s something that’s here to stay. As companies have learned to change their payment methods, people are paying using their phones.
A lot of that is automated through NCR’s hospitality business. And this is one that we think is actually poised to do really well on the backside of the pandemic as things continue to reopen.
So it’s kind of a derivative of the reopening. We think, really, it’s a fintech company hidden inside of an old company that used to make cash registers and ATM machines and things like that.
Now they’ve evolved from an appliance manufacturer to more of a software-as-a-service company. Because of the software component of their business and reoccurring revenue associated with that, we think they’re going to get a much higher multiple over the next year or two.”
To get all the top picks from Eric Marshall of Hodges Capital, read the entire 2,738 word interview, exclusively in the Wall Street Transcript.
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