Dan Neiman, Portfolio Manager at Neiman Funds Management LLC, invests in large-cap value stocks with dividend growth on a five- or 10-year basis, sometimes more. He says Chubb Corp (NYSE:CB) is a strong company on the insurance side, one that has raised its dividend on an annual basis for 18 years.
“Chubb is an interesting stock. It has actually done quite well year to date. It had a big raise, huge price increase back in July,” Nieman says.
“Chubb is an insurance company. It’s going to be there; its yield is lower now than it was when we first bought the stock back in 2011. It is a solid company, one of the strongest insurance companies from a fundamental standpoint that we’ve seen,” he adds.
Neiman says CB is not a stock that continues to hit screens when looking for fundamentals, but it has low debt and has shown strong performance recently, up over $130 a share.
“I’d put it as a stock not to add to a portfolio today, but definitely if it’s in your portfolio, then continue to hold it. Earnings continue to outpace. I just think it’s a strong company in the insurance side,” Neiman says.
Dan Neiman, Portfolio Manager and Partner of Neiman Funds Management LLC, has held American Electric Power Company Inc (NYSE:AEP) since 2011. American Electric continues to increase dividends over time, which is one of the things Neiman looks at in his funds.
“Back when we first bought the stock the quarterly dividend was $0.46, $0.47 a share. Now it’s in the $0.53; $0.56 is their most recent dividend. Dividends have increased 22% since we bought the stock, which is a nice increase in dividends,” Neiman says.
Dan Neiman
Neiman adds that over that same five-year time frame the stock is up 55%, so he has seen a nice return on investment.
“Currently the yield is over 4%, so again, I like that stock, its yield. When you start comparing it to other utility companies, the debt is a little bit higher, but still manageable for a utility. Again, yield is good, p/e is relatively within the range that we’re looking for. So American Electric Power for me is one of those names that we’ve held for a quite some time, and I continue to hold it in the fund and add to it at times,” Neiman says.
Portfolio Manager David Yucius Jr. of Lebenthal Asset Management looks for steady, sustainable companies that run independent of what the economic environment might be providing. He does look for secular growth stories to an extent, one example being Chipotle Mexican Grill, Inc. (CMG).
“I prefer to hold such companies for longer periods. It’s nice to find the longer runways for growth,” Yucius says.
David Yucius Jr.
“[Chipotle] is a nice story with a passionate base of customers. Chipotle has done a great job because they have been able to expand the number of stores into different markets over the last couple of years, but it has enjoyed strong same-store sales growth on top of that. They have been able to win by attracting new customers, by expanding their store base and by gaining pricing.”
Yucius says CMG has had control over pricing, which is unusual in the restaurant space, and has been able to charge a premium because of its organic-product focus.
“They also have opportunities to extend their concept of organic foods to two other concepts by rolling out an Asian noodle concept and a margherita pizza concept that are in beta testing. They have opportunities to grow internationally. There are a lot of planks that this seemingly simple restaurant company has been able to exploit as they move on.”
Yucius says CMG has been a very rewarding investment, and he believes the valuation is still attractive.
“All the companies that we have ever bought are done so after passing through the GARP filter. They originated as a growth-at-a-reasonable-price candidate in our quantitative process. Chipotle is a company that has grown 20% to 30% for really the last seven, eight and nine years with very steady growth,” he says.
Lead Portfolio Manager Hamilton Reiner of J.P. Morgan Asset Management has an overweight position in Wells Fargo & Co (WFC), which he says is one of the best banks in the sector.
“With not a lot of interest rate sensitivity, the bank has run their mortgage business well and grown significantly, including the Wachovia acquisition during the crisis, which was a strategic and accretive deal. We are big fans of the company,” Reiner says.
Hamilton Reiner
Reiner says Wells Fargo has the ability to manage its balance sheet to continue to buy back stock and raise dividends, and has grown from a super-regional bank to one with a global footprint.
“They are monetizing and managing their mortgage business, and growing out their capital markets business. They have had positive net interest margins in the way they manage the bank’s portfolio,” he adds.
As interest rates go higher, Reiner believes Wells Fargo is positioned well.
“Because at some point, maybe as early as December, the Fed will raise its rates. It is important to not just be positioned for where rates are today, but where they are going forward as well,” Reiner says.
Senior Research Analyst Kevin Ellich of Piper Jaffray & Co. says Zoetis Inc (ZTS) is his favorite name in the animal health industry.
“They are the largest company, and two-thirds of Zoetis’ business is tied to the production animal or livestock market. The company sells products that are used to help producers grow healthy and safe livestock for protein consumption. Zoetis has meaningful exposure to the cattle market,” Ellich says. “The remaining one-third of Zoetis’ business is tied to the companion animal market.”
Kevin Ellich
Zoetis has the leading or second-leading market share in nearly every category and geography it participates in, Ellich says. It also has a strong management team.
“Zoetis has a very good management team with a lot of experience, as well as industry-leading R&D out of Kalamazoo, Michigan, led by Dr. Cathy Knupp. The company spends about $400 million a year on R&D which is used to innovate new products or keep existing products fresh through lifecycle extension,” Ellich says.
“Zoetis launched a new anti-itching, atopic dermatitis product for dogs last year called APOQUEL, and the demand was huge. This was a new treatment in an area of unmet need, and the company’s marketing and sales efforts really helped propel it at launch,” Ellich added.
While there were supply issues that constrained the revenue for APOQUEL initially, Ellich believes those issue are now resolved, and that Zoetis will generate a substantial amount of revenue from the drug.
“In the second year on the market it’s going to generate about $125 million in revenue and should top $200 million next year. To put this in context, a blockbuster in the animal health world is $100 million of revenue or more versus $1 billion for human pharmaceuticals,” Ellich says
Senior Analyst Kevin Kedra of Gabelli & Company says Zoetis Inc (ZTS), a manufacturer of pharmaceuticals in the animal health space, is a very interesting story. He says ZTS is a leader in the industry with great growth prospects, and it may be an acquisition target.
“They have about 20% market share within their industry. Normally when you are the biggest player in the industry you are the one who is out there looking to buy everybody else, but they could very well end up being a target of acquisitions because the company that would be trying to acquire them would actually be much bigger than they are. It’s just that they are much bigger because they are attached to a human health company, while Zoetis is completely independent,” Kedra says.
Kevin Kedra
Kedra points out that a lot of companies are looking to get into the animal health industry, and if they are looking for an acquisition target, Zoetis is the best pick.
“You instantly become the market leader by acquiring them, and you get a nice business that actually has some very interesting new products coming down the line,” Kedra says. “One of the most recent products they launched is a product called APOQUEL. It’s doing very well. It’s for these excessive itching and skin conditions in dogs, and it’s a product that Zoetis thinks could be a $300 million product.”
Kedra says a human health blockbuster is typically a $1 billion-type product, but in animal health anything over $100 million is considered a blockbuster.
“So this is a significant, very attractive high-margin product with great growth that the company is launching. They’ve got a few things in their pipeline that look like that. So that’s one of our favorite names,” he says.
Bobby Edgerton, Money Manager at Capital Investment Companies, says he looks at macro events when evaluating stocks, but he is more concerned with what big tech companies are doing, such as Facebook Inc (FB).
“One phenomenon that has happened in the market is the emergence of the five tech companies to get even more and more powerful, and those are Amazon (AMZN), Apple (AAPL), Facebook, Microsoft (MSFT) and Alphabet (GOOGL),” he says.
Bobby Edgerton
“I like tech stocks the best because they’ve changed the world. They have more money than anybody else. They make more money than anybody else. If you looked at Microsoft’s and Apple’s balance sheet as well as Alphabet and Facebook, then that’s my favorite sector,” Edgerton adds.
Edgerton says Facebook is a $100 stock with 3 billion shares outstanding and a market value of $300 billion. Despite the competition, he believes FB will continue to succeed.
“The competition is just absolutely ferocious, especially between the big tech companies. Google wants what Facebook has got. Facebook wants what Google has got, and they go at each other. But probably both are going to do well,” Edgerton says.
Money Manager Bobby Edgerton of Capital Investment Companies seeks the world’s best companies when they are out of favor, and he thinks FedEx Corporation (NYSE:FDX) is one of them.
“I am a contrarian first and foremost, because when a stock goes down, that’s probably the biggest tip off of it getting cheap, which is what happened with FedEx at $65 a share two or three years ago. It was selling below what their assets were across the world,” Edgerton says.
Bobby Edgerton
Edgerton says the essence of the stock market is that each company at all times has two values: the value the market is placing on a company at a certain point, and the actual worth of a company.
“There are times like right now when FedEx was being valued at $44 billion. I just look at the land, building, property and equipment, and that’s $44 billion. So the stock market is saying that the entire FedEx Corporation is worth what they paid for their properties, trucks and planes owned. That is what triggers my buy: a stock that’s worth a lot more than the market’s valuing the company at.”
Stifel, Nicolaus & Co., Inc. Managing Director Tom Roderick says that when looking at the big trends driving enterprise software and adoption within the enterprise, there is a wave of disruptive pressure coming from cloud companies like Salesforce.com, Inc. (CRM).
“Cloud-centric companies like Salesforce.com, they used to be seen as smaller departmental types of solutions or solutions that are emphasized for the small or midsized business. That has all changed over the course of the last four, five years,” Roderick says. “You’re seeing big, big, seven- and eight- and sometimes even nine-figure investments into cloud-based technologies.”
Tom Roderick
Roderick says what is new is the willingness to rip out a heavy investment in legacy systems and move forward with leading cloud vendors as the next platforms of choice.
“These are not just investments and applications around the fringes. These are investments and platforms and systems that are replacing core functions,” he says. “You’re seeing that with Salesforce.com for a number of front office software technologies.”
Salesforce is still Roderick’s number one SaaS name of choice.
“I know it’s a widely beloved and widely held stock, but we think it’s still just right on the cusp of becoming an even greater disruptor in the enterprise with more and more solutions that are being adopted from not just the Sales Cloud offering that they built, but also with their Marketing Cloud, their Service Cloud and even their PaaS platform offering known as force.com. We’re starting to see the larger and larger enterprises make even greater investments toward cloud-based technology, and Salesforce is becoming the aggregator and consolidator of that power,” Roderick says.
Managing Director John Rizzuto of SunTrust Robinson Humphrey says Oracle Corporation (ORCL) is one of his top picks. He says the mega-vendor is very broad in where it competes, and he is optimistic on its transition to the cloud.
“In the large-cap world, Oracle is playing in this [data analytics] space aggressively,” Rizzuto says.
John Rizzuto
“It is important to note that everything starts from the infrastructure that enables it. We need an infrastructure to move and store the data, and an infrastructure to host the applications. Oracle too has infrastructure solutions in addition to applications; this is increasingly common among the mega-vendors,” he adds.
Rizzuto says the top 10 software vendors, which includes Oracle, control a massive amount of the market and play across many segments of the software industry. He believes that investors’ concerns about the company moving to the cloud are misplaced.
“Oracle is one of the companies that we just upgraded and that we like going forward as it transitions to the cloud. As Oracle moves toward the cloud, many investors are viewing it as a threat. We believe that at some point within the next 12 months, people will start to realize it’s not a threat at all, but an opportunity. It is because we expect Oracle to manage the transition very well,” Rizzuto says.
