Eric Kuby, Chief Investment Officer of North Star Investment Management Corporation, says it is livestock, not domestic pets, that is driving growth for Zoetis Inc (ZTS). That trend is one of the reasons he favors the stock.
“Globally, there is greater and greater demand for food, and the health of those livestock becomes more and more important,” Kuby says. “This is a huge global growth industry. And again, the theme there is just an improving global economy with more and more consumers of food.”
FOR MORE INFORMATION ON THIS INTERVIEW CLICK HERE.
Kuby says he has been intrigued by Zoetis since its spinoff from Pfizer Inc. (PFE). Now, as Zoetis has moved away from a shared expense model with Pfizer, he thinks there is an opportunity for Zoetis to operate more efficiently.
“So we thought that there is some nice earnings leverage and greater visibility coming,” Kuby says. “Over the last six months, more and more institutions have discovered the company, and it has been performing quite nicely. Spinoffs in general often offer these sorts of opportunities.”
Steve Bullock, Research Analyst at Fidelity Management & Research Company, says he is generally underweight the health insurance sector. However, he says Cigna Corporation (CI) remains one of his favorite stocks.
“If we think about the Affordable Care Act, which has been the big regulatory driver in the space over the last couple of years and will be for the next couple, it hits the health insurance industry with a significant amount of taxes, fees and reimbursement cuts,” Bullock says. “We’re in the middle of that playing out, and the reimbursement cuts and the incremental tax load being put on these companies steps up in 2014, 2015 and 2016.”
FOR MORE INFORMATION ON THIS INTERVIEW CLICK HERE.
Bullock says he still likes Cigna because the company has differentiated growth drivers that aren’t in the core insurance business. That gives him more confidence in the company’s earnings growth capability. For example, Bullock says Cigna is opening offices in India, which has one of the youngest demographic profiles of all countries in the world.
“I think more important than the demographic makeup of some countries is the fact that their middle class population is emerging. A lot of these countries have a state-run health system, and so you don’t necessarily need health insurance,” Bullock says. “But if you want good health care, a lot of these rising middle classes are deciding that they want to buy additional private health insurance, and that’s really where these companies are playing, the private health insurance market.”
Robert Lane, the Senior Vice President, CFO and Treasurer of Emerge Energy Services LP (EMES) said the company is “incredibly strong, and we’re in a position to be a leader” thanks to the worldwide demand for Northern White sand, a key component of fracking operations. He was speaking at the Ultimate Energy Conference in New York City.
The company will be doubling its sand capacity by mid-year, Lane said. “We have a very low-cost operating structure,” he added, and pointed out its logistical advantages, experienced management team and strong industry relationships. The company also has a strong fuel division, which consists of processing and selling transportation mixtures.
Emerge Energy Services is one of the top eight manufacturers of Northern White Silica sands, of which 99% is sold as a proppant for hydraulic fracturing. Lane said Emerge has 8.2 million tons of sand currently under contract, with those deals representing an average life span covering 4.2 years. The demand for sand will only increase as the transition from vertical to horizontal drilling continues and wells need to be re-fracked, Lane said.
Northern White sand is supply constrained. It is only available in North America, and the coarsest Northern White is only in Wisconsin and Minnesota. But permitting is difficult, Lane said. “Not everything announced gets permitted, not everything permitted gets built,” he said.
But U.S. companies are not slashing their hydrocarbon production, Lane said, and noted that those producers are stepping on the gas. “The laterals are getting longer, spacing is getting closer.” The result of that is that “there is more sand (used) per stage.” Total sand use in the main U.S. basins continues to grow, Lane said, as basin improvement is driven by individual well improvement.
FOR THE FULL PRESENTATION CLICK HERE.
Franks International NV (FI) expects Mexico operations to be one of its growth drivers in 2016 and beyond, according to Robert Gilbert, the Senior Vice President of U.S. Offshore Operations.
“We really foresee growth in the Gulf of Mexico,” said Gilbert. “There’s deep water, and if you come closer to shore they can use a jackup rig. They have found a much deeper zone with high pressure, high temperature. That’s where Frank’s can work with the customer to reach those points without damage to the formation.”
The company has a $100 million inventory of pipe that can be used in deep water, Gilbert said. “This market will grow.”
FOR THE LATEST TWST OIL SERVICES REPORT CLICK HERE.
Frank’s International N.V. is a casings and equipment manufacturer and provides engineered tubular services to the oil and gas industry for offshore and onshore environments. Started over 75 years ago, it is now in 60 countries with 90 locations, employing 4,500 people, Gilbert said. The company has a staff of 50 engineers dedicated to designing equipment, Gilbert said.
Frank’s International expects international services and U.S. offshore operations to grow revenue at least 10%, offsetting an anticipated 10% revenue drop on U.S. land, according to Thomas Dunavant, Investor Relations Manager for the company. The company has “free cash flow in excess of our capital needs,” Dunavant said. “We currently have $450 million in cash and no debt.”
FOR THE FULL PRESENTATION CLICK HERE.
Core Laboratories N.V.’s (CLB) margins are “boosted to the highest degree ever,” says David M. Demshur, the Chairman/President/CEO of the company, a step that will maximize Core’s free cash flow. He was speaking at the Cowen & Company Ultimate Energy Conference at the New York Hilton Midtown in New York City.
Core Laboratories is a provider of reservoir description, production enhancement and reservoir management services to the oil and gas industry. The company’s goal, Demshur said, is “to help our clients produce more oil and gas every day, and produce more over the life of the asset.”
To achieve that, Core Laboratories divides into three business segments: reservoir description, production enhancement, and reservoir management, all designed to help clients capture “incremental barrels,” Demshur said, and “get the recovery rates up.” The company targets fields that are under-producing or brownfields, Demshur said, adding new projects at the rate of 40 to 50 per year. Core Laboratories is currently involved with 1250 fields worldwide, 50 more than last year, Demshur said.
FOR THE LATEST TWST OIL AND GAS REPORT CLICK HERE.
Demshur said Core Laboratories did $7.4 billion in revenue last year, with operating margins up 400 basis points.
Core Laboratories Executive Vice President and CFO Richard Bergmark said the company has been “pretty aggressive in share buyback” since 2002. As a result, it has “reduced outstanding shares by almost half.” Bergmark said Core Laboratories’ focus is on “generating free cash in this company,” calling the strategy “integral to shareholder return.”
FOR THE FULL PRESENTATION CLICK HERE.
FMC Technologies, Inc. (FTI) Executive Vice President/Chief Financial Officer Maryann T. Seaman said the company remains confident that deepwater oil exploration and production will continue driving its revenue growth. She was speaking at the Cowen & Company 4th Annual Ultimate Energy Conference, held at the New York Hilton Midtown in New York City.
FMC Technologies designs, manufactures and services subsea production and processing systems, surface wellhead production systems, measurement solutions and marine loading systems. The company is partnered with BP, Shell and other major producers.
FOR THE MOST RECENT TWST OIL SERVICES REPORT CLICK HERE.
Despite downward pressure on oil prices, “We believe operators are committed to deep water,” said Seaman, citing global energy demands and oil production projections to 2020. Seaman said deepwater deposits from 2007 to 2012 represented 50% of new discoveries, and noted “nine of the last 10 discoveries were in deep water.”
Seaman said FMC also sees opportunities for growth in servicing its accounts and research assistance, including asset management and light well intervention.
Seaman said the company history reflects orders representing 15% growth compounded annually since 2001. She noted that 2014 represented “a significant year of inbound orders for us.” She said the company’s revenue guidance remained at $5.7 to $5.9 billion for 2015.
FOR THE FULL PRESENTATION CLICK HERE.
Mark Webber, Lead Portfolio Manager of the Scout Emerging Markets Fund for Scout Investments, says he has long seen an opportunity in Haier Electronics Group Co., Ltd. (HKG:1169) that the market wasn’t recognizing. He says Haier is a leading home appliance company in China, but also has a large logistics business.
“They have really deep logistics coverage of interior China — down to small towns, villages, places in interior China where there’s just not very much competition at all,” Webber says. “What attracted us to them is that logistics operation.”
FOR MORE INFORMATION ON THIS INTERVIEW CLICK HERE.
Webber says Haier has been one of his largest positions since his fund’s inception. When he first researched the company, he says that in valuation terms, investors were paying for the appliance business alone. Meanwhile, companies like Amazon and Alibaba needed to distribute products in interior China, and Haier was building a valuable logistics network which offered attractive growth at very high returns on capital and, again, very competitively advantaged.
“This company has been building that distribution network for two decades. It’s going to be very hard for anybody else to duplicate it in any kind of reasonable time frame,” Webber says. “We saw a company that we thought had durable competitive advantages and excellent growth opportunities, trading at a shockingly low free cash flow multiple when you thought about where the business’ growth was coming from. So that’s what attracted us to it.”
J. Dowe Bynum, Portfolio Manager and Co-Founder of Cook & Bynum Capital Management, says that consumers may consider Microsoft Corporation (MSFT) to be less exciting than Apple Inc. (AAPL), which makes headlines with high sales of iPhones and iPads. But, Bynum says investors would be mistaken to adopt the same view. He says Microsoft not only has a lock on productivity software with Microsoft Office, but it also has servers in many offices.
“If you’re the tech guy at a company that’s got thousands of employees who are all running Windows on their computers and have a server or multiple servers in the tech closet, you’re not going to be the guy that shuts that down and tries something new,” Bynum says. “That is, not unless you can do it with substantial cost savings and can guarantee the change won’t cripple the business.”
FOR MORE INFORMATION ON THIS INTERVIEW CLICK HERE.
Bynum says that three or four years ago, Microsoft was selling at a price he calls “silly” relative to how high-margin and sticky its business is. What’s more, he says, Microsoft has been able to innovate faster than he anticipated.
“If they do better, if they get more and more people signed up for, say, Office 365, which is a subscription business — it’s where you don’t buy the Office disk for a one-time sale — it actually shows up in their income statement as deferred revenue because you can’t recognize it all at once, but it’s more beneficial to Microsoft,” Bynum says. “They earn more life of contract than they would have otherwise, and it’s also cheaper for you because now you don’t have to have a tech guy in your closet installing all these programs on your machines.”
Macquarie Group Analyst Chad Beynon is pointing investors to Las Vegas Sands Corp. (LVS) because of its heavy exposure to the Asian market and other positive stock characteristics.
“Las Vegas Sands…generates 96% of its cash flow in Asia,” Beynon said. “It is very much an international story. We have seen the deceleration of growth and negative growth in places like Macau, but Las Vegas Sands currently pays a 4% dividend.
FOR MORE INFORMATION ON THIS INTERVIEW CLICK HERE.
Beynon also says Las Vegas Sands has a share repurchase program that would allow them to buy back another 4% of the company this year. In addition, Beynon believes LVS is the most likely candidate for gaming in Japan.
“We view Las Vegas Sands as kind of a steady cash flow story with nice capital allocation. The easy money, so to speak, has been made over the past couple of years in Macau. Growth rates continue to rise, but we still think there is incredible value in that one,” Beynon said.
Analyst Chad Beynon of Macquarie Group Limited says one of his top picks in the movie theater group is Cinemark Holdings, Inc. (CNK), due to the company’s business in Latin America and exposure to the U.S. Hispanic market.
“[Cinemark] generates about 20% of their business from Latin America, which is experiencing a nice secular change right now, surrounding consumer discretionary spending. The attendance per screen in places like Brazil and Mexico is the highest in the world, yet they just don’t have any more screens. We are seeing new builds down there,” Beynon said.
FOR MORE INFORMATION ON THIS INTERVIEW CLICK HERE.
While in the U.S. Cinemark is operating in a mature market, Beynon likes the demographic exposure the company is getting thanks to its locations.
“We like Cinemark because they operate right on the outer edge of the bull’s eye in suburban markets. They don’t have super-expensive rental expenses, and they are in healthy markets with good demographic changes. In the U.S., the Hispanic population is roughly 15%, but at the movie theater, it’s about 30% of revenues, and they are exposed to those markets,” Beynon said.
