John A. McCluskey is the President and Chief Executive Officer and a Director of Alamos Gold Inc. and has held this position since 2003, when he co-founded the company with mining hall-of-famer Chester Millar. Mr. McCluskey is currently a director of the World Gold Council.
He was the recipient of the 2018 Murray Pezim Award for Perseverance and Success in Financing Mineral Exploration by the British Columbia Association for Mineral Exploration. This award recognized Mr. McCluskey’s role in the acquisition, financing and encouragement of successive discoveries at Mulatos, as well as his ongoing success as CEO of Alamos.
In this 3,534 word interview, Mr. McCluskey details his company’s prospects for investors.
“Alamos Gold is a diversified, North American, midtier gold producer. Going back about 17 years ago, we were in the permitting and construction phase of our founding operation, which is the Mulatos mine in Mexico.
That’s gone on to do very well; it’s produced nearly 2.5 million ounces of gold to date, it’s made close to $480 million in free cash flow for the company and its shareholders, and it really was the underpinning, the platform, for growth for the company.
We essentially built up a very strong treasury through our earlier operating years at Mulatos — 2008 through 2013 — and by 2014 the market had gone into a deep correction. We saw that as the opportunity to start pursuing the next leg of our growth, and we were quite focused on Canada.”
The current plan is to further extend existing operations:
“…We have a phase three expansion underway at Island Gold. We’ve expanded it from a 900-ton-per-day operation since we acquired it. Step one was to take it to 1,100 tons a day and step two to 1,200 tons a day, which is pretty much the maximum we can mine under the current permit. With all the success we’ve been having in exploration, it’s pretty clear we have to think about developing that mine and sizing it in a way that can maximize the profitability of the operation going forward. With that in mind, we’re going to expand it to a 2,000-ton-per-day operation.
Right now, it operates from a ramp. There’s a big advantage to changing it to a shaft operation because a lot of the material that we’re finding is quite a bit deeper. It gets ever more expensive to try to access that through a ramp system; it’s far more efficient and far safer to mine the deeper levels of the deposit with a shaft operation. So that’s a pretty big undertaking for us.
It’s about a $500 million investment between now and 2025. While this is approximately $300 million more in growth capital than continuing with the existing ramp system, this will be more than offset by savings of more than $500 million through lower ongoing capital and operating costs over the mine life. So effectively, we’re well ahead by sinking the shaft as opposed to just continuing with a ramp operation.
On top of that, like I said, it’s a safer way to go; it’s a greener way to go because, rather than rely on more diesel trucks, we’ll be operating with a shaft, which is run from power off the grid, and it also gives us a lot of optionality because as time goes on we’re finding more and more gold to depth, and a shaft operation will allow us to more directly access the new resources that we’re finding.”
The COVID 19 global pandemic affected operations but the company kept it from a long term impact:
“At our Island Gold operation in Canada, we were in a situation where we bring in about 150 people from around the provinces of Ontario and Quebec into a relatively small community where our camp facilities are located. There was some risk of spreading the virus inadvertently by bringing people in from outside, and we wanted to avoid any chance of that.
Of course in March, nobody really knew the full extent of how the virus was spreading. So out of an abundance of caution, we flew out the shift that was already in place at the time when it ended on the 25th of March and we didn’t bring in the new one.
We kept the mine closed effectively from the last part of March right through the end of April. We got it back up and running again in May.
So we didn’t see production coming from two of our best operations, and that certainly impacted our guidance for 2020. We revised guidance and we kept those mines shut down until we were absolutely certain that we could bring them back online again in a very safe manner that was not only safe for our workers but also safe for the communities — and that’s in effect what happened.
The Island Gold mine, we’ve been very fortunate there in that to date we haven’t had a single case of the COVID virus among our workforce, nor among the community.
In Mexico, we have had quite a number of cases. We’ve detected about 100 cases, but we’ve been doing testing in Mexico since we brought our operations back online, and we’ve been managing to catch people testing positive before they go out to the mine site, which is about a seven-hour drive from the city of Hermosillo.
By catching it before people go to the mine, we’ve been able to keep the virus out of the operation altogether. And by the way, of the 100 or so people that have tested positive, they’ve all effectively recovered by now and they’re back to work. So that’s more or less the approach that we’ve been taking.
We’re doing this at Island Gold as well, where we’re testing people for the virus before they start their period of time at the mine.”
Get the complete picture for Alamos Gold and its prospects for 2021 and beyond by reading the entire 3,534 word interview, exclusively in the Wall Street Transcript.
Stefan Ioannou, Ph.D., is an Analyst covering mining for Cormark Securities Inc.’s institutional equity research team. Dr. Ioannou is a mining engineer and holds a Ph.D. in economic geology from the University of Toronto.
He joined Cormark in December 2016, working in equity research for 13 years with Haywood Securities as a base metals analyst since 2006. Prior to that, Dr. Ioannou worked as an exploration geologist in Nevada and throughout the Canadian Shield.
In this 1,913 word interview, exclusively with the Wall Street Transcript, Dr. Ioannou explores how investors can profit from mining stocks.
“A lot of it comes down to your time horizon as an investor. For investors with patience, I think we’re still in the early innings of what could turn out to be a much higher metal pricing environment. And so when we think copper, nickel or even zinc, the longer-term prospect of significantly higher prices is fairly widely accepted.
The trick is, investors will still have to navigate potential short-term volatility to realize those gains over the longer term. Last year’s U.S.-China trade war narrative and this year’s COVID considerations being cases in point.”
The relevance of these political developments loom large in Dr. Ioannou’s evaluations:
“When you’re thinking base metals, you need to be thinking about China. From a high level, China consumes well over half of the world’s base metals — north of 50% in the case of copper. And so really, when you want to think about the health of copper consumption, you have to think about the health of China’s economy.
Again, we’ve seen on the back of their initial COVID response a lot of stimulus go into that economy, building out new infrastructure while also replenishing depleted stockpiles, and so that’s helped metal pricing across the board.
Some other issues lingering in the background: Obviously, the U.S.-China trade war was never fully resolved ahead of COVID, so there still stands to be some follow-up from that to consider. We’re seeing a potential emergence of another trade war between China and Australia emerging now. Copper exports have been curtailed, coming from Australia into China. That stands to expand into other commodities as well.”
The Green New Deal may also pop global mining stocks:
“The one thing I would note in the copper space specifically, when you look at the incremental demand from electric vehicles over the next 10-plus years, it’s on the order of about 10% to 15% incremental new copper that is going to be required to satisfy that new demand. It’s a significant number — copper that we don’t see from existing mine supply or even forecast new mine supply — so it’s something that’s going to stress the market from a pricing point of view, which is good for producers and investors in general.
Having said that, I’d say don’t just focus on copper, think about some of the other key metals in the “green” industry. When we look at electric vehicle batteries themselves, we hear a lot about cobalt and lithium, but actually, one of the other metals you really want to pay attention to is nickel.
When you look at a lot of the electric vehicle battery chemistries out there right now, anywhere between 60% and 80% of those battery cathodes are actually nickel.
Take a step back and look at the incremental demand for nickel from the whole emerging EV space. Nickel right now is about a 2.1 million ton per annum market. The incremental demand for nickel on the back of the EV revolution could be on the order of another 2 million tons a year over the next 10 years, so basically a doubling of nickel demand in response to EV adoption.
That, obviously, has huge market implications for nickel supply/demand fundamentals and the nickel price itself going forward.”
Dr. Ioannou has specific recommendations:
“In the producer space, Hudbay Minerals (NYSE:HBM) has really turned a corner. The company had a few question marks pertaining to various parts of their portfolio over the last year or two.
However, new management has really helped to right the ship, and I would say all of Hudbay’s internal growth projects are firing on all cylinders again.
There’s a solid outlook for the company in terms of increased production out of Peru, which is where their flagship operation is, as well as in Manitoba with respect to additional gold production. We also expect to get better clarity pertaining to the outlook for a large development project in Arizona toward the end of next year. So a lot of good growth advancements underpinned by a sound production foundation.”
The recommendations continue:
“Moving down the food chain into the explorer world, a few names stand out to me. One is Filo Mining (OTCMKTS:FLMMF), an advanced-stage exploration project that straddles the Chilean and Argentinian border. Key there is the project was initially defined as a fairly robust near-surface oxide-copper-gold project, but deeper drilling over the last year or two has really unveiled that there could be significant sulfide porphyry potential at depth.
The latest field season just got underway and will be underpinned by deep drilling. And again, based on what we saw last season — 1,000-meter intercepts — this could be something that could easily turn into a world-class porphyry project very quickly.”
Get more picks and all of Stefan Ioannou’s detailed recommendations by reading the entire 1,913 word interview, exclusively with the Wall Street Transcript.
Jonathan Brandt is a Senior Equity Research Analyst covering GEMs ex-Asia Metals & Mining and LatAm Pulp & Paper at HSBC Securities (USA) Inc.
He joined HSBC Securities in February 2010 as an equity analyst covering the steel industry. In the previous six years, he was a buy-side analyst at a major U.S. investment firm covering metals and mining companies in Latin America, Europe, the Middle East and Africa.
He holds a bachelor’s degree in economics from Wesleyan University.
In this 3,157 word interview, exclusively in the Wall Street Transcript, Mr. Brandt demonstrates his understanding of where investors will find the best returns in 2021 for this sector.
“I would say that in iron ore, the concern has really been over the supply from Brazil and, in particular, Vale (NYSE:VALE). You will remember almost two years ago, in January of 2019, they had the Brumadinho incident. Production has really been hampered since then.
In 2018, they did about 385 million tons of production; that has been hovering around 300 million tons. So we lost a significant amount of capacity from them over the past couple of years, and that combined with strong demand has led to iron ore prices staying north of $100 for a while, and now we’re sitting at about $120.
Vale is desperately trying to get that production back. We think they will, but it’s a matter of time. Their capacity is about 400 million tons. What they’ve said is they should reach that run rate sometime in 2022.
We would expect them to be back up to full-year production — about 385 million tons, which is what they did in 2018. We would expect them to be back up there by 2022 or 2023. We are seeing better supply coming from Vale.”
Some more picks are also based in Latin America:
“The other ones we’ve been recommending have been Gerdau (NYSE:GGB), Ternium (NYSE:TX) and Grupo Mexico. I think of those, the ones that look more attractive are Ternium and Grupo Mexico.
Gerdau is still a fantastic story, it’s just starting to look a bit expensive, but it’s a nice play on potential Brazilian infrastructure. We’ve seen their economy has really improved since April and May, when they were really impacted by the pandemic.
We have historically low interest rates in Brazil — I think they are at the lowest they have ever been — and that has spurred all sorts of demand for real estate. We’ve seen significant real estate launches and construction starting, and that has obvious implications for long steel rebar and things like that. We think that demand for long steel continues until 2021 at least.
What we’re seeing from China in terms of their steel demand, that’s had an impact on pricing, and that pricing that we’ve seen in China has influenced prices positively in Brazil. So there are price hikes; there are volume growth and good demand.
We think Gerdau is a good way to play that, and if the U.S. government can put through an infrastructure stimulus program, Gerdau is the natural beneficiary of that, given their operations in North America.
Grupo Mexico is positively exposed to the copper price; 80% of their NAV is going to be copper through their subsidiary, Southern Copper.
They are one of the lowest-cost producers; they’re well into the first quartile of cash costs. Their C1 cash costs are $0.65, $0.70 per pound. You compare that to the $3.20 per pound that we have today for a price, and cash flow is really, really good.”
Get the complete picture on these and many other mining and metals stocks by reading the entire 3,157 word interview with Jonathan Brandt, exclusively in the Wall Street Transcript.
At the end of any year and certainly this one, the lucrative gold mine investment goes on the gift list. Fortunately, this issue of the Wall Street Transcript provides that opportunity for our readers with our Gold, Precious Metals, and Mining Report.
Stefan Ioannou, Ph.D., covers mining stocks for Cormark Securities institutional equity research team. Dr.Ioannou is a mining engineer and holds a Ph.D. in economic geology from the University of Toronto. He has been developing equity research for sell side banks for 14 years.
“China’s demand for metals picked up through the summer as the country addressed phase one concerns. Said demand has boded well for the global market given China is the world’s largest consumer of most metals.
Most base metal prices have now returned to healthy levels, backed by improved sentiment that stands to take them higher.”
Warren Rehn is CEO and President of Golden Minerals Company. Until 2012, Mr. Rehn held various positions at Barrick Gold Exploration, serving most recently as Chief Exploration Geologist for the Bald Mountain and Ruby Hill mining units.
Mr. Rehn holds a Master of Science degree in Geology from the Colorado School of Mines and a Bachelor of Science degree in Geological Engineering from the University of Idaho.
“The cost of bringing Rodeo into production is $1.5 million, and that’s almost insignificant compared to the potential profitability of that project going forward.
We put out some information in 43-101 reports on the projected economics of the project, and at $1,622 gold, it has a $25 million after-tax net cash flow over two, two-and-a-half years. It’s small, but it’s very critical to us as a money maker and the first step towards profitable production.”
Teo Dechev is the Chief Executive Officer, President, and Director of Mundoro Capital Inc.
Ms. Dechev’s capital markets experience includes positions at well-recognized bank-owned and independent investment banks in Canada and she spent more than three years with a mineral resources company managing their commodity and derivatives trading program for gold, copper and silver.
Ms. Dechev has an MBA from the Schulich School of Business at York University, a Bachelor of Applied Science and Engineering in Geological & Mineral Engineering from the University of Toronto, and is a licensed Professional Engineer in both British Columbia and Ontario.
“…We are focused as a company on the western portion of the Tethyan belt, which coincides with Eastern Europe. Primarily two countries are of focus for us today — Serbia and Bulgaria…We acquire assets directly from the Serbian and Bulgarian governments, primarily around well-known and established mining camps.”
The complete interviews describe the effects of the COVID 19 crisis and the potential economic recovery on these stocks and more in the 2021 market. Investors will want to familiarize themselves with the connection between the global economy and the value of these securities.
Rob McEwen is the Chairman and Chief Owner of McEwen Mining Inc. The cost of his investment is $165 million, he owns 20% and takes a salary of $1.
McEwen Mining has four producing mines located in Nevada, Ontario, Mexico and Argentina, and a large, underdeveloped copper deposit. He is the founder and former Chairman and Chief Executive Officer of Goldcorp.
He is a passionate innovator, marketer and an avid recreational competitor. He is a member of the Dean’s Advisory Board, Schulich School of Business; X-Prize Foundation’s Vision Circle and Board of Trustees; CEO (Chief Executive Organization) and WPO (World Presidents’ Organization).
Mr. McEwen was awarded the Order of Canada in 2007 and the Queen Elizabeth’s Diamond Jubilee Award in 2013. He holds Honorary Doctor of Laws degrees from York University and Western University. He earned an MBA from York University and a B.A. from Western University.
He received Sigma Chi’s Significant Sig Award, the 2001 PDAC Developer of the Year Award, was named Canada’s Most Innovative CEO in 2006 by Canadian Business magazine and was inducted into The Canadian Mining Hall of Fame in 2017.
In this 2,116 word interview, exclusively in the Wall Street Transcript, Mr. McEwen explains the value of his company to investors.
“Today, we have four sources of gold and silver production located in Nevada, Canada, Mexico, and Argentina. In addition, we have a development pipeline of projects in Mexico and Canada along with a large copper deposit. So we are diversified, both geographically and by product. MUX is asset rich and well positioned for the coming bull market in gold, silver and copper.
However, last year, we experienced a number of problems that were almost biblical in proportion. We had a fire, a flood, then a tax increase, and a delayed mine startup, all of which contributed to missing guidance by a large margin on ounces produced and cost per ounce and revenue.
As a result, 2019 revenue was $70 million less than projected and that necessitated several inopportune financings to avoid a breach of our debt covenants. In Q2 of this year, our share price was hit again when we took a large write-down in value of our Nevada asset followed by the steps we took to protect our employees, their families and communities from the spread of COVID.
Thankfully, several of these events were non-recurring, and the other issues that plagued us over the past 18 months are being resolved as we progress through this year.”
Rob McEwen is intent on developing value for his shareholders:
“A preliminary economic assessment (PEA) for Los Azules was published in August 2017. The project had robust economics. It was based on prices of $3/lb copper, $1,300/oz gold and $17/oz silver.
The PEA envisioned a mine that would be producing 415 million pounds of copper a year at cash cost of $1.14/lb during the first 13 years of operation and having a mine life of 36 years. While capex was large, $2.4 billion, the payback period was short, under four years.
We are currently investigating the merits of putting this Los Azules into a separate company to surface value. It seems than investors are not attracted to small companies with mixed assets.
They want either a gold and silver company or they want a pure copper company, but not a company with both. We are looking to enhance the attractiveness of this asset and at the same time remove the concern about how McEwen Mining would fund the advancement of Los Azules. It’s a wild card in our portfolio.
Teo Dechev is the Chief Executive Officer, President, and Director of Mundoro Capital Inc. She brings to the company both a technical understanding of the key issues in the sector through a geological and mineral engineering degree as well as extensive capital markets experience and hands-on management experience.
Ms. Dechev’s capital markets experience includes positions at well-recognized bank-owned and independent investment banks in Canada. She has covered institutional equity research, corporate finance and M&A, primarily focused on the resource sector but also covering technology, financial institutions and diversified products sectors.
Prior to joining Mundoro Capital, she was a Vice President in Corporate Finance at a Toronto investment bank. In addition, she spent more than three years with a mineral resources company managing their commodity and derivatives trading program for gold, copper and silver.
Ms. Dechev has an MBA from the Schulich School of Business at York University in Canada, a Bachelor of Applied Science and Engineering in Geological & Mineral Engineering from the University of Toronto, and is a licensed Professional Engineer in both British Columbia and Ontario.
She currently sits on the executive board of the University of Toronto’s Engineering Alumni Association as well as the advisory board of the Pierre Lassond Mineral Engineering Program at the University of Toronto.
This 2,845 word interview with Ms. Dechev details her company’s interesting business development in Serbia and Bulgaria.
“When we started making our applications in 2011, it was clear to us that the industry hadn’t woken up to the potential in Eastern Europe. If a mineral camp like that, for example, existed in Canada, it would be very, very heavily staked. I think from a geological point of view everyone recognized that there was strong mineral wealth, but they hadn’t really woken up to the fact that there is established mining, good community support.
The rules of law had changed significantly from prior political structures during the Soviet era. Now these are primarily democratic states. Bulgaria is in the European Union since 2007, and Serbia is a candidate to become part of the European Union.
So we saw that as a really great opportunity, where there was very strong geological potential for further discoveries of more porphyry and epithermal-related systems, but lacking a large western community of exploration companies.”
This in depth local regulatory knowledge is paired with in depth local geological knowledge:
“We are in the process of generating more projects in the region, simply because we’ve spent a lot of time understanding what are the right lithological units that have a propensity to host porphyry and epithermal systems.
We look for specific types of structures. We understand which rock units are more conducive, which ones are not, when they formed. That experience has been gained because we have spent probably more than any other company in the region on exploration and drilling programs simply because we have all these partnerships.
That’s allowed us to recognize units that might otherwise be overlooked by groups that are not in the region as long as we have been. That gives us an advantage.”
The company is also increasing liquidity in their stock:
“By creating this OTCQB listing, and even though we do have DTC clearance in the U.S., the two combined actually allow our U.S. shareholders to be able to not only trade our shares more freely, but also to hold them more securely under their own names with less additional costs that are required by the American brokerage firms.
And it’s not an onerous cost for Mundoro. It’s a very straightforward listing. Clearly the OTC recognizes some of the structural hurdles for U.S. investors and has created a really well-streamlined program in order to create more liquidity for Canadian-listed companies in the U.S., so it’s not onerous in terms of cost, but very beneficial for investors.”
Get the complete picture by reading the entire 2,845 word interview with Ms. Dechev, exclusively in the Wall Street Transcript.
John Kartsonas serves as ETF Managers Group, LLC’s Dry Bulk Shipping Expert and Partner in the BDRY ETF, the first and only freight futures exchange-traded product exclusively focusing on dry bulk shipping.
From 2011 to 2017, Mr. Kartsonas was a senior portfolio manager at Carlyle Commodity Management, a commodity-focused investment firm based in New York and part of the Carlyle Group.
He was responsible for the firm’s shipping and freight investments. During his tenure, he managed one of the largest freight futures funds globally.
In this 3,542 word interview, exclusively in the Wall Street Transcript, Mr. Kartsounas explains his investment vehicle.
“As an ETF, the ticker symbol is BDRY, and investors can buy and sell like any other stock. It’s listed on the New York Stock Exchange and is one of 3,000-plus ETFs that are available to investors…
BDRY is the first and only of its kind globally. There is no other shipping ETF available today. It is the only way for an investor to invest directly into the shipping market.
BDRY provides investor opportunity to invest directly into shipping rates, something that has never happened before. It’s very similar to other commodity ETFs like oil and gold ETFs.
BDRY owns exposure to shipping rates directly. These are freight rates. The shipping rate is the price that miners and commodity producers pay to transport their goods around the world.
For example, if you are a miner and you mine coal, you have to transport it from, let’s say, the United States to China, so you have to hire a ship and pay the ship owner to transport that good from point A to point B.
That cost is called the shipping rate. These rates define the global shipping market.
Everything that has to do with shipping has to do with the shipping rate.”
Mr. Kartsonas has more detail on the investment thesis:
“For example, when you talk about construction and infrastructure spending in China, it is all about steel. China has to produce steel to build bridges, roads, new residential, commercial buildings and so on.
In order to manufacture steel, you need the raw material, which is iron ore. China imports, basically, most of its iron ore from Australia and Brazil.
So for China to continue to grow, it needs to keep importing raw materials, and that means more demand for shipping.
That is basically at the heart of the shipping investment thesis. It is all about global growth, mainly in Asia, reflecting demand for raw materials.
Dry bulk shipping is a market very focused to the Asian economy.
It is uncorrelated to most of the day-to-day headlines that you see in the U.S. markets. It is not really affected by the day-to-day macro narrative, whether that is interest rates, economic data points or policy changes.
It is a very idiosyncratic market because shipping rates move up and down based on real supply and demand for ships and goods to transport.”
To get the complete picture on this interesting new investment vehicle, read the entire 3,542 word interview with Mr. Kartsounas, exclusively in the Wall Street Transcript.
Nicholas J. Westrick, CFA, is Vice President and Senior Portfolio Manager at Stewart Capital Advisors, LLC. He is the lead analyst for consumer discretionary and technology and often works closely on evaluations of telecommunications companies. Previously, he was a credit analyst for S&T Bank.
In this 2,787 word interview, exclusively in the Wall Street Transcript, Mr. Westrick expounds on his investment philosophy and top picks.
“We consider ourselves what we call business perspective investors. What that means is, we don’t view a company as the ticker in your portfolio. We take the perspective of being owners of that business.
We look for businesses we can understand and that have the potential to have high returns on capital, free cash flow generation and the ability to grow that cash going forward.
We want companies that can benefit from long-term trends — with innovation and brand power — to kind of exploit those trends.
We are also interested in how management has handled operations, capital allocation and the balance sheet in the past, and make a reasonable guess of what we can expect going forward.
And then, I think the easy part of all that is we use a discounted cash flow model to bring those projections back and give us an intrinsic value of each company we’re looking at.”
One beaten up stock pick highlights this investment philosophy:
“In the infotech area, one that we hold in our portfolios that’s really been beat up lately — that I think benefits from data collection, especially — is something like Western Digital (NASDAQ:WDC).
They’re simple to understand. They got a lot of catalysts in the market. They have a joint venture with Kioxia.
Their balance sheet became a little dicey after the SanDisk acquisition, but management has traditionally had great capital allocation, operational management, and they’ve been a producer of cash flow.
And we would expect that to continue given the new management that just took over the executive suite there. They’ve shown that they’re willing to clean that balance sheet up.
But really, they’ve kind of priced with the semiconductor space and the pricing within that on the SSD — solid-state drive — side.
And we feel that maybe they’ve looked at that individual unit as the whole company, and really, relatively speaking, if you break the two units out, we think each one of them holds more value than they’re getting credit for in the enterprise value right now.
So I think if Kioxia ever does happen to finally go public, then you could start to see maybe that valuation increase.
Management has decided to separate the HDD — hard disk drive — and SSD units within the company, maybe just to sort of force the market to recognize that there’s value within each one of those units and possibly set it up for the possible catalyst of a flash spinout.”
The portfolio manager also sees value in some retail stocks:
“I think Kohl’s (NYSE:KSS) is one of them. And then, Walmart (NYSE:WMT) is always willing to go anywhere they can make some money, and I think that’ll continue.
But it’s going to be really tough in areas with declining populations for a lot of retail chains to survive, especially with the advent of online shopping.”
Get the complete picture by reading the entire 2,787 word interview, exclusively in the Wall Street Transcript.
Gregory Powell was named Chief Investment Officer at Miller/Howard Investments in 2020. He oversees the portfolio management team and is the designated lead or co-lead Portfolio Manager on the firm’s core strategies. In addition, he holds a position on Miller/Howard’s executive committee.
Mr. Powell joined Miller/Howard in 2017 as a portfolio manager and Deputy Chief Investment Officer. He was promoted to CIO in 2020, after the retirement of Founder Lowell Miller. Earlier, he was a portfolio manager and director of research at AllianceBernstein.
He received a bachelor’s degree in economics/mathematics from the University of California Santa Barbara, and a Ph.D. and M.A. in economics from Northwestern University.
In this 3,338 word interview, exclusively in the Wall Street Transcript, Dr. Powell illustrates the dividend investing portfolio management technique that he utilizes for his investors.
“…We take the stocks that pay dividends, setting aside the roughly two-thirds of stocks that don’t pay dividends. And then, we decile those, with the highest decile being the ones with the highest dividend and so on down the line. Our sweet spot is deciles seven to nine.
So decile 10, those are the highest dividend yields. Those typically are riskier. We generally don’t start looking there.
At times, we will invest in that space.
But in general, we’re looking for yields that are below that. So currently, just to put a number on it, in the current market, deciles seven to nine goes roughly from 2.8% yield to about 6% yield.
Now, in recent years, dividend stocks have underperformed the overall market.”
Dr. Powell explains many of his current portfolio picks:
“I think Citigroup (NYSE:C) is just extremely interesting. It’s selling for a large discount to tangible book.
And if we were talking about an industrial company, that would be kind of almost a confusing statement because what on Earth is their book? But a book for banks, tangible book is very simple.
It’s the loans plus the securities on your balance sheet, plus some other items, but those are the dominant assets. And then, you subtract off your deposits, debt and any reserves you have for credit. And there’s your tangible book.
And so for Citi to be selling at less than that is really remarkable. And it’s a testament to their underwhelming performance over the last decade, but I think it’s a very interesting moment in time because they have improved.
And now they’re getting a new CEO. There are lots of opinions about what she should do. But she has a background from McKinsey.”
Another interesting pick is in the auto parts business:
“I think Magna (NYSE:MGA) is very interesting. Magna is an auto parts company. It really has a very broad range of products it produces from structures to seating systems to powertrain.
They also assemble vehicles for OEMs — original equipment manufacturers. So for example, they assemble low-volume vehicles for BMW (ETR:BMW), Mercedes, Jaguar, Toyota (NYSE:TM). But what makes them interesting, though, is they’re not an OEM.
And so in the auto industry right now, you have these new companies coming along, and we don’t know about a lot of them.
But companies, such as Apple (NASDAQ:AAPL), are looking at building electric cars, and they’ve got all this secretive work going on.
You have some like Fisker (NYSE:FSR) that’s about to launch an SUV, so you have the very new companies that don’t have a lot of experience in the industry but have technology usually in their tech company, typically involving electric powertrain and autonomous driving.
And so the reason I think Magna is so interesting is their base business is actually very good, selling to companies like General Motors (NYSE:GM) and Ford (NYSE:F), and generates good free cash flow.
They’re just fine now, but they’re actually positioned really well for what’s coming because they are the ideal partner for these new companies that are coming along.
And so just recently, Fisker, which is a company out of Southern California that’s developed an electric SUV, they chose Magna exactly for this reason. Magna is going to assemble their vehicle.
But Fisker is also going to use the deep engineering capabilities that Magna offers. It’s just a very interesting name that kind of works as a value stock and could potentially transition into a growth stock.
And all of the stocks I mentioned pay a good dividend.”
To get more portfolio picks read the entire 3,338 word interview with Dr. Powell, exclusively in the Wall Street Transcript.
Richard L. Soloway is Founder, President and CEO of NAPCO Security Technologies, Inc. He is an international expert and counselor in security issues and trends. He is a board member emeritus of the Security Industry Association — SIA. He received Ernst & Young’s “Entrepreneur of the Year” award in 2001. He has over five decades of security industry experience.
In this 2,924 word interview, exclusively in the Wall Street Transcript, Mr. Soloway details the strategic vision he has crafted for NAPCO and how this will translate to significant returns for his investors.
The company has positioned itself for near term growth:
“This is a very exciting time in our history because two major paradigm growth drivers have emerged that we have captured.
These are, one, recurring service revenue generated by our latest product lines. The recurring service revenues now have an annual run rate of $27.5 million with 80% gross margins. Our year-over-year quarters are growing at roughly 35% to 40%.
Two, the urgent need for school security upgrades across the U.S., many K-12, colleges and universities, most of which have no systems in place to keep active shooters and trespassers out of the schools and colleges. This is a large market opportunity of $4.9 billion in the security alarm market and $1.2 billion in the educational market.
The paradigm shift away from legacy copper and 3G telephone infrastructure is huge and is happening now. Our unique StarLink radios and alarm systems for fire and burglary are creating this steady stream of RMR growth.
NAPCO is financially strong, has zero debt, a strong cash position and industry-leading margins. ”
This positioning has significant implications for new investors:
“…We went from a manufacturer solely of security equipment that hooked on to copper phone lines for communication and sold to dealers to now a manufacturer of cellular radio security equipment, which cellularly sends the signals to the dealers’ central stations through our cloud, which is called a network operating center — NOC. That’s how the alarm communication now happens.
And you have 100 million residential buildings that are now going to have to be converted from copper wiring to cellular service.
You have 5 million commercial buildings that have to also be converted to cellular, both in the burglary and the fire sectors of commercial security.
And it’s a tremendous opportunity that should be wonderful for NAPCO for the next 10 years as these conversions are happening from copper wire to cellular.
And we have a leading line of cellular radios for the conversion and a leading line of control panels for new work using cellular that’s built into it.”
This will lead into an exciting growth phase:
“Our fiscal year ends on June 30. Our run rate target for services revenue for on or about our fourth quarter 2021 is $40 million.
Five years thereafter, we are targeting annual sales to be $300 million, of which $150 million would be the run rate of recurring revenue and $150 million of sales of component equipment.
Therefore, recurring monthly services will constitute 50% of our revenue…when we do the $300 million, we are targeting to be 50% gross margin on the manufacturing and 80% gross margin on the recurring revenue.
And that makes for a very, very handsome profit for the company.”
Get the complete NAPCO story by reading the entire 2,924 word interview with CEO Richard Soloway, exclusively in the Wall Street Transcript.
