Leo Kulp discusses his media coverage, specifically theaters. Mr. Kulp says the box office outlook is strong for the next two years, but a lot of that is priced into the stocks. He says valuations are in the middle, so investors should look for stocks that have catalysts to drive some upside. He gives examples of these types of stocks.
Full interview available here.
Dan Wasiolek discusses his coverage of online travel names, lodging hotel operators and gaming operators. Mr. Wasiolek says that for the lodging industry, 2016 has been challenging, and looking out over the next year he expects very low single-digit growth. In online travel, he says companies have remained more resilient during this challenging environment. In gaming, he says Macau has stabilized while Las Vegas remains a solid market.
Full interview available here.
Gaming and leisure companies have seen some positive and some negative developments in the last few years. The lodging industry had a challenging 2016 due to economic uncertainty and geopolitical terrorism events that led to some softening in the near-term hotel environment. The terrorist attacks in Europe have hurt hotel stocks and they continue to impact travel to some degree.
In the United States, corporate travel softened in the last few months due to political uncertainty related to the elections. Analysts expect growth to soften in 2016 relative to last year; in 2017, analysts expected low single-digit growth, similar to what they have observed for 2016.
Analysts point to reasons beyond macroeconomic events that have contributed to a slowdown for travel-related names. They say typically a hotel cycle of positive RevPAR growth lasts around seven to nine years, and 2016 is the seventh year of positive RevPAR growth in this hotel cycle.
Analysts add that room supply is starting to increase. There was anemic room supply growth the last several years due to tougher credit availability, but now and into 2017 supply growth is expected to approach the long-term average of 2%.
For gaming names, analysts say Macau saw a negative couple of years due to the anticorruption crackdown in China, which caused many of the high-end gamers to avoid travel to Macau. Macau now wants to diversify its base business beyond gaming, and it’s trying to become a destination resort for families.
Analysts say there are signs that Macau has stabilized, with overnight visitation positive on a year-over-year basis, as well as gaming revenue for the last few months. Currently Macau is refurbishing its infrastructure, and as the Chinese middle class grows, analysts expect visitation to increase, and they say they are positive on names with Macau exposure.
Las Vegas has remained a solid market, analysts say. There hasn’t been new supply additions since 2009, and no new casinos or supply are expected until the middle of 2018. With no new supply and gradual economic growth, there has been about 90% hotel occupancy.
For movie theaters, analysts say 2015 was a record year for the box office, and they say 2016 has been keeping up better than many expected. Analysts say 2017 and 2018 look strong too given some continuing movie franchises. There’s also a tailwind from investments in improving the consumer experience.
The next couple of years are expected to be good for movie theaters, analysts say, but that’s already priced into the stocks. Valuations are currently the middle ground, and analysts are looking for stocks with catalysts to drive upside.
Full report available here.
Taiwan Semiconductor Mfg. Co. Ltd.
Senior Portfolio Manager Rajesh Varma of DNCA Finance says that while Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) may not be on many U.S. investors’ radar screens, it is a big company that has shown 15% growth and now pays a 3% dividend.
Companies that require integrated chips go to [Taiwan Semiconductor]. You use integrated chips in everything, use them in phones and computers, iPads and laptops, you name it — in fridges, in cars and planes, in whatever. And so they have an incredibly varied client list, and they are in pretty much all the sectors.
It’s a company that’s shown me 10% to 15% growth every year, year in, year out. It pays me even now 3% dividend yield. It’s got net cash in its portfolio. And the stock continues to perform year in, year out, year in, year out, and I was taking a look at it, over the last five years, it’s up 200% in U.S. dollar terms approximately. It’s done well.
It’s a company that most U.S. investors don’t know about because it’s not on their radar screen. But it’s a market cap of $160 billion; it’s a big company. On a valuation basis, it’s trading at 15 times earnings, 8.5 times EV to EBITDA, and 8% of its market cap is cash. So it’s pretty good.
Co-Managing Partner Keith Trauner of GoodHaven Capital Management says Verizon Communications Inc. (NYSE:VZ) is a provider whose stock is cheaper than its competitors; however, VZ offers the best network and should see moderate growth for the long term.
Verizon has the best spectrum footprint in the United States. It’s starting to deliver much faster speeds across its network, which of course increases their attractiveness relative to other providers but also may start to make mobile competitive with some of the weaker cable companies….
So you have very sensible management, you have material optionality with higher speeds and adding IoT devices, and you have cash earnings that are higher than the nominal reported earnings due to several nonoperating factors.
So we look at the company that’s selling for roughly 12 times or 13 times expected real earnings with 5% dividend yield, which is attractive on an absolute basis, and it’s much cheaper than other predictable companies in the marketplace. Some of these others were viewed as kind of clockwork businesses, were starting to sell at 20, 30 times earnings, 35 times earnings, which makes almost no sense to us.
And Verizon had announced that earnings would be flat for a year, they increased spending in a couple of areas, and I think it scared a lot of people. But over time, Verizon should have significant pricing power in its core service simply because, in today’s world, there’s nobody who can do without mobile service, and they only have a couple of alternatives.
You can go to AT&T (NYSE:T), you can go to T-Mobile (NASDAQ:TMUS), or you can go to Sprint (NYSE:S), but right now, that’s it. And of those four companies, I think it’s pretty clear that Verizon has the best network and the greatest capacity, and the greatest spectrum capacity and value. So over time, the company is not going to grow at a very rapid pace, but we think, clearly, they should be able to sustain moderate growth for a very long period of time.
Chris Hutchinson discusses Unicorn Asset Management. The firm manages a range of funds that are focused on the small-cap and midcap U.K. equity market. Mr. Hutchinson uses what he considers to be an old-fashioned, traditional investment philosophy. As a bottom-up stock picker, he focuses on fundamentals to find companies he can invest in over the long term. Mr. Hutchinson does not like to invest in highly leveraged businesses. He also avoids sectors where he lacks expertise. Some of these sectors include mining and commodities, oil and gas exploration, biotech and leading-edge technology. This approach helps Mr. Hutchinson to capture upside when markets rise and to be more resilient when markets fall.
Full interview available here.
Rajneesh Vig discusses his firm’s investment strategy. The firm is alternative investment company focused on credit investing in middle-market companies. It conducts investment activities through two core strategies, both of which are credit-oriented. One is direct lending and the other is special situations investing. Mr. Vig says the common philosophy of these strategies is principal loss avoidance.
Full interview available here.
Stuart A. Shikiar discusses Shikiar Asset Management Inc. Mr. Shikiar’s primary goal is to preserve capital. After the financial crisis, Mr. Shikiar determined it was important to shift from an all-equity allocation to balanced portfolios. He uses a mix of bonds, preferred stocks, equities with higher dividends and growth companies to layer balance within his portfolios. As a boutique firm, the preferred stocks that Mr. Shikiar likes to invest in are those that are under the radar for many institutions.
Full interview available here.
Jon Christensen discusses his firm’s investment strategy. Mr. Christensen says the firm’s portfolios focus on high quality as a business characteristic. He aims to find companies that have a sustainable competitive advantage; companies that can grow, protect and nurture their markets over long and multiple economic cycles. The firm finds these companies by doing intense research.
Full interview available here.
Chief Investment Officer of QCI Asset Management H. Edward Shill II says that once Wells Fargo & Co (NYSE:WFC) gets past the recent accounts scandal, it will be an outperformer, which means right now is a huge buying opportunity for investors.
A somewhat politically incorrect name at this point would be Wells Fargo. They’ve obviously had a scandal where they took advantage of setting up accounts for over 5,000 of their customers that didn’t ask them to get set up, and they’ve had their hands slapped for that, and you know, the world’s all upset with them. They have a wonderful bank franchise. We will get past this scandal, if you will, and I’m going to say, a year from today, people are going to forget that this happened.
And there has been a huge divergence gap between Wells Fargo and the better brethren of the banking industry — say, JPMorgan (NYSE:JPM) or something like that. While I wait, I’m getting a 3.5% dividend yield. I’m only paying 10 times earnings for this company, and I do believe that there will be a closure gap as we get further away from the scandal. The CEO just resigned — Mr. Stumpf — and I think they’re going to start cleansing those demons. The stock will rally, will close the gap versus the rest of the banks, and this will be an outperformer in 2017. So it’s one of our biggest holdings in the financial services group.
I think [the scandal has] created a huge buying opportunity, and it’s created a huge buying opportunity versus the group, so you really kind of want to like the group by itself. But you know, year to date, for example, Wells Fargo was down 16% year to date. JPMorgan is up 4%. I mean, there is a huge gap there. They normally trade, if you did an overlay graph, they would normally trade right in the line with each other.
So that’s an exciting opportunity for us to think that Wells Fargo is going to be able to have a closure gap as you get on the other side of the scandal. This is not a magnitude event like the ExxonMobil (NYSE:XOM); while these incidents are something of that nature, this is not that magnitude. This is 5,000 people, and they got raked over the coals by Congress. Congress had their day in the sun, and we think that the magnitude shift going forward will be a positive for Wells Fargo relative to people’s vision of them and expectations.
