Christopher Montoya discusses managing his firm’s equity income portfolio, which is an income-based portfolio that has features for price appreciation. Mr. Montoya looks for companies that are attractively valued, ones that are able to pay a growing dividend stream but also have catalysts for price appreciation as well. He talks about the companies he is buying at the current time.
Full interview available here.
James Morton’s equity firm is focused on value and investing in value stocks in Asian markets. As a value investor, Mr. Morton says Asia is right part of the world to be in because it has largely underperformed developed markets in particular. He says there are plenty of value opportunities to uncover and goes in-depth on stocks he finds interesting.
Full interview available here.
Jerry P. Getsos discusses Klingenstein Fields Wealth Advisors. The firm uses bottom-up fundamentals to execute wealth planning and investment management. According to Mr. Getsos, the firm manages for the long term, investing about 70% in equities and 30% in fixed income. Overweighting equities is due to the firm’s belief that interest rates will remain lower for longer, which is positive for equity valuations and the overall economy. In general, Mr. Getsos looks for investments that have clean balance sheets and that are generating free cash.
Full interview available here.
William H. Mann III discusses Motley Fool Asset Management, LLC as well as the Independence Fund and the Great America Fund. The Independence Fund is a go-anywhere fund, which means it can invest globally and across market caps. The Great America Fund invests in domestic small caps and midcaps. According to Mr. Mann, he is a business-centric investor, meaning he focuses on things he can control, such as the quality of a business and the price he is paying for it. He defines quality as companies that can beat their cost of capital over a 10-year period. Mr. Mann does not worry about a fund’s short-term performance or how it compares to a benchmark. In general, the funds are concentrated with 50 to 70 companies, which allows the portfolio managers to know the companies very well and maintain a low turnover.
Full interview available here.
Daniel Kurnos covers e-commerce and internet advertising. He says that for e-commerce the trends are favorable. He says on the other hand that the internet advertising space is tricky with a lot of pluses and minuses. When lumping mobile into that area, he says it is clearly a growth category, but that tailwinds are still being figured out.
Full interview available here.
Senior Vice President Christopher Montoya of First Financial Trust says Apple Inc. (NASDAQ:AAPL) is inside of a long-term growth phase and should appeal to investors who are looking for income.
[Apple] currently trades at 13 times 2016 earnings estimates. And if you go one more year out to 2017, the stock is actually trading for 12 times earnings. And both of these numbers are below the company’s five-year p/e average, and it’s also a huge discount to the overall market. In my opinion, this is too low, especially given the company’s strong operating margins of 30% and net profit margins of 23%.
Apple is, in my opinion, a cash-generating machine. They have over $231 billion of cash on the balance sheet, which enables them to reward shareholders through capital distributions. The dividend yield currently is 2.12%, but the payout ratio is only 21%. This means that the company can grow the dividend tremendously from here.
Apple has been a large purchaser of its stock. Given the hefty cash balances, I think that continues. The stock buyback program serves as a safety net for the stock in case there is any type of pullback in the overall market.
Frederick Moran covers internet and communications-related stocks, specifically data center REITs. Mr. Moran says data center REITs have performed very well over the last two years. He is especially bullish on the data center REITs because of the accelerated demand cycle and increased M&A activity that the sector is seeing. He says investors should buy a basket of data center REIT stocks and enjoy the yields.
Full interview available here.
Chief Investment Officer William Mann III of Motley Fool Asset Management says HDFC Bank Limited (ADR) (NYSE:HDB) is one of his firm’s largest holdings that has appreciated significantly, and it continues to be a company with significant competitive advantage.
HDFC Bank is an Indian bank in a market in which I would describe most of the Indian banking industry as being completely incompetent. They are state-run and very sclerotic.
HDFC Bank is extremely entrepreneurial, and you can tell the superior nature of the bank because they are able to get deposits from people who want to put their money in the bank and offer interest rates that are up to 200 basis points lower than any of their competitors. They are viewed as being extremely safe. People are willing to forgo yield in order to have their money in the safest bank in the country.
If you think about that type of situation, HDFC Bank could choose to cut some corners and still be the most competitive bank in their country, and yet, they are extremely disappointed. So that’s a type of situation that we look at. Ten years from when we bought it, and even 10 years from now, do we foresee its competitors coming to a point where they will be on the same footing as HDFC Bank? The answer to me is no.
Internet services companies have become divided in two majors groups, where size and existing market share are two of the major factors that determine business success for companies in this industry. In e-commerce, the last several years there has been a greater differentiation between the haves and the have-nots, analysts say, adding that there’s consolidation in the space where the smaller have-nots tend to get bought by larger companies before they reach a critical size. Analysts say there is potential for expansion in other countries, especially countries where the postal services are still developing. In countries such as China, however, there already are dominant players in e-commerce, but analysts say there are still niches that could be filled by non-Chinese companies.
Online advertising is a growing category, analysts say, but only if mobile is included. Although pricing has fluctuated for online advertising, analysts say there still is a tailwind, but it is still being figured out by companies. Analysts note, however, that spending hasn’t exactly come at the expense of more traditional media. They say mobile viewing of content will eventually win, but traditional viewing methods are not expected to disappear.
In the general internet services space, when choosing stocks, analysts say category winners — the best in class — are the names to pick. Once a company gets a certain amount of traffic online, it’s hard to dethrone a category leader and change customer behavior. Another reason investors may want to look at larger companies is that analysts warn investors to be careful about internet stocks that have limited liquidity or a limited Wall Street following, as these can have violent swings in price in any direction.
On the storage side, analysts say data center REITs have performed well over the last two years. This year the six publicly traded data center REITs on average have seen their stocks appreciate 33% this year versus the S&P 500 at 7%, they say.
Data center REITs operate the buildings that are the brains of the internet, analysts say, and these buildings have been in short supply and have seen increased demand because there has been an explosion on the need for data storage. Because data center REITs can build out facilities more efficiently than their customers, companies have been outsourcing to them. The cloud is booming, according to analysts, and there aren’t enough data centers.
Analysts think we are early in the cycle of this data storage demand boom, not only from the standpoint of demand being seen, but also in the willingness of the enterprises to outsource rather than build their own facilities. Two years ago, 15% of storage was outsourced, they say, and now it’s about 25%. Analysts think over time the majority will be outsourced.
Full report available here.
Chief Investment Officer Adam Abelson of Stralem & Company says Intercontinental Exchange Inc (NYE:ICE) is an underappreciated growth story. He says this premier provider of underwriting derivatives and clearing is growing 24% top line year on year, with 80% gross margins and 15% growth in earnings.
It’s a fast-growing secular business with the added attribute that 50% of its revenue comes from owning stock exchanges from which they collect the trade data and sell the exhaust, the transaction exhaust, to hedge funds and others seeking to profit from flows, for a very hefty sum.
So half their growth comes from very fast-evolving and high-volume derivative underwriting. Again, the world is being financialized, and everybody’s got a counterparty, and that is the more attractive thesis to invest, along with this recurring revenue from data dissemination. The CME Group (NASDAQ:CME) would be a decent example of derivative underwriting, but it’s a more expensive stock than Intercontinental Exchange and doesn’t have an ancillary cash flow business.
ICE is a perfect Stralem stock, as the data business has the characteristics of an annuity-like revenue but with global aspirations, as the derivatives market expands globally, and gets more complicated and financialized. It’s a $33 billion-market-cap company with $4 billion in revenue, growing 24% top line year on year, 80% gross margins, 15% growth in earnings, 37% net margins and $1.3 billion in free cash flow growing at 30% per annum. This is an overlooked gem in terms of looking at the structure of the financial community. Intercontinental Exchange is definitely an underowned, and underappreciated name.
