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.
