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Barron's 2013 Roundtable -- Part I (Jan. 21)
Barron's 2013 Roundtable -- Part III (Feb. 4)
Tables: 2012 Roundtable Report Card
2012 Midyear Roundtable Report Card
If you're dining on stocks this year (we hear the bonds are a bit overcooked), better stick to the à la carte menu.
Such was the considered advice of the members of our 2013 Roundtable, when the editors of Barron's gathered the whole thoughtful crew in New York on Jan. 14 to extract their latest forecasts for the economy and financial markets. As should have been evident in last week's issue, which featured the first part of the daylong conversation, these investment pros don't expect all that much from the stock-market averages in the months ahead. The big action, they predict, will be in well-chosen individual issues, which could run rings 'round the Dow and its lethargic cousins.
In this week's Roundtable feature, the second of three, it's à la carte all the way, as three superlative stock pickers -- Brian Rogers, Oscar Schafer, and Scott Black -- and one seasoned strategist, Abby Joseph Cohen, make the case for 22 stocks whose performance could shine, and then some, in 2013. Most of these shares have been unfairly dissed by investors, and many offer the potential for dividend growth as well as substantial capital appreciation. They range from plays on oil and gas and agriculture to surf-wear and Korean tires, and our experts share all the juicy details with precision and verve.
Happy reading. Or should we say, bon appétit?
Barron's: Abby, tell us about your investment picks for 2013.
Cohen: I'm happy to do so, but let me begin with a quick recap of our general expectations for the market. Our sense at Goldman is that the market will get off to a slower start this year, and then get better. There are a number of things to be concerned about at the beginning of the year, including higher taxes in the U.S., and whether the Chinese economic recovery is for real. By the end of the year, however, we expect U.S. gross domestic product to be growing on the order of 2.5%, and we are forecasting 3% GDP growth in 2014. With regard to asset categories, equities are the best place to be. There may be some trading opportunities in high-quality corporate bonds. Global GDP will be on the order of 3.3% in 2013, even with weak conditions in Europe,
Zulauf: Is that a lower growth rate than in 2012?
Cohen: It is a little higher. China will be somewhat better, but we are waiting to make sure that the numbers we saw at the end of the year are for real. Our 2013 forecast for Standard & Poor's 500 earnings is $107. Our 2014 forecast is $114. The consensus forecast for this year is $113, and for next year it is $126. We don't agree with those numbers, although we expect companies to show profit gains because profit margins will be stable. U.S. companies are benefiting from keeping labor costs under control. Wages aren't moving up much, and companies are seeing productivity gains. Energy costs also are under control. Our official price forecast for the S&P 500 is 1575, but there are many valuation models one could use. If you use the Fed model [which compares the market's earnings yield to the yield on long-term Treasury bonds], you come up with a number that is more like 1700 or 1750.
(From left) Abby Joseph Cohen, Scott Black, Oscar Schafer and Brian Rogers Brad Trent for Barron's
The stocks I have selected today take advantage of a few factors. These include the dramatic decline in correlation and volatility in almost every market. Market volatilities are at the lowest levels we have seen in years. The biggest decline in volatility has been in the emerging markets. Several years ago, volatilities in emerging markets were two or three times as high as in developed markets. Now they are roughly in the same ballpark. To say that correlations [between markets] are down dramatically is just an arithmetic way of saying that stock selection is going to matter. The stocks I have chosen are all rated Buy by Goldman Sachs analysts. My first stock is a pharmaceutical company, Bristol-Myers Squibb bmy 2.266888317968868% Bristol-Myers Squibb Co. U.S.: NYSE USD67.67 1.5 2.266888317968868% /Date(1435784647193-0500)/ Volume (Delayed 15m) : 7273930 AFTER HOURS USD67.66 -0.0100000000000051 -0.014777597162701345% Volume (Delayed 15m) : 212174 P/E Ratio 50.12592592592593 Market Cap 110920516401.649 Dividend Yield 2.187084380079799% Rev. per Employee 644360 More quote details and news » [ticker: BMY].
What's to like about Bristol-Myers?
Cohen: The company has a few things going for it. Patent-cliff issues [drug-patent expirations], not only for Bristol but a number of pharma companies, probably are coming to an end. Earnings bottomed in 2012, or will bottom in 2013. Our real focus is on earnings growth in the next two to four years, when Bristol will look much better. We recently lowered our earnings estimate for 2013, but made no change in our long-term view. The longer term is driven by a number of promising-looking new products. One, Eliquis, has already been launched in the European Union. It is a drug used to reduce stroke risk in patients with atrial fibrillation. It has been approved by the Food and Drug Administration and is set to launch this year. Bristol-Myers also is working on PD-1, a monoclonal antibody that has shown positive results against skin cancer and renal cancer in early-stage clinical trials.
How will these drugs affect earnings?
Cohen: Longer term, earnings could grow by at least 10%. The stock has a 4% yield, so investors can collect something while they wait for higher earnings to come through. Our analysts estimate 2013 earnings of $1.80 a share.
My second recommendation, Mosaic Company MOS -0.256136606189968% Mosaic Co. U.S.: NYSE USD46.73 -0.12 -0.256136606189968% /Date(1435784678176-0500)/ Volume (Delayed 15m) : 4380206 AFTER HOURS USD46.73 % Volume (Delayed 15m) : 41892 P/E Ratio 15.840677966101694 Market Cap 17106060906.461 Dividend Yield 2.353948213139311% Rev. per Employee 1011930 More quote details and news » [MOS], refers to itself as a crop-nutrition company. In other words, it produces fertilizer. Mosaic was formed in 2004. Cargill, which owned a majority of the company, spun off its stake in 2011 in a $24 billion transaction. Mosaic is a significant supplier of both phosphate and potash base nutrients. It is No. 2 in fertilizer ingredients after Potash Corp. of Saskatchewan POT 0.6457862447529867% Potash Corp. of Saskatchewan Inc. U.S.: NYSE USD31.17 0.2 0.6457862447529867% /Date(1435784673392-0500)/ Volume (Delayed 15m) : 3044507 AFTER HOURS USD31.17 % Volume (Delayed 15m) : 12385 P/E Ratio 14.655820951664472 Market Cap 32262215315.5762 Dividend Yield 4.876483798524222% Rev. per Employee 1710600 More quote details and news » [POT]. Two things are interesting about Mosaic. It has significant distribution operations in places such as Brazil, China, India, and other parts of Latin America, all areas where the middle class is growing and demand for food is rising. In addition, some charitable trusts and family foundations associated with Cargill have lockup agreements on Mosaic shares that begin to expire in May 2013 [the shares can't be sold before then]. The presumption is that, after the lockups expire and the shares are sold, the company will be able to consider capital-allocation strategies, such as dividend increases and share repurchases later in 2013.
Abby Joseph Cohen's Picks
|1/11/13 Price
|Bristol-Myers Squibb/BMY
|Mosaic Company/MOS
|Expeditors International of Washington/EXPD
|Hankook Tire Worldwide/000240.Korea
|18,850 won
|Noble Energy/NBL
|Source: Bloomberg
Apart from this, how is Mosaic doing?
Cohen: The company reported fiscal-second-quarter earnings on Jan. 4. Revenue was down a little because fertilizer prices were a bit lower. In addition, international shipments were hurt because the company, and the industry, were engaged in contract negotiations with India and China. There has been an agreement with China, so now things are moving in the right direction.
However, business was strong in North America. On a longer-term basis, my Goldman Sachs colleagues like the fundamentals for crop demand and pricing, which is favorable for both potash and phosphate prices. Inventories are low, and a recovery is likely within a year or two. Mosaic offers both earnings growth and return of cash. The company has $2.5 billion of net cash on its balance sheet.
Goldman's senior investment strategist puts an optimistic spin on the federal budget deficit, explains why stocks are cheap, and makes the case for investing in Bristol Myers.
Zulauf: Is there a reason you prefer Mosaic to Potash? Potash is the lowest-cost producer.
Cohen: Our team prefers Mosaic because of valuation and the catalyst it sees. Mosaic trades for about 13.5 times fiscal 2013 earnings and 10 times fiscal 2014 earnings [the fiscal year ends in May]. It yields 1.7%.
My next company, Expeditors International of Washington EXPD 0.4229476195640386% Expeditors International of Washington Inc. U.S.: Nasdaq USD46.3 0.195 0.4229476195640386% /Date(1435784400133-0500)/ Volume (Delayed 15m) : 1070996 AFTER HOURS USD46.3 % Volume (Delayed 15m) : 16787 P/E Ratio 24.114583333333332 Market Cap 8818687778.11859 Dividend Yield 1.5550755939524838% Rev. per Employee 460164 More quote details and news » [EXPD], is based in Seattle, not Washington, D.C. It has significant exposure to global trade, especially trans-Pacific trade, and therefore, trade with China. Freight growth appears to be picking up at the airports in Hong Kong and Shanghai, and we are seeing a reversal of very tough trends at seaports in the Pacific in 2012. If investors want exposure to China without buying Chinese stocks, this is a good way to get it and participate in an inflection in the Chinese economy.
Expeditors describes itself as a global logistics company. Basically, it expedites trade. It has about 250 locations around the world in cities such as São Paulo, Beirut, and Shanghai. The company helps customers get merchandise in and out of countries. It works with customs agents. It has about 13,000 employees around the world.
Abby Joseph Cohen: "Our teams in Asia and the U.S. are seeing a pick-up in demand for automobiles, including Korean vehicles sold in the U.S. and elsewhere." Jennifer Altman for Barron's
Gross: How do you expedite trade?
Cohen: You smooth the process by working with a lot of customs officials. This is important for small- and mid-cap companies that might not have such expertise themselves.
Black: Expeditors used to sell at a high price/earnings multiple. Does it still?
Cohen: Yes. It sells for 26 times last year's expected earnings, falling to 21 times this year. It yields 1.2%. The stock disappointed last year. One of the risks for Expeditors, as seen in 2012, is that their business has become more cyclical.
Keeping with the Asia theme, Korea looks interesting. It has a number of large companies that are engaged in international trade. Hankook Tire Worldwide [000240.Korea] trades in Korea. This stock, too, has performed poorly in recent months. There have been concerns about protectionism, weakening demand, and such. Our teams in Asia and the U.S. are seeing a pickup in demand for automobiles, including Korean vehicles sold in the U.S. and elsewhere. Korean auto manufacturers, including Kia Motors [000270.Korea], are having discussions about building manufacturing facilities in the U.S., which could bode well for Hankook.
Zulauf: You aren't concerned that if my forecast for a strong dollar and weak yen [detailed in last week's Roundtable issue] comes true, the Koreans will be hurt? They are the major competitors to Japanese automotive companies.
Cohen: Our currency team doesn't share your view, although one could argue that if there is some weakening in the yen, it would hurt the Korean won.
My final pick is in the energy area. As we discussed this morning, investors are focusing on the technological and competitive advantage that many U.S. energy companies have, and just how much they are laying out in capital expenditures. Until now, investors haven't been enthusiastic about energy. The sector is significantly underweight among hedge funds and others. Noble Energy NBL -3.2333645735707592% Noble Energy Inc. U.S.: NYSE USD41.3 -1.38 -3.2333645735707592% /Date(1435784626341-0500)/ Volume (Delayed 15m) : 4531663 AFTER HOURS USD41.23 -0.0700000000000003 -0.1694915254237288% Volume (Delayed 15m) : 53905 P/E Ratio 15.312743316895926 Market Cap 16517373726.503 Dividend Yield 1.7433414043583535% Rev. per Employee 1588300 More quote details and news » [NBL] could benefit from increased interest in the sector. Noble has undervalued reserves and high-impact exploration, or what some would call shale with scale, linked to its technological advances. You can have shale [oil and gas trapped in shale rock], but if you don't have it in scale, it is a problem. Noble has an interesting mix of exploration properties. It has exposure to West Africa, in the Alen project, where there is higher-value crude oil. It also has exposure in the Mediterranean to Israeli natural gas, which sells for far more than U.S. gas. It is working in the Tamar field off the coast of Israel, which is generating good revenue, and in the Leviathan, a natural-gas-liquids project that is in an earlier stage of development. We assume Noble will earn $4.73 for last year, picking up to $6.70 this year. The stock sells for $105.57, or 16 times this year's estimated earnings. It has a modest yield of 0.8% and spends a lot on research and development.
Thanks, Abby. Let's hear from Brian.
Rogers: To frame the discussion, we have modest expectation for earnings growth this year, in the 5%, 6%, 7% range. We have a much more positive outlook for dividend growth in 2013, following a strong dividend picture in 2012. The housing and auto sectors look great. Deleveraging continues, except in the federal government. Corporate finances are outstanding. We'll get somewhere with Washington's debt-ceiling discussions, and maybe a Simpson-Bowles-lite agreement [on taxes and spending]. Jobs continue to be the big issue, and unemployment is sticky on the downside. The unemployment rate will continue to tick down slowly.
We talked today about supply and demand for equities. Supply will be constrained, and demand will be strong, coming from corporate buyers and individual and institutional investors, who will begin to reallocate funds toward the equity market and out of bonds. There will be a great migration or great rotation, or whatever you want to call it. It will intensify as the year continues. Valuations are OK, depending on your earnings assumptions. The S&P 500 is trading at 13.5 times 2013 earnings estimates. That isn't dirt cheap, but it isn't expensive relative to interest rates and fixed-income alternatives. Again, it will be a year in which investment confidence is shaped by what takes place in Washington.
The common theme among my stock selections is companies that have struggled, although my last pick will be an exception. Some stocks did really well last year, and some of decent quality struggled. I have tried to identify strugglers that can get their mojo back. PNC Financial Services Group PNC 1.4636696288552014% PNC Financial Services Group Inc. U.S.: NYSE USD97.05 1.4 1.4636696288552014% /Date(1435784744029-0500)/ Volume (Delayed 15m) : 1860490 AFTER HOURS USD97.05 % Volume (Delayed 15m) : 10008 P/E Ratio 13.423236514522822 Market Cap 49539047155.6396 Dividend Yield 2.1020092735703244% Rev. per Employee 293541 More quote details and news » [PNC], the old Pittsburgh National Bank, is one. Most other financial stocks were strong performers last year. PNC, on a total-return basis, was up about 4%.
What was the problem?
Rogers: PNC bought Royal Bank of Canada's ry 0.19623875715453803% Royal Bank of Canada U.S.: NYSE USD61.27 0.12 0.19623875715453803% /Date(1435784522353-0500)/ Volume (Delayed 15m) : 824495 AFTER HOURS USD61.27 % Volume (Delayed 15m) : 27910 P/E Ratio 9.440677966101696 Market Cap 110187460444.459 Dividend Yield 4.093424520212274% Rev. per Employee 562667 More quote details and news » [RY] operations in the southeastern U.S. last year, and that held them back a bit. I always go back to 2008 and 2009 when looking at banks to try to figure out how they held together during that time. Did they get through the crisis OK? PNC earned $2.10 a share in 2008 and $4.26 in 2009, so it was profitable all the way through. The bank has completed some interesting deals, buying Mercantile Bank of Baltimore and National City. It is well run.
Gross: The stock is $60 a share.
Gabelli: PNC owns a big piece of BlackRock BLK 0.41042834845944853% BlackRock Inc. U.S.: NYSE USD347.4 1.42 0.41042834845944853% /Date(1435784685910-0500)/ Volume (Delayed 15m) : 494269 AFTER HOURS USD347.4 % Volume (Delayed 15m) : 1227 P/E Ratio 17.634517766497463 Market Cap 56953844559.3799 Dividend Yield 2.5100748416810594% Rev. per Employee 925082 More quote details and news » [BLK].
Rogers: It owns 21% of BlackRock. Eliminate BlackRock, and PNC trades for eight times expected earnings. Most banks are trading for 10, 11, 12 times earnings.
Brian Rogers' Picks
|1/11/13 Price
|PNCFinancial Services Group/PNC
|Avon Products/AVP
|General Electric/GE
|Source: Bloomberg
Gabelli: If PNC sold its BlackRock stake, wouldn't it have a tax liability?
Rogers: Yes, but it wouldn't be that big. The bank's capital position is really strong. After the financial industry's latest stress-test results come out in the spring, PNC will be able to raise its dividend again. The current dividend is $1.60 a share, and it could probably rise to $1.80, giving you a 3% yield. If every other bank is selling for between 10 and 12 times earnings, and PNC, BlackRock-adjusted, is selling for eight times earnings, our view is that is the investor's opportunity.
Witmer: If PNC were to trade at 11 times earnings, what would be your target price?
Rogers: It would be $70 to $75 a share.
Gabelli: Brian, shares of JPMorgan Chase JPM 1.1140819964349375% JPMorgan Chase & Co. U.S.: NYSE USD68.07 0.75 1.1140819964349375% /Date(1435784415748-0500)/ Volume (Delayed 15m) : 13908306 AFTER HOURS USD68.07 % Volume (Delayed 15m) : 56117 P/E Ratio 12.467032967032967 Market Cap 251463257224.612 Dividend Yield 2.585573674158954% Rev. per Employee 403801 More quote details and news » [JPM] went up sharply last year. M&T Bank MTB 1.8890578724085487% M&T Bank Corp. U.S.: NYSE USD127.29 2.36 1.8890578724085487% /Date(1435784453232-0500)/ Volume (Delayed 15m) : 778263 AFTER HOURS USD127.29 % Volume (Delayed 15m) : 16121 P/E Ratio 17.06300268096515 Market Cap 16611942293.0817 Dividend Yield 2.1997014690863383% Rev. per Employee 297603 More quote details and news » [MTB] was up sharply. Isn't something else overhanging PNC?
Rogers: The market is a bit concerned, Mario, about the RBC acquisition. To me, the company is always buying banks. You have to go with management in a situation like this, and Jim Rohr is a good CEO. He has proven himself through many cycles.
Brian Rogers: "It is hard to find anyone who would admit to owning Kohl's, aside from me." Jennifer Altman for Barron's
My second pick is Kohl's KSS 0.33540967896502155% Kohl's Corp. U.S.: NYSE USD62.82 0.21 0.33540967896502155% /Date(1435784676755-0500)/ Volume (Delayed 15m) : 2390888 AFTER HOURS USD62.79 -0.0300000000000011 -0.04775549188156638% Volume (Delayed 15m) : 21103 P/E Ratio 14.623585828018063 Market Cap 12389016924.0576 Dividend Yield 2.865329512893983% Rev. per Employee 139241 More quote details and news » [KSS]. This is the second- or third-largest department-store company in the U.S. The stock is trading for $42. Kohl's has a $10 billion market value, after falling about 15% last year. Many other retailers did a bit better. Kohl's had some fashion-merchandising issues, which I am not qualified to comment on personally, because I wouldn't be a good fashion gauge. The company pays a $1.28-a-share dividend, and yields 3%. In the past three years it has bought back at today's price 25% of its shares, so there is a continued recapitalization theme here. Kohl's has voted with its feet.
That is for sure. What do earnings look like?
Rogers: For the fiscal 12 months ending this month, the company probably earned $4.20 a share. For the year ending January 2014, they could earn $4.80. The stock trades for a multiple of about nine times earnings. The company will probably increase its dividend again in the next six to eight weeks, so its yield will be rising. Kohl's has been a fairly steady dividend grower since it started paying dividends about two years ago. The management team has been around for a long time. The CEO, Kevin Mansell, has been there since 1982. If they miss a fashion cycle, we aren't too worried. We are willing to bet on a seasoned executive with that much experience.
The Chairman of T. Rowe Price thinks investors might finally be moving from bonds to stocks - and he's got two to recommend.
Witmer: Does Kohl's have a lot of debt?
Rogers: Debt is pretty much under control at $2.5 billion, against an equity value of $10 billion. The company generates free cash flow, which it has used to buy back stock and pay dividends at a rate of about $1 billion a year. Kohl's has lost a bit of its luster, but in our view, this isn't J.C. Penney JCP 2.125147579693034% J.C. Penney Co. Inc. U.S.: NYSE USD8.65 0.18 2.125147579693034% /Date(1435784611240-0500)/ Volume (Delayed 15m) : 9497093 AFTER HOURS USD8.62 -0.0300000000000011 -0.3468208092485549% Volume (Delayed 15m) : 78158 P/E Ratio N/A Market Cap 2586983589.55394 Dividend Yield N/A Rev. per Employee 108009 More quote details and news » [JCP]. Kohl's owns a lot of its stores and tends to be in fairly good strip malls. Historically, it has had operating profit margins of between 9% and 12%. Margins last year were a little shy of 10%. The company has good management that can respond to adversity. Expectations are low right now. It is hard to find anyone who would admit to owning Kohl's, aside from me.
Black: Sales have been doing poorly.
Rogers: Same-store sales have been a big issue for the past six or eight months, but this is the first time in years that the company has had a problem. It brought in some new merchandising folks from Macy's M 0.35571365051133835% Macy's Inc. U.S.: NYSE USD67.71 0.24 0.35571365051133835% /Date(1435784463672-0500)/ Volume (Delayed 15m) : 4278023 AFTER HOURS USD67.73 0.0200000000000102 0.029537734455767243% Volume (Delayed 15m) : 36456 P/E Ratio 16.00709219858156 Market Cap 22697583357.7393 Dividend Yield 2.1267168808152417% Rev. per Employee 168113 More quote details and news » [M], and I am making a bet that they can get the train back on the tracks.
Black: What kind of square footage does Kohl's have, and is it opening new stores?
Rogers: Kohl's operates 1,146 stores and is expanding its square footage by a couple of percentage points a year. On that basis, it is adding a dozen or so stores a year. It will continue to add space, but this isn't a huge square-foot-expansion story. In a year when so many stocks were up a lot, it has already paid the piper in terms of performance.
What is your view of J.C. Penney?
Rogers: We don't own the stock. I guess that's a view. There are a lot of smart investors with big positions in Penney. I'm not one of them.
Moving on to energy, who recommended Apache APA -2.689571403782752% Apache Corp. U.S.: NYSE USD56.08 -1.55 -2.689571403782752% /Date(1435784573924-0500)/ Volume (Delayed 15m) : 3046991 AFTER HOURS USD56.49 0.410000000000004 0.7310984308131241% Volume (Delayed 15m) : 33475 P/E Ratio N/A Market Cap 21731985323.13 Dividend Yield 1.783166904422254% Rev. per Employee 2405660 More quote details and news » [APA] here last year?
Black: I did. It was the only loser on my list.
Rogers: This year it is going to be one of our winners. Apache was down about 15% last year. Energy was the second-weakest sector in the Standard & Poor's 500 after utilities. Among energy companies, Apache historically has produced a great return on capital. The company is thoughtful in what it buys and sells, and it makes pro-shareholder investment decisions. It has a strong balance sheet, and is run conservatively. They aren't gunslingers. By the way, 20% of their production is in Egypt.
Black: Gas production?
Rogers: Yes. Egypt is a bit of a question, but Apache's operations in Egypt haven't been affected thus far. Egypt needs the currency, so our best guess is the properties there will continue to produce and do just fine. Forecasting earnings in the energy sector is precarious, but we expect that Apache earned $9.50 a share in 2012, and will earn between $9 and $10 in 2013. We aren't forecasting huge growth, but again, this is a good company, with a good management team, good profitability, and an attractive price relative to the broader energy sector. Apache is selling at a discount based on any type of valuation metric. Its net asset value is about $130 a share. The stock is selling around $80 a share. There are 390 million shares outstanding, and the company has a $31 billion market value. It pays a small dividend of 68 cents a share.
If you like controversy, you will love my next set of comments, about Avon Products AVP 1.2779552715654952% Avon Products Inc. U.S.: NYSE USD6.34 0.08 1.2779552715654952% /Date(1435784853241-0500)/ Volume (Delayed 15m) : 6002189 AFTER HOURS USD6.34 % Volume (Delayed 15m) : 30144 P/E Ratio N/A Market Cap 2723619728.48885 Dividend Yield 3.7854889589905363% Rev. per Employee 254880 More quote details and news » [AVP].
Everyone: Oh, no!
Rogers: Let's talk about Avon's history. The stock trades for $15 a share and has a $6.5 billion market value. Many of us remember when Avon sold for $40 or $50 a share four or five years ago.
Black: I remember when it sold for $150 a share.
Schafer: I remember when it was one of the Nifty 50, in the 1960s.
Rogers: Now, guys, don't show your age. I don't remember that. There are two keys to this story. First, Coty tried to acquire Avon last year, and the Avon board rebuffed its advances.
Gabelli: Coty made an offer in the low-$20s per share.
Rogers: Avon probably could have gotten an offer of up to $25 or $26 a share in a friendly transaction. It is hard to know.
Schafer: Has Avon cut its dividend yet?
Rogers: They have cut the dividend to 24 cents a year from 92 cents. The stock yields 1.6%. I am not sure the earnings matter this year or next, but it is likely they earned 70 cents a share in 2012 and will do 90 cents in 2013. The other key is that Avon has a new CEO, Sheri McCoy, who spent 30 years at Johnson & Johnson JNJ 1.0363225938846707% Johnson & Johnson U.S.: NYSE USD98.47 1.01 1.0363225938846707% /Date(1435784566378-0500)/ Volume (Delayed 15m) : 6558490 AFTER HOURS USD98.61 0.140000000000001 0.14217528181171932% Volume (Delayed 15m) : 168204 P/E Ratio 17.615384615384617 Market Cap 290435670725.638 Dividend Yield 3.0466131816796995% Rev. per Employee 580258 More quote details and news » [JNJ]. She didn't get the top job there a year ago when the company picked a new CEO, and she was looking for a CEO position when this came along. She is a highly capable executive who ran a significant portion of Johnson & Johnson for a long period of time. So, we are making a bet on management.
Avon has had a number of problems. It had balance-sheet issues, and she renegotiated some debt covenants to give the company time to work things out. She has also launched a big cost-cutting program. You could argue that Avon had a bloated cost structure, and she is going to take a meat cleaver to it. The company had a lingering issue over violations of the Foreign Corrupt Practices Act, and she is moving aggressively to settle it. This will be resolved sometime in 2013. Then the question becomes, what can they do with the business? We think Avon has potential. If the company can get profit margins back to historical levels, it could earn $1.50 to $1.75 a share in the next two to four years. Again, this is a $15 stock. If you put a consumer-products multiple on $1.50 or $1.75 of earnings, you might get a $25 stock in the next couple of years.
Schafer: Why is Avon in its current predicament?
Rogers: There were a series of self-inflicted wounds in some key markets. They are breaking even in the U.S., where they should be making money. They have struggled in Venezuela and other Latin American markets. There is a question as to whether the model is altogether broken. We believe it is fixable. I look at Tupperware Brands TUP 2.184691664084289% Tupperware Brands Corp. U.S.: NYSE USD65.95 1.41 2.184691664084289% /Date(1435784627080-0500)/ Volume (Delayed 15m) : 447260 AFTER HOURS USD65.301 -0.649000000000001 -0.9840788476118272% Volume (Delayed 15m) : 6605 P/E Ratio 17.447089947089946 Market Cap 3216931919.87061 Dividend Yield 4.124336618650493% Rev. per Employee 192725 More quote details and news » ' [TUP] problems a few years ago. That model seemed like it was broken; a new management team came in and fixed it, and the stock reacted accordingly. If you don't think Avon has a durable business structure, you don't want to touch it. Our sense is there is pretty good upside in the next couple of years.
Gabelli: It is a great brand, even if they tweak their distribution channel. Was Coty interested in the distribution channel or some other dynamic?
Rogers: Coty liked Avon's distribution abilities, and viewed it as an inexpensive company with decent product R&D [research and development].
Next, we like Legg Mason LM -0.27168639627401514% Legg Mason Inc. U.S.: NYSE USD51.39 -0.14 -0.27168639627401514% /Date(1435784560217-0500)/ Volume (Delayed 15m) : 1046906 AFTER HOURS USD51.39 % Volume (Delayed 15m) : 5501 P/E Ratio 25.068292682926828 Market Cap 5712976226.52261 Dividend Yield 1.5567230978789648% Rev. per Employee 946372 More quote details and news » [LM]. I can remember back to the days six years ago when Legg Mason was a $140 stock. Everything that could possibly go wrong at Legg has gone wrong in the past few years. The company had performance problems in key mutual funds. It had disgruntled affiliates. Now a management transition is under way. The stock has descended to $26, and the market value is $3.5 billion. There is another $1.1 billion of debt, for a cash-adjusted enterprise value of roughly $3.7 billion.
Gabelli: But there is cash offsetting the debt.
Rogers: There is probably $900 million of cash offsetting the debt. Legg will earn between $1.25 and $1.50 a share in the fiscal year ending in March. It could earn $2 a share at some point, but it is virtually impossible to understand the earnings potential right now. Assets under management are $650 billion. The company owns a number of money-management firms, including Western Asset Management, ClearBridge Advisors, Royce & Associates, Brandywine Global Investment Management, and Batterymarch Financial Management.
The key here is 1% of assets under management. It gives you an estimated $6.5 billion value relative to today's estimated value. That is the number to keep in mind. It gets you hypothetically to $40 a share in private-market value. I am not saying Legg will trade up to $40, but it is inexpensive at a current $26 relative to the value of these businesses. We own about 10% of the company, roughly the same amount as Nelson Peltz [of Trian Fund Management]. We see little downside and significant upside, and we are eagerly awaiting the naming of a new CEO. There have been rumors that a private-equity firm would try to buy Legg Mason. I am not sure such rumors are true, but where there is smoke, there is fire. A highly activist investor owns 10% of the company, and a prudent long-term investor owns another 10%.
Gabelli: Which one are you?
Rogers: The stock yields 1.7%. The company cut its dividend a few years ago. It has been buying back stock and is in the middle of a $1 billion buyback program now. It has the cash flow to do this. Everything might fall into place at Legg Mason.
Gabelli: I have owned the stock for a long time. They have $1 billion in net operating- loss carryforwards [a deferred tax asset]. This is a powerful shelter for the cash they are generating.
Gross: Isn't the business subject to margin pressure? Exchange-traded funds are eroding the ability of any active money-management firm to earn what it historically earned.
Gabelli: I disagree. There are $125 trillion of investable funds on a global basis. The biggest challenge is the shrinkage of the equity portion. Within that portion, ETFs aren't the issue. We run 45% profit margins. You're running 80% margins.
Gross: I'm talking about fees as a percentage of assets. I'm not talking about your operating margins.
Rogers: Take it outside, guys.
Gross: No. I refuse.
Zulauf: It isn't a secret, Mario, that fees in the money-management business are under pressure.
Gabelli: Not so. Fees are rising because of the amount of money going into hedge funds.
Rogers: Bill, in some parts of the business there is some margin pressure. In the S&P 500 ETF business, there is margin pressure. In the index-fund business, there is margin pressure, and in the active-management equity business there has been margin pressure for my entire 30-year career. But, it has been gentle.
Gross: Well, stand by.
Rogers: Fair enough.
Gabelli: If you want to preach in favor of mindless investing, we don't have to stand by.
Gross: It is about what investors are willing to pay for.
Gabelli: No, it is about what their intermediaries -- their gatekeepers -- are willing to pay for.
Gross: If you are in the business 20 years from now, Mario, and you are right, I'll buy you a steak dinner.
Rogers: Can I mention one more name, please?
You can do anything to end this discussion.
Rogers: After talking about Kohl's, Apache, Avon, Legg Mason, and PNC, I need some ballast on my list. General Electric GE 0.3387278885961611% General Electric Co. U.S.: NYSE USD26.66 0.09 0.3387278885961611% /Date(1435784423066-0500)/ Volume (Delayed 15m) : 29954799 AFTER HOURS USD26.67 0.0100000000000016 0.037509377344336084% Volume (Delayed 15m) : 472630 P/E Ratio 277.13097713097716 Market Cap 267717448721.945 Dividend Yield 3.4508627156789196% Rev. per Employee 482115 More quote details and news » [GE] isn't heroic, but it is a simple story. For the first time in as long as I can remember, virtually every one of the company's businesses has the wind at its back in terms of top-line growth or profit-margin expansion. I haven't seen this happen at GE in more than a decade.
Hickey: Except that Jeffrey Immelt [GE's CEO] came out in December and said the wind was in their face. He made some negative comments about macroeconomic conditions.
Rogers: Jeff has made a lot of public comments about the fiscal situation in Washington. You don't see any pressure in the numbers laid out at an investor meeting in December.
Gabelli: So, GE has 10.5 billion shares outstanding. The stock is $21 and rose nicely last year.
Rogers: And the company has raised its dividend five times since it was cut during the financial crisis. GE yields 3.5%, and the dividend will rise further. Recently, for the first time in a long while, the company talked about reducing its share count, to below 10 billion shares. Given these tail winds, you have an opportunity to invest in a pretty interesting total-return vehicle. GE is a safe, high-quality company.
Witmer: What is it earning?
Rogers: GE could earn $1.70 a share in 2013.
Zulauf:What percentage of earnings comes from the company's financial division?
Rogers: The financial business has accounted for as much as 50% of earnings in the past five years, but it is headed to 30% to 35% now.
Gabelli: If you put a 20 multiple on $1.70 of industrial earnings, in two years you have a $34 stock. Then throw in the book value of the financial subsidiary. There is always a possibility that Immelt splits the company into separate industrial and financial companies.
Rogers: I'm not sure I would count on that.
Gabelli: Suppose Immelt announced that GE is keeping only enough of the credit subsidiary to support the industrial business. He has already been shrinking finance dramatically, and the real-estate portion of the finance portfolio is now manageable. How would a split-up help the multiple?
Rogers: Even during the toughest part of the financial crisis, GE Capital was profitable, and it still is. Returns are up, and the unit is sending capital upstream to the parent company. The credit tail winds are likely to continue, which means the business is an asset to the company. A few years ago, it was a liability. GE's stock could rise to $25 or $26. Maybe you get a 3.5% dividend yield on top of that, to generate an attractive total return. Compared to some of my other names, GE is an anchor to windward.
Black: I see two issues at GE. What are the residual values in the leasing portfolio? I'm talking about aircraft leases, and all leases. They don't discuss how they get their numbers. Secondly, we're going to have cutbacks in the U.S. defense budget. They make the GE404 aircraft engine that goes into the F-18 plane, and the F-18 is vulnerable to cutbacks. Also, GE makes the engine for Boeing's BA 1.448961937716263% Boeing Co. U.S.: NYSE USD140.73 2.01 1.448961937716263% /Date(1435784414230-0500)/ Volume (Delayed 15m) : 3201141 AFTER HOURS USD140.84 0.110000000000014 0.07816385987351666% Volume (Delayed 15m) : 59727 P/E Ratio 17.613266583229038 Market Cap 95927243080.4651 Dividend Yield 2.5865131812690967% Rev. per Employee 558719 More quote details and news » [BA] 787 Dreamliner, which is in trouble. [All Dreamliner aircraft have been grounded owing to concerns about electrical problems.]
Schafer: All these things are important, but they are minor given the totality of GE. Some very smart people shorted GE's stock four or five years ago because of concerns about the company's real-estate exposure. The crisis never really came to pass.
Rogers: If you told me the 787 was going to be banned, that would be very painful. [In follow-up comments e-mailed to Barron's last week, Rogers wrote, "The Boeing 787 issue won't make very much difference to GE in the near term. This view is dependent on Boeing being able to deal with the defective battery issue, a problem we believe a technically proficient market leader like Boeing should be able to solve. GE continues to ship aircraft engines to Boeing, and Boeing continues to manufacture the 787. In a year, we believe this will be a distant investor memory as far as GE is concerned."]
Thank you, Brian. Oscar, do you want to take it from here?
Schafer: Sure. Following up on Brian's Legg Mason idea, my first pick comes from an industry undergoing even more dramatic change. It is the rental-car industry, and I am recommending Hertz Global Holdings [HTZ]. Both industry and company changes are allowing us to buy Hertz at a 50% to 70% discount to our view of intrinsic value. We have followed the rental-car industry for a while, having owned both Avis Budget Group CAR 0.045372050816696916% Avis Budget Group Inc. U.S.: Nasdaq USD44.1 0.02 0.045372050816696916% /Date(1435784400211-0500)/ Volume (Delayed 15m) : 2888600 AFTER HOURS USD44.1 % Volume (Delayed 15m) : 23164 P/E Ratio 20.89750272473108 Market Cap 4664589836.09802 Dividend Yield N/A Rev. per Employee 282433 More quote details and news » [CAR] and Hertz at various times, and having discussed them both at the Roundtable.
The key to generating strong returns for a car-rental company is a mix of stable pricing, strong asset utilization, and expense management. At times, the industry has lacked one or more of these characteristics. As recently as 10 years ago, the eight major North American car-rental brands were separate companies. Some were even owned by auto makers. During that period, driven by excess production capacity among auto manufacturers, the rental industry became a dumping ground for extra cars. This led to persistent over-fleeting, low asset utilization, aggressive pricing, and low returns. In the past four years, however, these dynamics have changed.
Hedge fund manager Oscar Schaefer explains that GDP growth doesn't always correlate with stock returns. And he tells us why Hertz shares will zoom higher.
How so?
Schafer: First, the industry has consolidated into three major rental companies, with no auto-industry ownership. Second, meaningful capacity reductions and a focus on profitability among car manufacturers have mitigated the risk of fleet-dumping and underutilization. Third, a focus on returns by owners and managers of the remaining car-rental companies has led to strong profitability that hasn't been fully recognized in their valuations. At both Avis and Hertz, pretax operating margins have doubled since 2006. Hertz is on the cusp of a significant rise in long-term earnings power and free-cash-flow generation. The predominant factor behind the expected acceleration is the November 2012 acquisition of Dollar Thrifty. Through the acquisition, Hertz has become the largest player in the industry, with a 35% market share.
There are many synergies in this acquisition. At Hertz, which is predominantly a business brand, 82% of cars are utilized on weekdays, and 72% on weekends. Dollar Thrifty, largely a leisure brand, has nearly the opposite profile. By combining these companies, Hertz can use its business cars for Dollar customers on weekends, eliminating the need for some of Dollar's cars. Running the company at the same revenue level but with 6% fewer cars would add nearly $100 million to Ebitda [earnings before interest, taxes, depreciation, and amortization].
We calculate that the combined company could earn north of $2.50 a share in 2014, significantly above Wall Street estimates and almost double 2012 estimated earnings. At a current price of $17.54 a share, Hertz trades at seven times our earnings estimate. The stock could trade up to at least 10 times earnings, giving us about 50% upside.
Gabelli: Shrinking the number of competitors should firm rental rates.
Schafer: My next pick comes from an industry that Brian likes, too. Few industries were more impacted by the 2008-09 recession than investment banking. The model has been severely curtailed by the increased government regulation and legal scrutiny that characterizes postcrisis Wall Street. This has changed the competitive landscape, and in this context, shares of Lazard laz 0.1600284495021337% Lazard Ltd. U.S.: NYSE USD56.33 0.09 0.1600284495021337% /Date(1435784707054-0500)/ Volume (Delayed 15m) : 481255 AFTER HOURS USD56.33 % Volume (Delayed 15m) : 2939 P/E Ratio 18.6523178807947 Market Cap 7298040421.66535 Dividend Yield 2.485354162968223% Rev. per Employee 942360 More quote details and news » [LAZ] are undervalued. Lazard generates $2 billion in annual revenue from two distinct businesses; 55% of revenue comes from the advisory business, which most people associate with Lazard, and 45% comes from a large and growing asset-management franchise. Importantly, at this time in the mergers-and-acquisitions cycle, the asset-management division generates nearly all the profits. Rather than thinking of Lazard as an investment bank with an asset-management business on the side, the situation today is closer to the reverse.
How much money does Lazard manage?
Schafer: Lazard has $160 billion under management, with about 70% dedicated to international equities. The assets are 90% institutional, and have been growing at a 7% compounded annual rate for the past five years. The firm's emerging-markets exposure is particularly attractive, as we expect emerging markets will continue to attract funds for the foreseeable future. Asset management is also very profitable, with 26% pretax margins.
Gabelli: Give us some numbers. Where is the stock?
Schafer: The stock trades for $33.89. I'll get to more numbers shortly. Lazard's investment bank is the largest independent advisory firm. It is nearly twice the size of its nearest competitors, Greenhill GHL 0.7016694894749577% Greenhill & Co. Inc. U.S.: NYSE USD41.62 0.29 0.7016694894749577% /Date(1435784577376-0500)/ Volume (Delayed 15m) : 350799 AFTER HOURS USD41.62 % Volume (Delayed 15m) : 5845 P/E Ratio 24.62721893491124 Market Cap 1211746193.99463 Dividend Yield 4.324843825084094% Rev. per Employee 962452 More quote details and news » [GHL] and Evercore Partners EVR 1.1304670126019274% Evercore Partners Inc. Cl A U.S.: NYSE USD54.57 0.61 1.1304670126019274% /Date(1435784650895-0500)/ Volume (Delayed 15m) : 394736 AFTER HOURS USD54.57 % Volume (Delayed 15m) : 3637 P/E Ratio 28.421875 Market Cap 2217595438.84411 Dividend Yield 2.0524097489463076% Rev. per Employee 785646 More quote details and news » [EVR]. The firm consistently ranks high in the industry's league tables [for size and volume of deals done], alongside much larger banks, despite the fact that Lazard doesn't use its balance sheet to win engagements. Business is 100% fee-based, driven largely by M&A advisory work and, to a lesser extent, restructuring work and sovereign mandates [assignments from governments].
A number of powerful trends have positioned Lazard as a long-term share gainer. First, recent court rulings have made independent-banking advice a priority for company boards, to minimize the conflicts created when a large bank offers both advice and capital. Second, the bulge-bracket firms are losing key personnel due to tarnished brands and regulatory distractions. Third, public outrage over banker compensation at bulge-bracket firms has lowered the cost of talent. I was initially suspicious of an industry where most of the profits flowed to the bankers, as opposed to shareholders, having worked at a few investment banks myself. What caught my eye at Lazard was a rather extraordinary letter the company issued on April 27, 2012.
What did the letter say?
Schafer: In this letter, management outlined the firm's long-term goals with refreshing detail and candor. Two aspects of the letter stood out from the usual guidance issued by most public-company executives. First, while the goals were ambitious, the tone of the letter was factual and honest. Management acknowledged the mistakes of the past and likely challenges the company will face in the future. Second, management issued detailed plans for margin improvement, shareholder-friendly asset allocation, and improved governance and transparency. But the analysts who cover the stock overwhelmingly ignored the guidance in their financial models. Given the history of the industry in general, and Lazard's specifically, there was a healthy degree of skepticism about publicly traded investment banks. Putting all this together, Lazard's stock looks undervalued.
Shares have fallen from $45 within the past two years. Based on the current share price, we are paying a fair price of only eight times Ebitda for the asset-management business, and one times revenue for the advisory division. Said differently, after expected expense cuts, we are paying 15 times earnings at current revenue levels. But this assumes no improvement in M&A, no growth in asset management, and no impact on the capital structure through either share buybacks or debt refinancing.
In a sense, Lazard shares are an inexpensive call option on three things: management's ability to continue to grow asset management; a recovery in the corporate M&A business, which is down almost 50% from 2007 levels; and the ability to gain market share from bulge-bracket firms. We believe Lazard could trade closer to $50 a share, which would imply a midteens price multiple on more than $3 a share of earnings power.
Gabelli: Goldman Sachs shares have gone from $90 to $140. This stock has done nothing.
Schafer: That's why I like it.
Gabelli: I agree.
Schafer: Also, the same activists involved in Legg Mason are involved here. Nelson Peltz and Peter May of Trian Fund Management published an excellent white paper last June, laying out what they thought Lazard ought to do to enhance value.
Black: Oscar, what is the compensation ratio?
Schafer: It is much too high. The company is going to reduce compensation levels. Investment banks are all cutting back, so employees don't have the leverage to demand higher pay. Also, Lazard has a lot of small offices in other countries, and can cut them back.
Gabelli: The guys who run the asset-management business are first-rate.
Oscar Schafer: "What caught my eye at Lazard was a rather extraordinary letter the company issued on April 27, 2012." Jennifer Altman for Barron's
Schafer: Another stock I like is Western Union WU 0.2951303492375799% Western Union Co. U.S.: NYSE USD20.39 0.06 0.2951303492375799% /Date(1435784527479-0500)/ Volume (Delayed 15m) : 4352510 AFTER HOURS USD20.3 -0.0899999999999999 -0.4413928396272683% Volume (Delayed 15m) : 93863 P/E Ratio 12.664596273291925 Market Cap 10496602064.4904 Dividend Yield 3.0407062285434034% Rev. per Employee 556110 More quote details and news » [WU]. In this case, the market overreacted to negative news. When the company announced aggressive pricing actions and lowered earnings guidance on a recent conference call, the stock fell more than 30%, from $18 to $12. Even after rebounding to $13.80, shares trade for only nine times 2013 estimated earnings. Western Union is the largest player in the global money-transfer business. The company has signed 500,000 partners around the globe to act as sending or receiving agents, enabling individuals to send money to practically anywhere on the planet. Local agents offer Western Union money transfers as a way to generate extra income and customer traffic to their stores. For a small percentage of each transfer, Western Union provides a brand name, technology, regulatory-compliance services, and access to its global network of agents. It is a scalable and capital-efficient business model.
Who is the typical Western Union customer?
Schafer: Western Union's growth is driven by global migration trends. The typical customer for a money transfer might be a migrant worker, usually unbanked or underbanked, who is sending money back to his family in his home country. Fees on a typical $350 transaction are 4% to 5%. Western Union shares about half the fee with the sending and receiving agents, and makes another 1% on the foreign exchange.
Oscar Schafer's Picks
|1/11/13 Price
|Hertz Global Holdings/HTZ
|Western Union/WU
|Owens Corning/OC
|Verint Systems/VRNT
|Source: Bloomberg
A small, fixed expense base and a largely variable cost structure make Western Union a cash-flow machine. In the past five years, the company has generated just over $1 billion in net cash flow annually. Western Union has a market capitalization of $8 billion, and $2 billion in net debt. The recent share-price collapse was due to a decision to slash pricing in certain money-transfer corridors. Investors worry that this is a sign of serious competitive pressures from online money-transfer providers, banks, and regional remittance networks. Wall Street is worried that this is the beginning of a long, slow decline in what had been a great business.
We take it you don't agree.
Schafer: Wez believe the reality is less dire than the share price would suggest. First, competition has always been intense, and the recent price actions aren't an anomaly. Looking back 10 years, Western Union has cut prices annually by 5%, and grown volume by 13% and revenue by 8%. Also, while online money transfers are innovating and growing, the market is expanding beyond the traditional unbanked customer. Finally, while regulatory-compliance costs are increasing, this will be more than offset over time, as industry regulation will push customers toward official remittance players. Most of the business still is done in the gray market. In fact, it accounts for 75% of money transfers around the world.
Western Union shares are a tremendous value, with limited downside. The company pays a 4% dividend, and is using excess cash flow to buy back stock. Even assuming 2% revenue growth, it will be generating more than $2 a share of free cash flow in 2015. A multiple of nine times earnings would get you a stock price of $18, or 30% upside. If Western Union were to increase its leverage to buy back stock, which it should, the share price could rise well into the $20s, giving you 80% upside.
Rogers: Oscar, what do you mean by gray-market money transfers?
Schafer: Examples would be taking money across the border in your pocket, or sending cash through the mail.
Gabelli: We own Millicom International Cellular [MIICF], which operates wireless telephone networks in Latin America and Africa. They are starting to offer bank-by-phone services.
Schafer: We have looked at that threat, but banking by phone is only 3% or 4% of the money-transfer business right now, and both parties in such transactions have to be bank customers.
The value manager and Barron's Roundtable member predicts how the deficit battle will affect the market, and he shares one of his top stock picks.
Gabelli: What will Western Union do as that business grows in the next five years?
Schafer: It is opening in new markets. For example, it just opened in Myanmar.
One bright spot for the U.S. economy in 2012 was housing. Home builders' shares have risen to new highs, in some cases justified, and in others, not. One housing-related play, Owens Corning OC 0.48484848484848486% Owens Corning U.S.: NYSE USD41.45 0.2 0.48484848484848486% /Date(1435784740953-0500)/ Volume (Delayed 15m) : 997990 AFTER HOURS USD41.45 % Volume (Delayed 15m) : 9445 P/E Ratio 39.476190476190474 Market Cap 4867335090.63721 Dividend Yield 1.6405307599517491% Rev. per Employee 371786 More quote details and news » [OC], has lagged significantly. Investors have experienced a game of Whack-A-Mole with Owens Corning. The company has three separate but related businesses in insulation, roofing, and composites, with one or more always underperforming. As a result, the stock has been stuck in the $20-to-$40 range for the past two years, while other housing-related stocks have soared. Now, for the first time, there is a clear path to all three businesses performing well in 2013, setting the stock up for a potential double.
Owens Corning is the leading provider of fiberglass insulation in North America. It makes the pink fiberglass insulation you often see. After losing money for the past four years, the insulation segment broke even in the latest quarter and is poised to recover dramatically, with incremental 50% margins as housing continues to improve.
What is happening in roofing and composites?
Schafer: The roofing segment is a completely different story. Demand in this business is stable, driven mainly by the repair and replacement market, with some variability from housing starts and storms. It is a great business, but last year the market leader decided to cut prices in an attempt to regain market share. As a result, distributors loaded up on cheap inventory during the critical winter buying season, and profitability was hurt for the entire year. We believe this competitor has learned its lesson, as it didn't achieve share gains, and our checks indicate a much more rational pricing environment this year. This could result in up to 500 basis points [five percentage points] of margin improvement this year.
Scott Black: "Medical Properties Trust is a REIT. It is for people who want some yield without chasing bad businesses." Jennifer Altman for Barron's
Finally, the composite business is poised to recover, as well, although it is harder to predict, due to a heavy correlation with industrial production. We like the glass-fiber industry. In the past 30 years, it has grown at 1.6 times global industrial production, as glass fibers are taking share from more traditional materials, such as steel. Owens Corning has just completed the restructuring of its European operation, moving higher-cost capacity to lower-cost regions such as Russia and Mexico. That should contribute 300 basis points of margin improvement.
A combination of macro, industry, and company-specific changes makes Owens Corning poised to outperform in 2013. Not to mention, management has indicated a willingness to use excess free cash flow to buy back stock, which could further drive earnings. The business has the potential to earn $7 in 2015. At 12 times earnings, the stock could trade for $80, providing 100% upside.
Black: Are there any legacy legal issues?
Schafer: The company's asbestos business is long gone.
In the global apparel market, authentic brands with a rich heritage are extremely rare and valuable. Well-managed companies such as Nike NKE 1.3053138307720793% Nike Inc. Cl B U.S.: NYSE USD109.43 1.41 1.3053138307720793% /Date(1435784519672-0500)/ Volume (Delayed 15m) : 2821983 AFTER HOURS USD109.5 0.0699999999999932 0.06396783331810289% Volume (Delayed 15m) : 139993 P/E Ratio 29.575675675675676 Market Cap 92869962943.1242 Dividend Yield 1.0234853330896463% Rev. per Employee 541611 More quote details and news » [NKE], VF Corp. vfc 2.6527100659592775% VF Corp. U.S.: NYSE USD71.59 1.85 2.6527100659592775% /Date(1435784731780-0500)/ Volume (Delayed 15m) : 2526848 AFTER HOURS USD71.53 -0.0600000000000023 -0.08381058807095963% Volume (Delayed 15m) : 17833 P/E Ratio 29.95397489539749 Market Cap 29637756017.8146 Dividend Yield 1.7879592121804722% Rev. per Employee 209575 More quote details and news » [VFC], and Under Armour UA 0.9827420901246404% Under Armour Inc. Cl A U.S.: NYSE USD84.26 0.82 0.9827420901246404% /Date(1435784618455-0500)/ Volume (Delayed 15m) : 1590263 AFTER HOURS USD84.26 % Volume (Delayed 15m) : 17372 P/E Ratio 89.63829787234043 Market Cap 18030132723.8403 Dividend Yield N/A Rev. per Employee 303524 More quote details and news » [UA] have demonstrated that they can grow large brands by expanding into emerging markets and improve profitability with global sourcing. One apparel company I really love is Quicksilver ZQK -4.948702474351237% Quiksilver Inc. U.S.: NYSE USD0.63 -0.0328 -4.948702474351237% /Date(1435784660232-0500)/ Volume (Delayed 15m) : 3159576 AFTER HOURS USD0.63 % Volume (Delayed 15m) : 35244 P/E Ratio N/A Market Cap 113823968.447552 Dividend Yield N/A Rev. per Employee 233594 More quote details and news » [ZQK]. It owns the three most iconic brands in outdoor and action sports -- Quicksilver, in men's surfing; Roxy, in women's surfing; and DC, in the skate business. The business is at an inflection point, and the stock could triple in the next few years. I'm not predicting fashion trends. Rather, the next few years at Quicksilver will be about improving margins until they are in line with global apparel peers.
The catalyst for this change is new management. The new CEO came from Disney and Nike. The CFO worked at Oakley. Quicksilver generates $2 billion of revenue a year, with 50% gross profit margins. The problem is, it spends 45% on SG&A [selling, general, and administrative expenses], resulting in a meager 5% operating profit margin.
Why are expenses so high?
Schafer: The cost structure is a legacy of the company's history. Initially, Quicksilver was operated by three separate licensees in Australia, Europe, and the U.S. While these businesses were eventually consolidated, they were managed independently, with each region doing its own design, sourcing, marketing, and such. As a result, there was a significant overlap of expenses. By consolidating some basic functions, the company can improve operating margins by 1,000 basis points, effectively tripling profits on the same revenue base. Even then, margins will still be below peer companies. A few things make me optimistic that margins will improve.
First, the board just brought in a new CEO and a CFO with a mandate to improve operations. Co-founder Bob McKnight has done a tremendous job with this company for 37 years, and he will remain as executive chairman. Second, top management's interests are well aligned with shareholders'. Executives have all received a significant amount of restricted stock that vests only if the stock trades to $12.50, or the company is acquired for at least $9.28. The restricted shares expire worthless if neither happens by November 2016. Finally, there is a large private-equity owner on the board who is watching out for our interests. This investment isn't for the faint of heart.
What do you mean?
Schafer: Quicksilver is levered at more than four times Ebitda, due to a terrible acquisition it made nearly a decade ago. That said, the opportunity for margin improvement is enticing. Analysts expect the company to generate $175 million of Ebitda this year, and management is committed to growing Ebitda to $400 million by 2015. They don't need to do anything heroic to get there. Nearly all the improvement comes from cost controls and better sourcing, leading to higher margins. Quicksilver trades for less than nine times 2012 Ebitda. Assuming management can hit its 2015 Ebitda target, my price target is $15, based on a modest seven- times Ebitda multiple. Similar branded-apparel companies have been purchased recently at multiples of 10 to 15 times Ebitda.
What are the chances that Quicksilver could be acquired?
Schafer: That could happen after the company has turned itself around. That is what the incentives suggest.
Now, a short update on Verint Systems VRNT 0.008231130134167422% Verint Systems Inc. U.S.: Nasdaq USD60.75 0.005 0.008231130134167422% /Date(1435784400122-0500)/ Volume (Delayed 15m) : 420932 AFTER HOURS USD60.75 % Volume (Delayed 15m) : 11350 P/E Ratio 3037.5 Market Cap 3727191748.27484 Dividend Yield N/A Rev. per Employee 237621 More quote details and news » [VRNT], one of my 2012 picks. The stock, at $31.50, is up only 15% from where it was last year, and I am even more excited about it today. This is a software company with a $1.5 billion market cap. The software enables the recording and analytics of unstructured data -- linguistic, visual, and auditory -- across multiple applications such as call centers and wiretapping. The stock trades for slightly more than 10 times this year's estimated earnings, and the business is growing in the high single digits.
Separating Verint from its troubled parent, Comverse CNSI -0.547808764940239% Comverse Inc. U.S.: Nasdaq USD19.97 -0.11 -0.547808764940239% /Date(1435784400050-0500)/ Volume (Delayed 15m) : 243973 AFTER HOURS USD19.97 % Volume (Delayed 15m) : 4341 P/E Ratio N/A Market Cap 440494963.841476 Dividend Yield N/A Rev. per Employee 175599 More quote details and news » [CNSI], has taken a long time, but we have finally arrived at the moment where Verint will emerge as a standalone public company. A shareholder vote on the separation is scheduled for Feb. 4. As liquidity improves and the association with Comverse fades, Verint could trade in line with other software and big-data companies. It could also merge with its largest competitor, NICE Systems NICE 2.107249567542066% NICE-Systems Ltd. ADS U.S.: Nasdaq USD64.93 1.34 2.107249567542066% /Date(1435784400155-0500)/ Volume (Delayed 15m) : 176685 AFTER HOURS USD64.9264 -0.00360000000000582 -0.005544432465732327% Volume (Delayed 15m) : 1065 P/E Ratio 35.77016306743059 Market Cap 3808933967.07645 Dividend Yield 0.9856768827968582% Rev. per Employee 223364 More quote details and news » [NICE], in a deal that would create significant value for customers and shareholders. The stock could rally into the $50s, for between 50% to 100% upside.
Thanks for the update. Scott, you're on.
Black: I'm ready. To reiterate our outlook, although it doesn't affect our stock picking, we're from the Warren Buffett school of thought that says the U.S. economy somehow grows over time. You can't time the market, and you want to own good businesses, which we define as having high returns on equity, low P/Es, strong balance sheets, and strong free-cash-flow generation.
U.S. equities are reasonably priced at this point, although I am not as bullish on corporate earnings as analysts are. I expect S&P 500 earnings to rise to $104 this year from an estimated $98.99 in 2012. Based on my 2013 forecast, the market is trading at 14.2 times earnings. This is especially reasonable as bonds are way overpriced. People have been so hungry for yield that Treasuries, high-yield bonds, and corporate bonds are priced ridiculously relative to risk.
So you are bullish on the stock market?
Black: Barring a disastrous fight between the Democrats and Republicans over raising the debt ceiling and cutting spending, I expect the market will be up this year. You'll get some multiple expansion and the dividend yield, and a total return of approximately 10%. I have a potpourri of stocks to recommend, whose common theme is good unit growth. One thing that bothers me about S&P companies is sluggish revenue growth. Revenue was up only 1.1% in the third quarter, and 3.6% in the fourth quarter. It is hard to grow earnings through financial engineering. It is much better to let top-line growth drive earnings.
My first pick is a large-cap technology stock, Qualcomm QCOM 0.4311033051253393% Qualcomm Inc. U.S.: Nasdaq USD62.9 0.27 0.4311033051253393% /Date(1435784400056-0500)/ Volume (Delayed 15m) : 12516064 AFTER HOURS USD62.95 0.0500000000000043 0.0794912559618442% Volume (Delayed 15m) : 153834 P/E Ratio 14.90521327014218 Market Cap 102096985843.983 Dividend Yield 3.0524642289348174% Rev. per Employee 878307 More quote details and news » [QCOM], which closed Friday [Jan. 11] at $64.90. There are 1.7 billion fully diluted shares, giving you a $110 billion market capitalization. The company pays a dividend of a dollar, for a yield of 1.5%. Qualcomm makes radio-frequency chips and supplies chip sets for mobile phones. It has more content on Samsung [005930.Korea] phones than on Apple AAPL 0.93681482957943% Apple Inc. U.S.: Nasdaq USD126.6 1.175 0.93681482957943% /Date(1435784401022-0500)/ Volume (Delayed 15m) : 29666406 AFTER HOURS USD126.45 -0.149999999999991 -0.11848341232227488% Volume (Delayed 15m) : 572405 P/E Ratio 15.648949320148331 Market Cap 722577178384.49 Dividend Yield 1.6429699842022116% Rev. per Employee 2287920 More quote details and news » [AAPL] phones, but it dominates the 3G and 4G space. The company says there were 1.9 billion 3G and 4G phones at the end of December, and that is going to grow to about four billion by 2016. Qualcomm is one of the few large technology companies that could legitimately see 20% revenue growth.
Walk us through the numbers, please.
Black: Because demand for chip sets is growing rapidly through licensing, we see Qualcomm generating revenue of about $23 billion this year. Our estimate on the high end is $26.6 billion. Margins are falling not because the company is inefficient, but because its mix of businesses is changing. Chip sets have lower profit margins than licensing revenue. The chip-set business is about two-thirds of revenue, and licensing is one third. But operating margins in chip sets are 19%, and in licensing, 88%. Pretax profit margins, modeled, are between 41% and 41.5% of revenue. Taxed at 19% on the high end and 18.5% on the low end, you get between $4.38 and $4.58 in earnings per share. My estimates are higher than the Street consensus of $4.31. We are modeling $7.8 billion of net income this year, and $7.4 billion of free cash flow.
Qualcomm has a 21.8% return on both equity and total capital because of its staggering pile of cash. The company has $26.8 billion of cash and equivalents, including $17 billion offshore. All told, that is $15.42 a share of net cash. Strip the cash from the stock price and use the midpoint of my earnings estimates, and the stock has an 11 P/E. We are purists at Delphi and like to eliminate the cost of stock-based compensation from earnings. Backing out 53 cents a share in stock-based compensation from this year's estimated earnings would get you earnings of $3.95 and a 12.5 P/E. Qualcomm is a great company. It has proprietary technology, enforceable patents, and inexpensive shares, and mobility is the future.
Hickey: There is one big risk. Qualcomm gets hit whenever there are rumors that Samsung is going to develop its own chips. And it is. That development could be accelerated now that Samsung is locked in a battle with Apple. As Apple moves away from Samsung, it is leaving the company with a lot of semiconductor-manufacturing capacity. If nothing happens this year, Qualcomm could be a great play.
Witmer: By how much would Qualcomm's earnings be hit if Samsung starts making its own chips?
Black: Qualcomm won't divulge what it charges per chip set. Apple won't divulge how much content from Qualcomm is in its phones. It is hard to get a definitive answer.
Hickey: Samsung is the largest smartphone maker in the world, far larger than Apple.
Black: My second pick is McKesson MCK 0.431475468173124% McKesson Corp. U.S.: NYSE USD225.78 0.97 0.431475468173124% /Date(1435784641734-0500)/ Volume (Delayed 15m) : 910045 AFTER HOURS USD225.54 -0.240000000000009 -0.10629816635663035% Volume (Delayed 15m) : 18214 P/E Ratio 36.00612381590278 Market Cap 52228532623.7232 Dividend Yield 0.4251926654265214% Rev. per Employee 2543250 More quote details and news » [MCK], the largest distributor of surgical products and pharmaceuticals in the U.S. It is bigger than Cardinal Health CAH 1.5540944411237299% Cardinal Health Inc. U.S.: NYSE USD84.95 1.3 1.5540944411237299% /Date(1435784439739-0500)/ Volume (Delayed 15m) : 3309383 AFTER HOURS USD84.875 -0.0750000000000028 -0.08828722778104768% Volume (Delayed 15m) : 85683 P/E Ratio 24.873363979738237 Market Cap 27674265850.5768 Dividend Yield 1.8222483814008241% Rev. per Employee 2878710 More quote details and news » [CAH] and AmerisourceBergen ABC 1.2883204814745157% AmerisourceBergen Corp. U.S.: NYSE USD107.71 1.37 1.2883204814745157% /Date(1435784472837-0500)/ Volume (Delayed 15m) : 1872504 AFTER HOURS USD107.74 0.0300000000000011 0.027852567078265715% Volume (Delayed 15m) : 25014 P/E Ratio N/A Market Cap 23361408928.7622 Dividend Yield 1.0769659270262744% Rev. per Employee 9156770 More quote details and news » [ABC]. The stock is trading at $101. There are 240 million fully diluted shares, for a $24.2 billion market cap. They pay an 80-cent dividend, and the yield is under 1%.
Revenue isn't growing quickly, but the key is gross-margin dollars. As generic drugs are substituted for patented products, they generate less revenue per script but have higher gross-margin dollars. We confirmed with CVS Caremark CVS 0.7913806254767353% CVS Health Corp. U.S.: NYSE USD105.71 0.83 0.7913806254767353% /Date(1435784433231-0500)/ Volume (Delayed 15m) : 3812605 AFTER HOURS USD105.59 -0.11999999999999 -0.11351811559928106% Volume (Delayed 15m) : 96891 P/E Ratio 25.883303543008253 Market Cap 118339357916.571 Dividend Yield 1.3243780153249456% Rev. per Employee 656612 More quote details and news » [CVS], whose stock we own, that they get more in gross-margin dollars on a $20 generic-drug prescription than on an $80 branded drug.
McKesson's fiscal year ends in March. It will generate revenue of $123 billion in the current fiscal year and earn $7.30 a share against $6.38 last year. Modeling the future conservatively, we've taken revenue up 2.5%. Optimistically, it could rise by 3%. Drug distribution is 97% of the business. The company also has an information-technology business, installing systems for hospitals and medical centers that tie together the pharmacy, billings, the whole works. Distribution historically has been a low-margin business, with about 190 basis points of operating margins. The company's goal is to boost that to 200 to 250 basis points. The tech-solutions business has substantially higher margins of about 11.4%, which it aims to raise to 14% to 16% in the next few years. Using conservative estimates, McKesson will have $126.2 billion of revenue in fiscal 2014, ending March, and operating profit of $2.8 billion. Taxed at 29.5% and fully diluted, they'll do about $7.95 a share in earnings.
And if you're more optimistic?
Black: Operating profits will be $2.9 billion, or $8.19 a share. Using the midpoint of these estimates, we get $1.97 billion of free cash. Return on equity comes out to 20.8%. The stock is selling for 12.5 times earnings. In the current fiscal year, earnings will be up 14.4%. Next year, they will rise 10.5%, so this is a double-digit grower. The company doesn't provide clarity about its spending priorities, but it could use its cash for acquisitions, share buybacks, and bumping up the dividend. The balance sheet is bulletproof, with a net debt-to-equity ratio of 0.10. The [interest] coverage ratio is sensational. In the latest quarter, they generated $762 million in Ebitda, and had $55 million in interest expense. That is a 14-to-1 coverage ratio.
Gabelli: Is McKesson still buying PSS World Medical [PSSI]?
Black: Yes. They think the deal will be accretive.
Witmer: What isn't accretive at 2% interest rates?
Black: They base their analysis on a funding hurdle rate. They expect the purchase to return 15% after taxes. PSS won't be a big contributor to revenue growth, but it gives McKesson a new distribution channel. PSS distributes medical products through doctors' offices and medical facilities.
My third company is in the energy business. Ensco ESV -3.816793893129771% ENSCO PLC U.S.: NYSE USD21.42 -0.85 -3.816793893129771% /Date(1435784669903-0500)/ Volume (Delayed 15m) : 5924526 AFTER HOURS USD21.66 0.239999999999998 1.1204481792717087% Volume (Delayed 15m) : 23821 P/E Ratio N/A Market Cap 5217660685.40543 Dividend Yield 2.8011204481792715% Rev. per Employee 541000 More quote details and news » [ESV] is a global offshore driller with the youngest deepwater fleet in the business. The company is still run from Houston, but is domiciled in London for tax purposes. Management operates in both places. The stock is trading for $60.88, and the company has a $14.1 billion market cap. It pays a dividend of $1.50, and yields 2.4%. Using the latest quarter's revenue run rate of $4.5 billion and about $1.50 in earnings per share, I performed an analysis of incremental growth that took into account day rates, utilization rates, and new rigs coming on line. Ensco has a utilization rate of 91% in deepwater drill ships. Day rates are expected to increase by 10%, and utilization could increase by 2% on the existing fleet. That gives you $307 million in incremental revenue. A new deepwater drill ship coming on in the second half and rented at about a $450,000 day rate over 180 days would result in $82 million of revenue. Assuming an 83% utilization rate in premium jack-up rigs, a 9% jump in day rates, and a 4% utilization increase adds $204 million in revenue.
Continue this exercise across the fleet, subtract expenses, depreciation, and amortization, and you get $473 million in incremental profit before taxes. Taxed at 12.5%, that leads to $414 million in net profit. Divide by 230 million shares, and you get an additional $1.80 a share in earnings, or total earnings of $7.20 next year.
Ensco had negative free cash flow for several years because it was building up its offshore fleet of deepwater drill ships and jack-ups. Cash flow was minus $400 million last year. This year could be the inflection point. Net income will be $1.66 billion. Depreciation is $570 million. The company will spend $1.15 billion on property, plant, and equipment. So, free cash flow will be $1.1 billion. Ensco owns 76 rigs.
Gabelli: Carl Icahn has put his arms around Transocean RIG -3.2878411910669976% Transocean Ltd. U.S.: NYSE USD15.59 -0.53 -3.2878411910669976% /Date(1435784436974-0500)/ Volume (Delayed 15m) : 13877078 AFTER HOURS USD15.59 % Volume (Delayed 15m) : 139881 P/E Ratio N/A Market Cap 5473863603.34216 Dividend Yield 0.9621552277100706% Rev. per Employee 629734 More quote details and news » [RIG]. [Icahn announced recently that he has bought 1.6% of Transocean.] I'm trying to figure out what that means for deepwater-drilling entities. Ensco has sometimes been mentioned as a candidate for a sale.
Black: Transocean had its own issues. Ensco has spent a lot of money in recent years relative to its size, and is the second-largest deepwater driller behind Transocean. Ensco is well balanced geographically, with rigs in the Gulf of Mexico, off the coast of Brazil, in the Mediterranean, off the coast of Africa, and in the Asia/Pacific region. At eight times 2013 earnings estimates, 1.2 times stated book value, and 1.6 times tangible book value, it is a cheap stock. Net-debt-to-equity is 0.40, and the company has an investment-grade, triple-B credit rating. The coverage ratio is outstanding at 18-to-1, Ebitda to interest expense.
My next stock, Medical Properties Trust MPW 1.6018306636155606% Medical Properties Trust Inc. U.S.: NYSE USD13.32 0.21 1.6018306636155606% /Date(1435784535810-0500)/ Volume (Delayed 15m) : 1866840 AFTER HOURS USD13.32 % Volume (Delayed 15m) : 107839 P/E Ratio 32.671081677704194 Market Cap 2738888693.07541 Dividend Yield 6.606606606606607% Rev. per Employee 7453420 More quote details and news » [MPW], is a real-estate investment trust, or REIT. It is for people who want some yield without chasing bad businesses. Medical Properties is based in Birmingham, Ala. It runs 75 facilities, including 32 acute-care hospitals, 26 long-term acute-care facilities, and 17 in-patient rehab hospitals. The stock is a $12.66 stock. There are 134.8 million fully diluted shares, for a market cap of $1.7 billion. Net debt was $989 million at the end of the latest quarter, for a total capitalization of $2.7 billion. The REIT pays an 80-cent dividend and yields 6.3%. We don't really look at FFO [funds from operations]. A million years ago, when I studied real estate in business school and we had guest lecturers such as Sam LeFrak and Mortimer Zuckerman, they always emphasized that you should look at cash on cash returns. I'm dating myself, aren't I?
Scott Black's Picks
|1/11/13 Price
|Medical Properties Trust/MPW
|Titan International/TWI
|Source: Bloomberg
Don't worry about it.
Black: Medical Properties ended last year with annualized total lease and interest income of about $215 million. They get escalators [rent increases] of 2% a year that will add $4 million, and they are going to bring on about $300 million of new properties. Cash on cash returns are about 10%, or $30 million, which will bring gross rent to $249 million. Direct operating expenses are only $2 million, so net operating income is $247 million. The cap rate [capitalization rate, or net operating income over total capitalization] is 7.9%. Pro forma, assuming total capitalization rises to $3 billion, the cap rate is 8.2%. Compare that to some other REITs with cap rates of 4.5% to 5%, and you have a nicely growing business with a higher cap rate and fat yield. The company has strict guidelines on acquisitions, to maintain its 10% return.
Medical Properties has $325 million in available funds. That provides a cushion for its acquisition program. The dividend is well protected. The REIT is paying out about 75% of funds from operations so it has a wide margin of safety.
Good to know.
Black: My last pick is a small manufacturing company, Titan International TWI -4.0968342644320295% Titan International Inc. U.S.: NYSE USD10.3 -0.44 -4.0968342644320295% /Date(1435784738685-0500)/ Volume (Delayed 15m) : 526001 AFTER HOURS USD10.3 % Volume (Delayed 15m) : 1735 P/E Ratio N/A Market Cap 593417189.654618 Dividend Yield 0.1941747572815534% Rev. per Employee 270561 More quote details and news » [TWI]. This is a surrogate play on the agricultural cycle and the off-road construction business. Last year I used Deere DE -0.8861411643482741% Deere & Co. U.S.: NYSE USD96.19 -0.86 -0.8861411643482741% /Date(1435784617415-0500)/ Volume (Delayed 15m) : 3714103 AFTER HOURS USD96.19 % Volume (Delayed 15m) : 19279 P/E Ratio 13.158686730506156 Market Cap 32402181782.1381 Dividend Yield 2.495061856741865% Rev. per Employee 553252 More quote details and news » [DE]. Titan manufactures big wheels for mining vehicles, and for construction and farm vehicles. It makes the wheels, rims, and tires. The stock is trading for $23.48. There are 58.9 million fully diluted shares, and the market cap is $1.38 billion. The company pays a nominal dividend of two cents a share, for a yield of 0.1%.
We expect that Titan's revenue will rise to $2.55 billion this year from $1.89 billion in 2012. In part, the increase reflects acquisitions made last year. They bought Goodyear Latin America, their European affiliate, and a small manufacturing company in Perth that supports the mining industry, to gain a mining foothold in western Australia. We assume $37 million in interest expense and $49 million in DD&A [depletion, depreciation, and amortization], yielding profit before tax of $274 million. Taxed at 40%, that is $164 million in net income, or $2.80 in earnings per share. Pro forma return on equity is 20.7%. Cash flow is $228 million: That's net income plus DD&A plus $15 million of deferred taxes. After accounting for funding sources and expenditures, free cash is a slight $24 million. The stock is cheap at 8.4 times earnings. Operating margins are 12.2%, but Titan's goal is to lift margins above 15%.
Will the company continue to make acquisitions?
Black: Yes. It hopes to reach $4 billion to $4.5 billion in revenue through internal growth and acquisitions by 2015. By segment, agriculture accounts for 61% of revenue; earth-moving and construction equipment is 26%; and consumer products, such as rims and tires for all-terrain vehicles, are a nominal part of the business. Profit margins are 21% in agriculture and 20% in earth-moving and construction equipment. Customers include Deere, Caterpillar CAT -1.0257014854987032% Caterpillar Inc. U.S.: NYSE USD83.95 -0.87 -1.0257014854987032% /Date(1435784429263-0500)/ Volume (Delayed 15m) : 5256108 AFTER HOURS USD84.01 0.0600000000000023 0.0714711137581894% Volume (Delayed 15m) : 40073 P/E Ratio 13.45352564102564 Market Cap 51201082363.3899 Dividend Yield 3.6688505062537224% Rev. per Employee 478364 More quote details and news » [CAT], AGCO AGCO -2.694610778443114% AGCO Corp. U.S.: NYSE USD55.25 -1.53 -2.694610778443114% /Date(1435784663835-0500)/ Volume (Delayed 15m) : 2010172 AFTER HOURS USD55.25 % Volume (Delayed 15m) : 9097 P/E Ratio 15.136986301369863 Market Cap 4999592563.41308 Dividend Yield 0.8687782805429864% Rev. per Employee 437159 More quote details and news » [AGCO], Case New Holland, Kubota [KUB] -- a Who's Who of the industry. Titan has $150 million in undrawn bank lines of credit. It has some opportunities to lower interest costs. It inherited expensive debt when it bought its European affiliate, and will be able to refinance at a lower rate. Return on total capital is 13.5%, and return on equity, 20.7%.
Witmer: Does Titan have competitors?
Black: Yes. Competitors include Bridgestone 5108.to -0.2704164413196322% Bridgestone Corp. ADS U.S.: OTC USD18.44 -0.05 -0.2704164413196322% /Date(1435789199000-0500)/ Volume (Delayed 15m) : 20364 AFTER HOURS USD18.42 -0.02 -0.10845986984815618% Volume (Delayed 15m) : 20364 P/E Ratio 10.6080653512052 Market Cap 30084753406.9457 Dividend Yield N/A Rev. per Employee 231961 More quote details and news » [5108.Japan] in North America, Pirelli pc.mi -0.4678362573099415% Pirelli & C. S.p.A. U.S.: OTC USD17.02 -0.08 -0.4678362573099415% /Date(1435789201000-0500)/ Volume (Delayed 15m) : 261 AFTER HOURS USD17.56 0.54 3.172737955346651% Volume (Delayed 15m) : 536 P/E Ratio 20.80938990096589 Market Cap 8230284323.26321 Dividend Yield 2.347225910693302% Rev. per Employee 206116 More quote details and news » [PC.Italy] in South America, and Trelleborg [TRELB.Sweden] and Michelin ml.fr 0.5235602094240838% Compagnie Generale des Etablissements Michelin ADS U.S.: OTC USD21.12 0.11 0.5235602094240838% /Date(1435789200000-0500)/ Volume (Delayed 15m) : 33950 AFTER HOURS USD22 0.88 4.166666666666667% Volume (Delayed 15m) : 33620 P/E Ratio 14.551467548573791 Market Cap 19507364518.0041 Dividend Yield 2.5804261363636365% Rev. per Employee 242140 More quote details and news » [ML.France] in Europe. But Titan is the only company with global distribution and manufacturing capability, so it can service customers around the world. It manufactures in the U.S., and has plants in Mexico, India, China, and Taiwan. There hasn't been a lot of price-cutting in the industry, and commodity costs -- primarily steel and rubber -- haven't been a problem.
That's it. I couldn't find six great bargains, only five.
Five is enough. Thanks, Scott.
E-mail: email@example.com


text:
Harmon becomes part of Hall of Fame after visit
Shenk relayed the message back to Harmon, who happily forwarded the glove to Cooperstown. "For me, it's just an honor to think about having anything in the Hall of Fame. It's become a really nice thing in my life," the 70-year-old said. "The Hall of …
Riders take part in "Tour De Cure" for diabetes
"I was diagnosed a year and a half ago with type one diabetes and I didn't want anyone to know I was diagnosed until I decided I needed to become more comfortable with my disease. So I got involved with the American Diabetes Association and I joined …
Tour de Cure raises money for those suffering from diabetes
Cassie Welch Pedals for Cure to Diabetes
Tour de Cure Raises Money for Diabetes Research
Jan 2014
Thomas takes part in Q&A on heels of first-ballot Hall of Fame election
New York Mets
"I think he's a Hall of Famer." Asked about his favorite day during his 19-year Major League career, Thomas said: "For me, my coming out as a player was at the All-Star Game in 1995. I think that it was just a big couple days for me." His coming-out …
The Hall of Famers have chosen their team selections
The big, huge Hall of Fame post, part 1
ESPN (blog)
For example, guess how many of the following are Hall of Famers: Ron Santo, Pat Gillick, Jim Rice, Barney Dreyfuss, Billy Southworth, Bruce Sutter, Andy Cooper, Pete Hill, Effa Manley, Ben Taylor, Bill Mazeroski, Tony Perez, Orlando Cepeda, Nellie Fox, …
Hall of Fame History
MLB. com
Cooperstown, NY – Some of the greatest gems in the baseball world will never see the light of day. The hardest part of working for the curators at the National Baseball Hall of Fame and Museum is to decide which priceless artifacts include in the ad …
class = "p"
Western New Yorker Part of Baseball Hall of Fame
Little did Brownell know that her jersey would become priceless. While grocery shopping with her mother she got a phone call from Jeff Idelson, president of The National Baseball Hall of Fame and Museum. "He said 'Hi, this is Jeff Idelson and we want …
Thousands Take Part In Ron Santo Diabetes Walk
CBS Local
CHICAGO (CBS) — Organizers of this year's "Ron Santo Walk to Cure Diabetes†say 7,000 people turned out on Chicago's lakefront Sunday. This was the 35th annual Ron Santo Walk to Cure Diabetes. Santo's son Jeff told the crowd that his father attended …
May 2012
Centre Daily Times
| style =
Dear Readers: In my last article, Part I, I gave you a definition of what diabetes mellitus or sugar in the blood. Some of you have given away or sent abroad your newspaper, then, to your interest on this topic, …
diabetes Mouse
type 1 diabetes …
diabetes run
class = "p"
Skowron, part of Yankees powerhouses, dies
"There weren't many better guys than Moose," said Hall of Famer Yogi Berra, who usually batted near Skowron in the order. "He was a dear friend and a great team man. A darn good ballplayer, too. I'm going to miss him." Skowron's most productive year …
Images: Bill "Moose†Skowron, 1930-2012
Mar 2012
London part of diabetes study
London Free Press
By CHIP MARTIN, The London Free Press London, already a key player in diabetes research, is part of a worldwide a study to see if something old can become something new in treating the disease. Researchers at St. Joseph's Health Care is one of 17 …
Sedentary women more prone to diabetes than men, study says

subset: commoncrawl


text:
- Will there be Long Lines for Microsoft's Surface Hub?
- New Dev Trend: Open Sourcing Languages : Next Up, Swift 2.0
- Mozilla CTO Andreas Gal Leaving for IoT Startup
- Red Hat CEO Applies Open-Source Principles to Management [VIDEO]
Mon, 29 June 2015
Jim Whitehurst, CEO of Red Hat, discusses his book The Open Organization. Read
- Has KDE Lost the Evolutionary Advantage?
Wed, 24 June 2015
Once a center of desktop innovation, KDE Plasma is suffering from over-caution and a lack of direction. Read
- Open organizations don't need to serve Kool-Aid
- Ubuntu MATE Project Donates Money to Geany, Transmission, an...
- Reddit apologises after staff sacking
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- Minecraft fans to gather in London
- Solar Impulse 2 reaches Hawaii, shatters records in historic...
- appraisal: Apple Music Is Strong on Design, Weak on Social N...
- App Smart: One Last Ingredient for a Well-Stocked Bar


text:
Catalyst Atlanta 2015
- Religion & Spirituality
- 6400 Sugarloaf Pkwy, Duluth, GA, 30097
Sunday Assembly Marietta-Secular Humanist Community of West Cobb
Michael Sabani
Sunday, November 10, 2013 from 10:00 AM to 11:30 AM (EST)
If you would like to get involved with the Secular Humanist Community of West Cobb, please "like" our Facebook page and volunteer!
The Sunday Assembly is a godless congregation that meets to hear great talks, sing songs and generally celebrate the wonder of life. It's a service for anyone who wants to live better, help often and wonder more.
The Order of Service
To begin with we are following a format which people are familiar with and it is just going to get better from there as we hone the heck out of it.
Join millions of people on Eventbrite.
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text:
This 1967 Austin Mini Cooper has a 1380 C.C Supercharged 4 Cylinder, 4 Speed Manual Transmission, Rotisserie Restoration, New Tan Leather Interior, Original Suspension... More
Possibly the most iconic car of the sixties, the Mini was the brainchild of a brilliant, Greek-born, British national, named Alec Issogonis. He had... More
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You can now invite anyone to meet at your favorite Starbucks.
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31 year old woman | Cedar Hill, TX, USA | Seeking men 29-35 within 50 miles
Back from Alaska
I have many passions in life my greatest being my son. I love my kid an all consuming fire. My family is my rock. We are big and all very close and I wouldn't have it any other way. My faith is very important to me. God has been there pulling me through when all seemed lost. I want a man who will accept and love my children, not be threatened and embrace my family and will share his love of god with me and help each other grow in our faith.I love music, country is my favorite and while I am not s huge fan of clubs I do enjoy going two steppin every once in a while. I also love to travel even if only on a quick vacation in the us. I lived in Alaska for 3 years and enjoyed every moment. I dream of visiting Ireland, Scotland and maybe even Russian someday...but right now I would settle for Hawaii.I am a easy going girl. Loyal, passionate, faithful both to god and the man I see. I also can be a little air headish lol but I always say at least I will keep life from being boring. I look for a man who loves God, loves children and who knows what the word faithful means. Can make me laugh and cry for the right reasons. Who would NEVER lift a hand in anger and would hurt himself before hurting the one he cares for. A man who will see a movie he hate just because I'd like to see it or go to a corney small town festival just because I asked and who tries everyday to make me smile. A am not looking for casual dating. That is not me and I am past that point in my life. I value marriage and although my last did not work out I fully gave 150%. I do not believe in divorce unless absolutely essential. I want to fund not just a life partner but a soul mate. At 90 I want him holding my hand as we sit in a rocker watching the great grand kids play. Marriage isn't perfect. I want someone who knows that besides being a father it is the hardest thing he will ever do yet also the most rewarding. I am a care taker,a giver. I go above and beyond for the person I care for all I ask is for the person I am with to try and do the same.
Book club , Camping , Coffee and conversation , Cooking , Movies/Videos , Museums and art , Music and concerts , Performing arts , Religion/Spiritual , Travel/Sightseeing
Baseball, Bowling, Dancing, Hockey, Swimming, Walking / Hiking
I exercise 1-2 times per week.
I have Dogs
I like Cats
My second child is Chena a 3yr old yellow lab. I swear he is my sons twin in everyway, attitude included.
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|What she is looking for
|5'5" (165cms)
|3'0" (91cms) to 8'11" (271cms)
|Body type:
|Big and beautiful
|About average, Heavyset, A few extra pounds, Stocky
|No preference
|Dark brown
|No preference
|No Way
|No preference
|Never, Social Drinker
|Other profession
|No preference
|Less Than $25,000
|No preference
|Never Married, Widow / Widower, Divorced
|Have kids:
|Yes, and they live at home (1)
|No preference
|Wants kids:
|Definitely, Someday
|White / Caucasian
|White / Caucasian
|Christian / Protestant
|Christian / Protestant, Christian / Other
|No preference
|Some college
|No preference


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Hundreds of Americans raised the funds to help the Nasrallah family rebuild their home in Gaza. Help create a video series, following the family as their home takes shape and Gaza's fate unfolds.
What is the issue, problem, or challenge?
The Israeli settlers have left Gaza – Palestinian families are trying to pick-up the pieces. Thirty-thousand moms, dads, children, grandparents were made homeless in Gaza these past four years when their homes were demolished to make way for Israeli settlements and security zones. We want to tell their story through the eyes of the Nasrallah family whom the late American, Rachel Corrie, sought to protect when she was killed by the bulldozer that was threatening to destroy their home.
How will this project solve this problem?
A series of short webcast films showing today's Gaza through the eyes of the Nasrallah family as their home takes shape. Cindy Corrie, Rachel mother, provides voice-over. Here's the first one, Quicktime format: http://www.xleggs.com/Tamer01.mov
Potential Long Term Impact
A principled, fair, and compassionate American policy towards Palestine and Israel, acknowledging the ongoing trauma of Israel's Occupation of the West Bank, Gaza, and East Jerusalem and requiring follow-through in accordance with the Road Map.
Funding Information
Total Funding Received to Date: $7,600
Funding Information
This project is now in implementation and no longer available for funding. Received funds will be used to accomplish concrete objectives as indicated in the project's "Activities" section. Updates will be posted under the "Project Report" tab as they become available.
Donors' contributions and pledges to this project totaled $7,600 . The original project funding goal was $4,100.
Additional Documentation
This project has provided additional documentation in a Microsoft Word file (projdoc.doc).


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Art — Geography and Cultures
Art is complete for the Year 3 program of study. You'll find it in the list of individual courses. Here's the course description.
Students will study art as they make observations about work by artists from across the globe. Students will not only look at paintings but architecture, sculptures, costumes, floats and other non-traditional art. Students will draw, paint and create several projects inspired by their studies.
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