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Experienced Asset Manager Reveals Key Exit Trigger For Portfolio Holdings
67 WALL STREET, New York - November 24, 2009 - The Wall Street Transcript has just published its TWST Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This 55 page feature contains expert industry commentary through in-depth interviews with top tier Money Managers. The full issue is available via The Wall Street Transcript Online.
Topics covered: Investor Demand for Transparency - High-Liquidity Environment - Undervalued High Quality Companies - Inexpensive Valuation - Areas with Risks - Stretched Balance Sheets - High Returns on Capital - Volume Growth - Multi-Cap Approach - Extreme Value Discipline - Macro Outlook - Value and Momentum - Lower Volatility Growth
Companies include: Belo Corp (BLC); 3M (MMM); A.H. Belo (AHC); Affiliated Computer Services (ACS); American Safety (ASI); Ameriprise (AMP); Apache (APA); Apple (AAPL); Atwood Oceanics (ATW); Bank of America (BAC); Boeing (BA); Brown & Brown (BRO); Bunge (BG); CME Group (CME); Capstead Mortgage (CMO); Chevron (CVX); ChinaCast Education (CAST); Citi Trends (CTRN); Coca-Cola (KO); Cognizant Technology Solutions (CTSH); Conseco (CNO); Consolidated Edison (ED); Costco (COST); Cypress Semiconductor (CY); Danaher (DHR); Duke Energy (DUK); FARO Technologies (FARO); GIII Apparel (GIII); Gannett (GCI); Gilead Sciences (GILD); Goldman Sachs (GS); Goodrich (GR); Google (GOOG); Halliburton (HAL); Harley-Davidson (HOG); IBM (IBM); IDEX Corporation (IEX); IMS Health (RX); JPMorgan (JPM); Johnson & Johnson (JNJ); Kimberly-Clark (KMB); Kinross (KGC); Legg Mason (LM); NIC Inc. (EGOV); Nestle and Alcon (ACL); New York Times (NYT); Newmont Mining (NEM); Owens-Illinois (OI); Penson Worldwide (PNSN); Precision Castparts (PCP); Procter & Gamble, (PG); Rambus (RMBS); Research In Motion (RIMM); Roper Industries (ROP); Schlumberger (SLB); Smucker (SJM); Stein Mart (SMRT); Steven Madden (SHOO); Talisman (TLM); Thermo Fisher Scientific (TMO); Transocean (RIG); UnitedHealth (UNH); Universal Health Services (UHS); Wal-Mart (WMT); Washington Post (WPO); WellPoint (WLP); Xcel Energy (XEL); Xerox (XRX); Yamana Gold (AUY).
In the following brief excerpt from the 55 page Investing Strategies Report, an experienced Portfolio Manager discusses his outlook for the market for investors.
Alexander J. Roepers is the President and Portfolio Manager of Atlantic Investment Management, Inc. ("AIM"), which he founded in 1988. AIM is a $1.5 billion global Registered Investment Advisor, with offices in New York and Tokyo. From 1984 through 1988, Mr. Roepers was director of corporate development at the Thyssen-Bornemisza Group in New York. In 1983, Mr. Roepers worked on acquisitions at Dover Corporation in New York. From 1980 through 1982, he worked in operations at Dover's Universal Instruments in upstate New York.
TWST: With so few securities in your portfolio, what triggers an exit? How long do these five or six companies remain in the portfolio?
Mr. Roepers: Typically, it's one to three years. But as you can imagine with the volatility we have just had, there has been somewhat more turnover. We had, for instance, a company called Joy Global (JOYG). It's the largest coal mining machinery-maker in the world, and also one of the largest makers of above ground mining equipment that's used in copper/gold mining and the oil sands in Canada. Joy Global has been a core holding of ours several times in the last four years, and we got in post the 2008 crash at a very attractive valuation and in fact became a 13D holder, owning close to 6% of the company by early March of this year.
At an average of $20 a share, Joy Global was an attractive and highly compelling investment to us. The stock rallied quickly above $30. We started scaling out because as a percent of capital, it became disproportionate. Then the stock actually ran through 12 times forward EBIT. We obviously have detailed models and based our target price on estimates from calendar 2010. Clearly, this is a long-cycle company that has very good earnings this year based on fulfillment of an order book that was established in 2007-2008.
Now the new orders are falling down quite dramatically, and therefore their 2010 and 2011 sales and earnings will come down. This is no surprise to the company nor to the market, but yet a whole host of investors are willing to bid this company up further and further. We sold Joy in the low to mid-30s; the stock is now above $50 to my chagrin, but it's not our business to invest our clients' capital in overvalued stocks. The share price of a company like this is now largely dependent on quarterly order bookings and on the hope that these order bookings are going to come careening in the next two or three years to get earnings back up in 2012. That's a different game. We will wait until this company trades again at eight times predictable, reliable EBIT based on next year's estimates. We are very strict on that.
Thermo Fisher Scientific (TMO) is another company we bought post crash. A very attractive company selling consumable medical and laboratory type products. TMO shares fell hard in the 2008 crash, in part due to well-placed fear that their equipment business, which is about 30% of sales, would decline. We picked up TMO shares in the low 30s late 2008. By August this year, TMO stock reached the high 40s, trading near our valuation target, so we scaled out of it. From our perspective, it is clear when we should start scaling out. It is rare that we scale out before we reach our valuation target. Sometimes, however, we do so because we have made specific judgments that a company is going to have tough news flow.
For instance, we were recently invested in Precision Castparts (PCP) and Goodrich (GR), both Tier 1 suppliers to the aircraft manufacturers. In early June 2009, we felt that there might be further Boeing 787 delays, which would put the entire category into a negative sentiment. So we preferred to be out of these companies for a while to get past this news flow and then potentially scale back in later.
ALEXANDER J. ROEPERS
Atlantic Investment Management, Inc.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 55 page special issue is available via The Wall Street Transcript Online .
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
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