67 WALL STREET, New York - November 25, 2013 - The Wall Street Transcript has just published its current Investing Strategies Report. This special feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Large-Cap, Deep-Value - Bottom-Up Stock Selection - Repurchase Activity - Value Oriented Strategy - Investment Risk Management Strategies - High-Quality Blue-Chip Companies - Free Cash Flow Yield - Alternative Investing, Ultimate Returns
Companies include: Delta Air Lines Inc. (DAL), General Motors Corporation (GM), EMC Corporation (EMC), Seagate Technology (STX), Cisco Systems, Inc. (CSCO), Enbridge Energy Management LLC (EEQ), The Home Depot, Inc. (HD), Lowe's Companies Inc. (LOW) and many others.
In the following excerpt from the Investing Strategies Report, an experienced money manager discusses his stock selection methodology and top picks for investors:
TWST: Let's discuss that approach.
Mr. Goldblum: OK, so our investment process focuses on finding the right sectors and cheap companies within those sectors. We're currently focused on capital-investing-oriented sectors such as industrials, technology and energy infrastructure. We think that a lot of the stock market rally earlier in the year was money switching over from bonds into stocks generically and into defensive sectors in particular, whether that was consumer state bills or utilities.
We thought with the economy being stable to positive, that the real investment opportunity was in the capital spending areas - so industrials in the first place, we've expressed that through names like Delta (DAL) and General Motors (GM). In technology, although we've done a lot of investing in software in the past, we pivoted more toward the capital spending in the hardware area, so names like EMC (EMC) and Seagate (STX) and Cisco Systems (CSCO). And then on energy infrastructure side, we've invested in pipelines and other MLP-related investments such as Crestwood Equity Partners (CEQP), SunCoke Energy (SXC) and Enbridge Energy Management (EEQ).
TWST: Can you elaborate a little bit more? Once you've identified the sectors that you like, what makes you choose a stock, what qualities are you looking for?
Mr. Goldblum: OK, so our investment approach has always been, since we manage money for high net worth individuals, we're looking for low downside and high upside opportunity. We get there by focusing on cash flow, OK? What sort of cash does the company produce every year beyond its operational needs, and then what sort of return does it get on the cash it produces and reinvests in the business?
So as an example, with HCA Hospitals (HCA), a long-time investment for us, they traded at 11% free cash flow yield when we first invested. And we loved the trends in the hospital space, and more importantly, they always put their money to high-return uses, whether it was buying back their stock at this high cash flow yield or investing in building up their hospital base in areas where they are already strong, which is a high-return investment for them as well - so we focus on free cash flow yields first and foremost.
TWST: On the flip side, are there any sectors, geographic regions or types of stocks you are avoiding right now, and why?
Mr. Goldblum: Our strategy also allows us, not requires us, to short stocks. To that end, we look to find the stocks that we would like to short using the same process we use to find stocks in the long side, so we're looking for the stocks with really horrible free cash flow, poor growth prospects alongside high valuations and high expectations. These days, it's easy to find everything except for the high expectations on the areas we've looked at.
One of the sectors we don't like is home improvement retail...
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
- Cisco Systems