Balance Sheet, Cyclicality, Earnings: An Expert Portfolio Manager
67 WALL STREET, New York - April 19, 2013 - The Wall Street Transcript has just published its Investing in Energy, MLPs and Other Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Value Investing, Long-Term Investing, High Quality Companies, Investment Strategies, Large Cap Investing, Investing in Energy, Oil and Gas
Companies include: U.S. Publicly Traded Companies.
In the following excerpt from the Investing in Energy, MLPs and Other Strategies Report, an expert portfolio manager discusses this investment strategy and his portfolio-construction strategy:
TWST: What sectors or areas are favored by the current trends? Are there certain areas that stand out?
Mr. Manning: There are some areas that we've been paying more attention to lately, given what we believe to be better valuations, better opportunities over more of an intermediate-term time horizon. There has been a lot of focus obviously on consumer-oriented companies, but we see signs that given the current economic environment, maybe the consumer area is getting a little bit ahead of itself; obviously higher tax rates, very slowly rising income levels, high unemployment.
We don't view the sector as being an incredibly attractive area at this point in time. We actually tend to favor areas that are a bit more beaten down or out of favor, like the technology sector. Financials have naturally started to move in a certain degree, and then we find them to continue to be attractive.
TWST: You mentioned you like the high-quality companies. What makes something a high-quality company?
Mr. Manning: There are a couple of things that actually deem a high-quality company. One is having a very stable solid balance sheet. You could argue that many of the technology companies today have fortress-like balance sheets with enormous levels of cash. That's one way in which a company can be viewed as a high-quality organization. Another can be a genuine lack of cyclicality or or less cyclicality than other segments of the marketplace.
Typically that would include consumer staples and many health care concerns, where there is more of a lack of cyclicality, which has lent them to be higher quality in nature from the perspective of their earning streams being more stable over the course of time, vis-a-vis industrials or basic materials companies, where they're highly dependent upon the economic environment, and the earnings tend to gain significant momentum in strong economic environments and then potentially fall off a cliff in difficult environments. So stability of earnings is another way that we would...
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