Finding Deep Value by Identifying Structural Industry Changes: a Wall Street Transcript Interview with Jim Brilliant, Principal, Co-Chief Investment Officer and Portfolio Manager at Century Management
67 WALL STREET, New York - June 11, 2013 - The Wall Street Transcript has just published its Deep Value Investing 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 public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Bottom-Up Stock Selection - Cyclical Sectors - Exposure to Emerging Markets - Large-Cap, Deep-Value - Value Oriented Strategy - High-Quality Companies - Value Investing - Deep Value
Companies include: Walter Investment Management C (WAC), National Semiconductor Corpora (NSM), Ocwen Financial Corp. (OCN), ABM Industries Inc. (ABM), Molex Inc. (MOLX) and many others.
In the following excerpt from the Deep Value Investing Report, an experienced portfolio manager discusses his deep value investment methodology and current top picks:
TWST: I understand you are bottom-up, but at the same time you do look at trends in sectors. Do you look at macro trends as well?
Mr. Brilliant: I would say we certainly look at and are aware of macro trends as they pertain to the structural shifts that could impact industries or companies that we're involved in. However, certainly we are bottom-up, value-driven. So we could identify a theme where we think there is a significant structural change, but if it's priced way too high, then it's too high regardless of what else is going on. If it is not a value, we can't buy it even though we see tremendous growth in that area. We will continue to watch it and understand it and put buy points on it. If the stock gets down to our levels, then we can buy it.
There are two parts to this. One is understanding the environment, because the first question, is the stock cheap, and then, which way is it going. We make five-year forecast to try to get an understanding of where the company is headed. To understand where the company is heading, we have to understand the drivers of the business. To understand the dynamics of the business, you have to understand what drives the business, so one thing leads to another. They are related.
TWST: Currently about 20% of the portfolio is in technology. Is there a trend in that sector that you like right now?
Mr. Brilliant: Yes. One is the fact that technology has been very cheap for quite a long time, so part of it is just an absolute valuation standpoint. Things in technology are quite cheap and, in many cases, we think that this is more cyclical than structural. Within that, there are some minor themes like capital spending for semiconductor manufacturing. We have a fair amount of semiconductor equipment companies where spending in the semiconductor world continues to get more and more difficult and more and more expensive.
We certainly go through cycles within the industry, but there is no replacing the need to have to spend capital in order to continue to drive technological advances that we see occurring day to day. So while there is some cyclical up and down within the capital spending area in tech, there is a definite upward trend and a need to do it.
TWST: In Q1, you bought both Walter Investment Corp. and Ocwen Financial. What attracted you to those two?
Mr. Brilliant: I guess this would be more of a structural change. They are mortgage servicing companies, not originators nor lenders. If you have a mortgage, then they are the ones that process those mortgage payments. This has been predominately done by the major banks historically...
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.
