Mr. Mazari: I essentially cover mid-cap industrial stocks for Credit Suisse, which includes a variety of companies. It includes the industrial distribution companies, such as Grainger, Fastenal, MSC Industrial. These companies are providing maintenance, and operating and repair supplies - think of nuts, bolts, power tools - and they are essentially just distribution companies supplying to the original equipment manufacturers. I also cover the industrial filtration and pump companies - companies like Flowserve, that are supplying specialized, highly engineered industrial pumps that go into various infrastructure projects, whether it be power generation, nuclear plants, coal plants, natural gas, any kind of new refineries, chemical plants. I also cover some filtration companies, which are essentially clean liquids and clean air, that again will impact a variety of different end markets, from food and beverage to any kind of general industrial. The last set of companies I cover is waste management companies, like our waste management - so companies going out and collecting trash, municipal solid waste, stuff that you and I generate. But part of that collection is also collection and demolition stuff that's obviously levered to construction and building, and they're disposing of that within their landfills. Again, I cover a variety of different companies that we would bucket under mid-cap industrials.
TWST: What is the current status of the sector?
Mr. Mazari: You've seen some of the leading economic indicators, like industrial production, ISM, show pretty strong growth over the last a couple of months, and that growth has since slowed a bit. Industrial distribution companies somewhat lead coming out of the recession. You've seen their sales go up anywhere from 12% to almost 15% in some cases for this year, and a lot of that is some of the OEM manufacturers will want to keep inventory on hand - whether it be nuts, bolts, parts, any of that stuff - ahead of sort of a production ramp-up. Most companies now are looking at demand coming back - destocking is gone, but there is still not restocking, as customers remain cautious. Obviously, a lot of the more international companies are still concerned about the possibility of a double-dip recession coming out of any kind of fiscal issues that we see unwind in Europe. So far, however, most companies are not seeing a pullback in demand yet. It's still a little too early to tell.
When I look at some of the other companies, like the industrial pump and circulation companies, again they've seen some restocking as well as some organic demand. And most of that is coming from general industrial markets that have picked up. Evidence of that has been the leading macro indicators starting to peak out right now. When you look at some of the later-cycle waste companies, their earnings have still not recovered yet because their volumes will generally pick up six to nine months after an economic recovery has taken hold. For waste volumes, thinking of anything that goes into a landfill - from construction and demolition to municipal solid waste, to any kind of contaminated soil, which is a derivative of steel production, automotive production. Overall, I would say from a macro perspective, we've seen sales numbers come back for most companies, partially due to restocking, partially due to organic demand driven by general manufacturing. And so far, any kind of fiscal issues in Europe haven't affected these names, even into Q2.
Tickers included in this excerpt: CAT, FAST, FLS, GE, GWW, IP, MSM, RSG, WY
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