Natural Gas Arena Attractive For President Of Saleeby And Associates; Long-term Approach Necessary To Offset Challanges Faced From Horizontal Drilling And Fracturing Tequniques
January 27, 2011 - The Wall Street Transcript has just published Investing in China and Other Investing Strategies Report offering a timely review of the General Investing sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Raymond F. Saleeby is the Owner and President of Saleeby & Associates, Inc. In 1982, Mr. Saleeby attended St. Louis University to pursue an MBA. Three-quarters of the way through the program, he was offered a chance to become a Broker for R. Rowland Company. He worked at R. Rowland for almost five years. As Mr. Saleeby's experience and reputation grew, he sought to provide his services in a smaller, more progressive environment. In 1987 he started working for a small brokerage firm named Forsyth Securities. In 1988 two of the three partners decided to sell the firm, and Mr. Saleeby consequently purchased Forsyth Securities with another partner. Over the years, Forsyth Securities grew and expanded to more than 35 employees. As Mr. Saleeby's visionary and philosophical directions for the business grew and changed, he parted with Forsyth Securities and formed Saleeby & Associates in April 2001.
TWST: What's your value-oriented and contrarian approach leading you to buy today? What are some of your top investment picks?
Mr. Saleeby: I like the natural gas area. It's certainly out of favor right now. Every other commodity has skyrocketed in the last year, year-and-a-half, two years. They are out of favor, and right now, many of the companies in the business can't even make money operating in the business, and that's because of technology, ironically, because of horizontal drilling and fracturing. And that has changed the landscape of natural gas. I think that area will change. Exxon Mobil (XOM) bought one of the biggest companies in that business just about a year ago, and in buying them, they're signaling the long-term outlook for it is very attractive. I think so as well.
A couple of companies that I like there are Comstock Resources (CRK). It's good management, they're smart management, fairly conservative balance sheet, and I think they'll do real well over time. Another company is QEP, which is QEP Resources (QEP), which was a spin-off from Questar (STR) - good management and a lot of different hot areas for exploration in natural gas. They also have some other assets as well, but they wanted to separate themselves from the utility, because there's two different analysts that will look at the company differently, a utility analyst and an exploration analyst. And sometimes it's difficult for one analyst to know what the other analyst's job is and so on and understanding that industry, so they decided to spin it off. I think that was an attractive thing.
Another area I like are material stocks; they are out of favor, you've seen them getting killed, this last week especially, like Martin Marietta Materials (MLM) and also Vulcan Materials (VMC). And I like a foreign stock called Heidelberg (HEI), for some people who want to play the emerging markets through Germany and are willing to take the risk of buying a European company right now. I think that what's attractive about it is I like the aggregate business, and one of the reasons I like that business is the fact that the barriers to entry are enormous. Nobody wants a quarry next to them, they create a lot of dust with trucks going in and out all the time. And yet everybody needs one in their area, because you need it for construction in primarily three areas: infrastructure, commercial construction and residential construction.
So in that kind of environment, there's just not a lot of new permits being given, and as I mentioned, usually a lot of those things work in the favor of the material stock or the quarry company or the aggregate company or whatever you want to term it. They also generally have a 30-mile radius that they do business in, because once you carry aggregates beyond that time frame in that area, all of a sudden you'll have a situation where the cost will eat you alive. So you don't compete against a guy or an operator in California or Texas. I like that part, and eventually they become good real estate assets. There's been a lot of consolidation in the business over the years. The stocks are down 50%, 60%, 70% from their highs, in many cases. And I think that we're going to need that longer term. That's one of the things we've deprived ourselves of in the last 10 years - infrastructure - and I think aggregates and concrete and cement will play a vital role in that.
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