Boeing Stock (BA) Trading At 13X 2011 Earnings; Industry Analysts View The Price Point As An Excellent Deal
June 17, 2010 - The Wall Street Transcript has just published TWST 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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Alpana Sen is Fund Manager of the Spirit of America Value Fund and primarily responsible for the day-to-day management of the Fund. She joined David Lerner Associates on Sept. 29, 2008. Prior to joining David Lerner Associates, Ms. Sen worked at Morgan Stanley Investment Management for approximately 11 years. Her last title held was Vice President in the Quantitative Strategies Group, where she was responsible for fundamental analyses on equity securities. Ms. Sen received her MBA in finance from Pace University in 1997. In addition, she passed the CFA Level I exam and owns the Series 7 license.
William Mason is the Executive Vice President of Spirit of America and is responsible for the management of the SOA team. In addition, he has primary responsibility for the day-to-day management of the High Yield Fund. He is also a member of the Municipal Bond Club of New York. Mr. Mason has obtained his General Securities Principal (Series 24), Municipal Securities Principal (Series 53), General Securities Representative (Series 7) and Uniform Securities Agent State Law Examination (Series 63) licenses.
Raymond A. Mathis is Fund Manager of the Spirit of America Real Estate Fund. Mr. Mathis is also Portfolio Adviser of the Spirit of America Value Fund. He joined David Lerner Associates on Nov. 5, 2007. Prior to joining the Adviser, Mr. Mathis was a Securities Analyst with Standard & Poor's from 2001 through 2007, covering the consumer cyclical and consumer staples sectors, in addition to real estate investment trusts. He received his MBA from the University of New Orleans in 1998.
TWST: What is the value philosophy? How do you define value?
Ms. Sen: We define value using several factors. We compare price-to-earnings ratios, price-to-growth ratios, price-to-book, price-to-sales, free cash flow and return on equity to their respective historic five-year average. We also evaluate them relative to their peers and to the benchmark index, S And P 500. If we see a company with strong fundamentals yet trading below its historical averages, that would be a perfect stock for our portfolio.
TWST: Do you look for sector weightings? Would you tell us about some of the exposures you have in the portfolio?
Ms. Sen: Currently, our largest overweight sector is industrials. We are optimistic about that sector, as firms continue to reinvest in capital equipment and rebuild inventories. We believe companies such as Caterpillar (CAT), Boeing (BA), CSX (CSX) and GE (GE) would benefit.
TWST: Have you made any changes to the portfolio's weightings over the last 12 months?
Mr. Mason: The portfolio's cash position was approximately 18% in September 2008. When the market made a bottom in March 2009, our cash position dramatically declined to about 3%. We started utilizing the cash to buy names that we liked. We did an efficient job of navigating through that difficult time and being close to calling the bottom of the market.
Ms. Sen: We don't take huge bets on any one sector. We are well diversified and have exposure to all 10 sectors of the S And P 500 index. We don't leverage the portfolio and don't use option strategies except for covered call writing when we see appropriate.
TWST: Would you elaborate on how you positioned the portfolio to prepare for the current environment and the recovering economy?
Ms. Sen: We overweighted the industrial, the materials and technology sectors, and recently the financial sector coming into 2010, as we believed they would also do well in the current environment. We also bought some of the discretionary names when they were weak and people felt that the consumer, who would be weakened, would not buy, wouldn't be spending too much money on discretionary items. We also lowered our weighting in staples and utilities, which did very well for us.
TWST: What are some of the stocks in the portfolio that you feel are representative of your investment approach?
Ms. Sen: We started buying Boeing back in January of 2009 at the price around $45. We believed the commercial aviation sector would recover and the business traveler would come back. Boeing is changing the face of commercial aerospace with the 787-Dreamliner. At their recent investor meeting, they gave a 20-year outlook, expecting 29,000 new airplanes valued at $3.2 trillion. That stock is trading at approximately 13 times 2011 earnings, which we believe is cheap. We are also overweighted in the technology sector and believe this sector will recover when the economy recovers.
Furthermore, we believed as companies were laying off employees, they would replace their older machines with newer ones to be efficient and keep their competitive advantage. We believed Cisco (CSCO), who is a leader in networking, would benefit from this trend. It is one of our top holdings. Recently they delivered a strong earnings quarter. During their recent earnings release, management said their customers who were delaying upgrades are coming back. Revenues came in strong across all product segments and all geographies. They also have a strong balance sheet. Not only are companies reporting strong earnings, they are providing long-term visibility.
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