James A. Abate is the Chief Investment Officer of Centre Asset Management. Mr. Abate sees some real upside in stocks that have exposure to consumer discretionary spending. In his exclusive interview with the Wall Street Transcript, Mr. Abate details his investing methodology and explains his top picks:
“The majority of our positions at this point are names that are going to be in what we consider to be the capital growth area, with the ability to wisely put money to work by continuing to grow their businesses. Our main concentration at this point is in the technology sector — examples being NVIDIA (NASDAQ:NVDA), Adobe (NASDAQ:ADBE), Activision Blizzard (NASDAQ:ATVI), KLA-Tencor (NASDAQ:KLAC) — and consumer discretionary — examples being Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) — sectors.”
Currently, Centre Asset is off-loading health care stocks: “We have significantly reduced our exposure to other traditional growth areas, namely in the health care and consumer staples sectors, since the summer of 2016 as we have seen the majority of companies not able to continue to meet the very high expectations that investors are paying for them…the broad-based implementation of “zero-based budgeting” having run its course after being a significant positive influence to wealth creation for the past few years.”
Centre Asset is also actively pursuing one contrarian pick:
“For example, we’ve seen Ralph Lauren’s (NYSE:RL) stock price collapse from almost $190 down to the low $70s here, where we have just recently gotten involved in a very contrarian manner. This hopefully low point in the stock price has happened when the company, for the first time since the early part of 2013, has seen a positive inflection in its net profit margin and ability to take down inventories and undertaking a massive restructuring to turn things around and rightsize themselves for a smaller brick-and-mortar retail distribution channel.”
To get more of Mr. Abbate’s top picks, read the entire exclusive interview at the Wall Street Transcript.
Malcolm E. Polley, CFA, is President and Chief Investment Officer at Stewart Capital Advisors, LLC. His mid-cap portfolio has plenty of sound investments but Mr. Polley has some special interest in health care related issues: “…a company like Huron Consulting (NASDAQ:HURN), which uses data to help the education industry and health care industries improve their profitability in an environment where earnings growth is difficult to come by. The ability of a hospital or a school or educational institution to turn to an organization like Huron to help them figure out how they can accomplish more with less or how they can improve their profitability. We really think in this type of environment, organizations like Huron Consulting should be winners, as they really have a value add to provide.”
Consolidation within the sector should prove to be an ongoing theme, however Mr. Polley cautions against getting too ambitious about predicting the outcome from potential partnerships: “…you’ve seen more and more deals get scuttled because of antitrust considerations. For instance, the Walgreens (NASDAQ:WBA)/Rite Aid (NYSE:RAD) deal — the original deal was just scuttled, and now Walgreens is basically going to buy a bunch of Rite Aid stores. ”
For more of this in depth interview with Malcolm E. Polley, read the rest here.
Timothy G. Biltz was appointed President and CEO of Lumos Networks Corp. (NASDAQ:LMOS) in April 2012. His recent sale of the company for $18/share, scheduled to close in the 3rd quarter of 2017, validated his strategy of developing dense fiber network connectivity as the key component to satisfy mobile telephony video driven demand for future 5G Networks.
Mr. Biltz declares: “We can’t really predict the exact timing of when 5G is going to have the impact, but what we do know is that the best way to prepare for 5G is to have dense fiber networks in place. And that’s exactly what we have been doing for the last several years in our markets. In fact, since the company was spun off as a public company in late 2011, we have nearly doubled our fiber footprint to nearly 11,000 miles, serving 26 different enterprise customers.”
The CEO sees big developments for the Norfolk/Hampton Roads Virginia area:
“…as a result of our new 270-mile network in the Hampton Roads market, our fiber is now within one-half mile from the new Virginia Beach undersea cable landing station.
Over the next few years, we expect multiple undersea cables from Europe, South America and Africa to reach the landing station. Two of these include MAREA, which is funded by Telefonica, Microsoft (MSFT) and Facebook (FB), and BRUSA, funded by Telefonica. Both are expected to become operational over the next few quarters, with MAREA likely to come before BRUSA. These cables create opportunities for us to sell bandwidth capacity on our network to international and domestic carriers and social media companies who want connectivity between the Virginia Beach landing site and Ashburn, Virginia, the data center capital of the world…”
To get more strategic insight from the CEO of Lumos Networks, read the entire interview at the Wall Street Transcript.
Amy Yong is an Analyst for Macquarie Group Limited. She has been recognized by Institutional Investor as a Rising Star in the research on cable and satellite stocks for three consecutive years. Ms. Yong is a current bull on the telephone company Sprint:
TWST: What’s your current view of Sprint (NYSE:S)?
Ms. Yong: I’m actually very positive on Sprint (NYSE:S). I feel like a lot of investors don’t give them enough credit for having a massive spectrum position. And then also, obviously, to the extent they have $20 billion of NOLs, that could be very meaningful in a potential merger with T-Mobile (NASDAQ:TMUS).
The future of the sector will be defined by M&A, according to Amy Yong. The Sprint-T-Mobile merger, which was blocked by the previous DC administration, may now be on the table again.
TWST: Do you expect to see a favorable environment for these companies going forward? What’s your overall outlook?
Ms. Yong: I think a large part of this is going to hinge on whether or not a four-player market becomes a three-player market. And what that means is, is there going to be a T-Mobile–Sprint merger? And if there is a T-Mobile–Sprint merger, then certainly you can argue that pricing will not come under as much pressure, or there’s going to be a lot more discipline in the industry in terms of irrational promotions. So we’ve seen many years of pricing pressure, which has been very good to the consumer. But it’s also forcing companies to think about how they’re going to allocate capital and how to differentiate their products. For example, I think content is becoming a lot more important for these companies as you think about differentiation.
For more insight on these stocks, as well as many others, be sure to read the entire interview at the Wall Street Transcript.
Andrew DeGasperi is Macquarie Group Limited’s satellite stock expert. He sees some interesting developments on the horizon: “…on the satellite side, I would say this is not a sector that traditionally was seen as ripe for consolidation. Part of the reason for this is that some of these assets either have a significant degree of government ownership and were viewed as mature businesses particularly on the video side, or they’re big enough to attract antitrust scrutiny. But then, SoftBank (TYO:9984) just a few weeks ago attempted to acquire Intelsat (NYSE:I).”
The support for these services comes from the US Government: “…the U.S. Department of Defense is actually their largest consumer of bandwidth globally. As you can imagine, most of it is driven by the increasing use of drones for ISR purposes — intelligence, surveillance and reconnaissance — at a global level. And those drones use a lot of commercial satellite bandwidth because they’re streaming a lot of video or providing troop Wi-Fi.”
This revenue dominance by the military may be coming to an end as satellite supported data networks begin to compete with speedy terrestrial services: “…satellites are able to handle a lot more data than in the past, and there are expectations that some of these satellites could potentially bring 10 times the data capacity of what was launched as recently as a four to five years ago. So there’s a lot of excitement behind that because it would potentially enable some operators to deliver broadband at attractive speeds.”
“For example, Jeff Bezos from Amazon recently made a big keynote speech at the satellite conference earlier this year, and it sort of indicates that people are starting to view space companies more favorably, and that could potentially attract even more M&A interest in the future from Silicon Valley.”
For more insight from Andrew DeGasperi of Macquarie Securities read the entire interview at the Wall Street Transcript.
Robert Gutman is a Director and the Equity Research Analyst covering the communications infrastructure and telecom services sectors at Guggenheim Securities. His latest call may salvage the current Retail REIT investor portfolio: “…we would point out that data centers are currently trading on multiples in line with the average of the broader REIT universe despite the fact that they have a meaningfully higher AFFO growth rate. On average, we estimate 10.7% year-over-year growth in 2017 and 13.1% in 2018 versus half that, or 5.3% and 6.6%, in 2017 and 2018 for the broader REIT average. They also have a roughly 50% higher total-return profile, which could support the argument for a premium multiple on a relative basis.”
In his exclusive interview with the Wall Street Transcript, Mr. Gutman reviews his top picks in a portfolio that includes CoreSite (NYSE:COR), CyrusOne (NASDAQ:CONE), DuPont Fabros (NYSE:DFT), Digital Realty (NYSE:DLR), Equinix (NASDAQ:EQIX), InterXion (NYSE:INXN) and QTS (NYSE:QTS).
His in depth analysis of these stocks and more reveal the key investment thesis that growth in cash flows will drive prices higher for these shares, especially relative to their retail REIT cousins. Inevitably, the fastest growers will see their investors rewarded well.
For additional detail as well as numerous other picks, read the entire interview now available at the Wall Street Transcript.
This week’s sector report covers wireless communications and telecom, and details how the adoption of 5G Networks and IoT, as well as consolidation, will transform the industry. More importantly, our series of interviews with public company CEOs and top-ranked equity analysts pick the stocks that are ripe for investment.
Matthew Robison is a Managing Director of Wunderlich Securities, following the devices and networking equipment and services technology sectors. Mr. Robison has been named among the best-performing stock pickers in the communications equipment industry by Forbes, Financial Times, The Wall Street Journal — and most recently by StarMine.
“5G spectrum has much greater scope than any other generation of mobile technology, ranging from RF to microwave to millimeter wave, which is especially new in the context of linking mass-market devices or access points…it involves a lot of new challenges, especially the millimeter wave spectrum, which is a higher-frequency spectrum and doesn’t have the same sort of coverage characteristics as what has been used for device access up to now…We don’t tend to think of things as just wireless so much anymore. 5G is an overarching new protocol that is going to create an upgrade cycle.”
Robert Gutman is Director and Equity Research Analyst covering the communications infrastructure and telecom services sectors at Guggenheim Securities. Mr. Gutman sees consolidation as the way to play the telecom sector:
“…probably the greatest issue today is how the current administration views carrier consolidation. So there’s been a lot of commentary from Sprint (NYSE:S) and T-Mobile (NASDAQ:TMUS) executive management about a potential combination of the two carriers. This idea was scuttled by regulators in 2014, but many believe the current administration could be more favorable.”
This leads Mr. Gutman to downgrade a key component of the current wireless industry.
“If so, we believe the merger could be negative for towers. The combined tower footprint of over 110,000 macro sites would be in excess of what is needed to provide nationwide coverage, which we estimate to be near 70,000 sites.”
Amy Yong of Macquarie Group also sees these two mobile carriers as ripe for another try for a merger:
“I’m actually very positive on Sprint. I feel like a lot of investors don’t give them enough credit for having a massive spectrum position. And then also, obviously, to the extent they have $20 billion of NOLs, that could be very meaningful in a potential merger with T-Mobile.”
Clearly, this industry will be transforming itself yet again, and this issue of the Wall Street Transcript devotes itself to predicting how investors can participate.
Top ranked financial advisor Robert A. Kincade, President and Owner of Stonebridge Capital Advisors, picks Apple (NASDAQ:AAPL). as a dividend play:
“They used to be referred to as only a growth company and now a large-cap growth company, obviously, jumbo cap. But with the cash that they’re accumulating, we see them as a good dividend play from the standpoint of them increasing their dividend. The yield on that dividend right now is around 1%, but with the cash they have, our belief is that they will continue to increase that dividend. So if you consider this a long-term hold, you will see your yield on cost increase significantly over the years.”
In his exclusive interview with the Wall Street Transcript, Mr. Kincade sees multiple opportunities in today’s markets, most notably with dividend growth stocks: “Oftentimes, a well-constructed portfolio with good-quality common stocks or preferred stocks can provide a much higher income yield than what they might get in traditional fixed income. It doesn’t mean they shouldn’t have some bonds in their portfolio, but where they can pick up additional yield with an opportunity for moderate growth, it can make a lot of sense for the client. And so we design a fair amount of dividend-income equity portfolios that will give them a good dividend yield…”
Another favorite in the portfolio is “large midcap is Hexcel (NYSE:HXL). It is a materials company and, interestingly enough, developed back in the late 1960s, early 1970s with a very, very light ski through a composite that they developed that was stronger than metal, stronger than wood, yet very lightweight. And so they developed a ski for years, and it was a pretty popular ski.
I think eventually they developed this composite so that it is very, very lightweight; very, very strong; and being utilized in a good number of the planes that we see flying today, particularly the jets. Boeing (NYSE:BA) is one of their larger clients, but they’re expanding the use of that composite in construction and other areas. Their technology has continued to improve and finds newer places where it can be utilized.”
In an exclusive interview with the Wall Street Transcript, Eric Teal, Chief Investment Officer and Managing Partner of Queens Oak Advisors, picks Zions (NASDAQ:ZION) and PNC Bank (NYSE:PNC) as key holdings for his portfolio. The experienced asset manager declares “for value investors, the largest area of the market is the financial sector. Financials are as important for value investors as technology is for growth investors.”
However, if the Republican control over Congress falters these stocks may be in jeopardy:
“The financial sector tends to be most correlated right now with the administration’s success or failure — in particular, the repeal related to Dodd-Frank regulations and the regulations that are related to changes in the bank stress tests. Banks have been the largest gainers since the election, and we think they will also benefit, like the energy sector, from tax reform.”
The Chief Investment Officer of Queens Oak Advisors sees many more opportunities in the current market for financial stocks: “Even after a period of high bank failures and modest consolidation, I believe that there are still too many financial institutions and largely too many banks. Consolidation may reaccelerate as many of the larger banks have bought back shares and raised dividends, and now they will use capital to make acquisitions.”
To see his other picks, be sure to read the entire interview at the Wall Street Transcript.
Brian T. Kute, Principal and the Manager of Research from Johnson Investment Counsel picked the Ashland spin off Valvoline (NYSE:VVV) in this exclusive interview with the Wall Street Transcript. Mr. Kute uses a an innovative investment style in the small to mid-cap sector: “We find a lot of consistent, quality operators in cyclical industries. One of the things we like about smid cap is that there are plenty of smaller yet still undiscovered companies that fly under the radar and successfully are able to grow their businesses even if the macro environment is challenging. We seek out those types of companies.”
One such example is Valvoline (NYSE:VVV):
TWST: And what’s another stock that you like?
Mr. Kute: Yes, another one would be Valvoline (NYSE:VVV), which we’ve recently purchased. You’re probably familiar with the motor oils that they sell, but they are also having success with Valvoline Instant Oil Change, a drive-thru oil change that’s been a significant contributor to their revenues. It’s a company that was founded over a century ago, but they were spun off from Ashland last year, and now they’re an independent, publicly traded company. And it’s a company that certainly has a strong consumer brand.
They’ve been successful in increasing the mix and the complexity of the oil that they sell toward more of a premium product. As a result, their margins have increased, and they’re really seeing good growth in their Valvoline Instant Oil Change business. International is another growth opportunity for them as well.”
The experienced portfolio manager also describes how investors can participate in his stock picking: “the…SMID Cap Core approach is an institutional separate-account strategy and also available through a mutual fund called the Johnson Opportunity Fund (MUTF:JOPPX). The fund has been using this strategy and process since 2013.”