John Buckingham discusses how AFAM went from investment newsletter to money management firm. He says the firm is bottom-up and uses a three-stage process. The first stage looks at investable companies and ranks them across valuation metrics; the second is qualitative review; then Mr. Buckingham has to be satisfied that the business will be viable over the long haul.

Full interview available here.

Todd Griesbach discusses RMB Capital and the Core Equity strategy. The Core Equity portfolio holds 20 to 25 stocks. Mr. Griesbach invests in high-quality companies with distinct competitive advantages. He looks for secular growers who are growing faster than their peers. Mr. Griesbach aims to hold a company for three to five years. While the portfolio is an all-cap strategy, Mr. Griesbach generally doesn’t invest in market caps under $500 million. He tends to gravitate toward midcaps and large caps.

Full interview available here.

Harry Burn III and Mayo T. Smith discuss Sound Shore Management, Inc. From a universe of the 1,000 largest U.S. companies, Mr. Burn and Mr. Smith use relative p/e to find cheap companies that are out of favor. They want to invest in better-quality companies with stronger growth prospects and healthier balance sheets. Through their fundamental work, Mr. Burn and Mr. Smith aim to identify companies that have lost investor support but still have the ability to exceed expectations. Mr. Burn and Mr. Smith run a concentrated portfolio of 35 to 45 names that are weighted fairly equally. They try to keep their process flexible and limit industry weightings to 25% rather than enacting sector constraints.

Full interview available here.

Joseph Boskovich Sr. shares his firm’s investment strategy, which is identifying smart owner/managers of companies with track records of success and then closely following their investment activity in the transactions of their own stock.

Full interview available here.


Chubb Ltd

CEO and Portfolio Manager James Cullen of Schafer Cullen Capital Management says while his firm has owned Chubb Ltd (NYSE:CB) for some time, he is very pleased post the merger with ACE, and finds the stock inexpensive at 13 times earnings.

We have owned Chubb for a while in our value portfolios, even though it didn’t have a high dividend for quite some time. Last year, ACE announced it wanted to acquire Chubb, and so we got a few calls from people we knew at Chubb saying, “We don’t like this deal.” We looked at the two companies and the deal carefully, seeing ACE had been down, and it qualified for our dividend strategy. ACE, of course, has been very successful; it is more of an international kind of company, while the old Chubb was more domestic but has a very high-quality client base.

Evan Greenberg, who’s been successfully running the company for many years, has been a good cost-cutter, a very efficient operator. We were leery about him at first, so we decided we needed to see him. Jennifer and I, along with one of our analysts, went to see him present at a conference, and when we met Greenberg, we were very impressed with what he could do with a combination of these two companies.

He did one extraordinary thing, he was asked, “How about the people at Chubb? What do they think of you taking them over?” He said, “The marketing and salespeople, they are the ones that are, obviously, most important, and they have two main interests: One, they want to make more money, and two, they’re very happy with the quality of their firm, and they want to make sure we maintain that quality.”

He said, “We’re going to be doing both of those things. Number one, they are going to make more money, and number two,” he said, “we’re going to change our name from ACE to Chubb.” I was floored by that. That’s unusual for the acquiring company to assume the name of the company they are taking over. That was impressive.

When he was asked about buybacks, and I have a hard time with buybacks because a lot companies end up buying back stock when it’s overpriced, he said, “Well, you see, I’m not a big fan of buybacks.” His intent was to utilize excess capital to increase their dividend and pay down debt. We liked that. So far, they’re off to a good start. It’s been almost a year post-merger, and stock is still cheap at 13 times earnings. That’s how we came around to buying the company.


James Cullen

Full interview available here.

John Herrlin has been advising clients to expect potential news headlines-driven downdrafts in 2017 for U.S. E&Ps. He thinks the Street will need to be vigilant on the sector, and that OPEC cuts and oil inventory balance will be very critical for 2017.

Full interview available here.

Paul Grigel covers U.S. E&Ps. Mr. Grigel says 2016 was a volatile year for E&Ps; however, the resiliency of the sector has been tremendous on the stock front and the operational front. For 2017 he is looking at the back half of 2016, which had more favorable tailwinds with rising crude prices and service costs that had remained flat after declining earlier in the year. For 2017, is looking for some of those tailwinds to die down or even become headwinds, mainly service cost inflation starting to come back. He says that while there are a few select places you can find value, generally the E&Ps are looking more fully valued right now.

Full interview available here.

Evan Calio covers U.S. large-cap E&Ps, integrated oil companies and refineries. Mr. Calio says investor sentiment has improved on the sector, but he doesn’t see a positive consensus outlook looking into 2017. He thinks there will be some tempered performance relative to a pretty phenomenal performance in 2016. Therefore, Mr. Calio is constructive on all the sectors he covers and shares his top recommendations in the current environment.

Full interview available here.

Daniel Katzenberg covers the E&P sector and says sentiment is improving. He says for E&P companies, what has helped the group is the balance sheet restructurings during 2016. What he is now seeing are capital market activities and equity offerings used for acreage. Mr. Katzenberg also says what is top of mind is rig count add, which has led to concerns from some investors that that might lead to oil service cost escalation. He thinks that there’s still enough excess capacity to continue to keep costs down for a bit longer. After being bearish for the last two years, Mr. Katzenberg is now recommending that investors increase their allocations, especially in oil-exposed equities.

Full interview available here.

Oil and gas producers had a volatile 2016. Oil prices declined precipitously, and producers rushed to restructure their balance sheets with the aim of surviving the downturn and live within their cash flow. As oil prices have risen, though not to their former glory, investors seem to be more optimistic about the sector.  OPEC has pledged production cuts and the new U.S. presidential administration is expected to reduce regulation and generally favor the energy industry. Analysts also add that, as balance sheets are now healthier, companies on the upstream are looking to expand operations.

The higher rig count does raise the concern that oil service costs will escalate, and there seems to be analyst consensus that an increase in production will inevitably lead to it. There is, however, disagreement in the timing, with some analysts wary of it already, while others say there is still excess services and equipment that should keep these costs contained through the end of 2017.

Some analysts recommend exposure to oil-based equities now, after two years of being bearish. Analysts don’t expect oil prices to rise to previous levels, but the momentum is there now and they say investors could take advantage of it.

Some analysts, however, say the performance in 2017 will not be as good as it was last year. The positive sentiment that comes from a new presidential administration could be tempered if Democrats push back on EPA and Department of Energy nominations, and analysts add that infrastructure could be good for the industry, but wouldn’t take place until 2018. On the longer term, they also say macroeconomic factors could negatively affect the industry, among them a stronger U.S. dollar, India’s currency controls, Brazil’s recession and slow Chinese growth.

More importantly, analysts say, the most important factor will be the price of oil, more than any other macroeconomic event. The positive sentiment could be cooled if OPEC producers delay in their promised production costs. Some analysts say, however, that Saudi Arabia has an incentive to increase the price of oil to increase the valuation of Saudi Aramco’s IPO in 2018.

Some analysts say the E&P industry’s strategy is development driven, which means lower operations risk, though they raise the concern that E&Ps don’t generate meaningful earnings or fund their own growth. They even say some could argue the E&P outperformance we’ve seen is a result of a previous underweight in the sector.

Domestically, analysts favor companies that have core contiguous acreage positions in the top shale plays. Some of the top geographies include the Permian, Eagle Ford, Bakken and Niobrara, as well as Marcellus and Utica.

U.S. producers are expected to respond to more stable crude prices with more production, and as operations expand analyst expect some companies to face new logistical and operational challenges. As they expand, they are also expected to buy acreage, but not to acquire companies. Generally, analysts say E&Ps are looking fully valued at this point.

Full report available here.

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