Nevsun Resources (USA) (NSU) has significant exploration upside in Africa, according to Adam Low, Analyst with Raymond James & Associates, Inc. Low says Nevsun operates its Bisha mine in Eritrea, a country in Northeast Africa.
“While that may scare some potential investors off, I do find that the perception of where the mine is located is much worse than the reality. The company has been in the country for, I think, something like 15 years now,” Low says. “So they have got a long, well-established history in the country. The government of the country is itself a 40% owner of the mine. So it’s a partnership with the government and it’s a partnership that’s gone exceedingly well.”
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Low says Nevsun’s Bisha mine is one the highest-grade open pit mines in the world. As a result, he says the company is able to generate strong cash flow. Low says he also finds the deposit at the Bisha mine to be interesting.
“It’s a polymetallic deposit that had a gold oxide-rich cap, and then it’s got supergene copper followed by primary copper-zinc mineralization,” Low says. “It’s a VMS deposit. And so, not only do you have multi-metals, but as a VMS deposit, these tend to occur in clusters.”
If Nevsun finds additional deposits, Low says the company will be able extend the life of the mine without a lot of incremental capital expenditure because they will be able to feed any additional iron ore that they find through the existing mill. Additionally, Low says Nevsun is the only company operating in the Bisha mine, which is why he believes there is significant opportunity ahead for the stock.
Whether or not HudBay Minerals Inc Ord Shs (HBM) is successful in acquiring Augusta Resource Corp. (AZC), Haywood Securities Analyst Stefan Ioannou says he believes HudBay has significant opportunity for growth over the next couple of years. Ioannou says he expects growth for HudBay on the order of 350 million pounds of copper per year and 450 million pounds of zinc annually.
“The one thing to watch at HudBay in the near term is the execution of this growth plan,” Ioannou says. “So far construction at Constancia, the big project in Peru is going well; it’s on budget relative to a $1.7 billion capital cost estimate.”
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Ioannou says HudBay’s construction at Constancia was 67% complete as of the end of February. He says that means it is possible that costs could increase or that the company could experience construction delays.
“So, we’ve got to keep an eye on that,” Ioannou says. “But if they execute, that growth profile is pretty impressive.”
Senior Portfolio Manager Robert Chisholm of Center Coast Capital Advisors, LP, is projecting a 15% average growth rate for Access Midstream Partners LP (ACMP). The stock has performed well in the firm’s Focus Fund due to its diversified portfolio and attractive yield, among other positive attributes.
“Access Midstream Partners is primarily a gathering-and-processing master limited partnership. It is 100% fee-based with very attractive contracts, essentially cost of service, and allows them to earn an attractive return on their investments in gathering-and-processing assets. They have assets located in a diverse number of shale plays: the Marcellus, the Utica, Haynesville, Barnett,” Chisholm said.
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Chisholm says Access Midstream Partners will benefit from the tremendous amount of supply growth in the Marcellus and Utica, and exposure to growth demand for infrastructure. The company has additional attractive characteristics that are behind its top position in the firm’s fund.
“It offers an attractive yield, but more importantly it offers a very attractive growth profile. According to our models and our projections, we’re projecting approximately 15% three-year cumulative average growth rate for the partnership. So it’s a very attractive 100% fee-based asset,” Chisholm said.
Portfolio Manager Kenneth Conrad of BMO Global Asset Management bases his investment philosophy on finding yield, and Apple Inc. (AAPL) is a prime example of where he is succeeding in that strategy, as the company has seen a 2.2% yield in the last year, which Conrad expects to increase.
“Apple didn’t have any yield two years ago. And then, since last year, it’s a top 10 holding, has a 2.2% yield and about $20 billion in net cash. We expect that yield to increase over time, and it scores incredibly well in our model,” Conrad said.
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Conrad says there are a lot of ways to win with Apple. The company is revamping current products and have repurchased approximately $40 billion worth of stock, and Conrad believes they may add a new buyback in the future.
“They have a new form factor coming out for their phone; it’s going to be a larger phone. It appears that they’re revamping their Apple TV product,” Conrad said. “In the last year or so they’ve repurchased about $40 billion worth of stock out of their $60 billion authorization, and we wouldn’t be surprised if they add a new buyback after that, plus we are expecting a dividend increase.”
Chief Investment Officer Montague Guild of Guild Investment Management says that Las Vegas Sands Corp. (LVS) is profiting well from its facilities in Singapore and Macau, and he is expecting the company’s next big opportunity to come from the Japanese gaming market.
“Two parts of the world where gambling is very popular are in China and in Singapore,” Guild said. “About a year or so ago, [Las Vegas Sands] inaugurated their casino in Singapore, which has been booming. It took an initial leap up, and now it’s sideways there, but the Singapore market is a very good market for them as many tourists from China and other parts of Asia come to Singapore to gamble and to enjoy the Singaporean environment.”
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Additionally, Las Vegas Sands is expanding its facilities in Macau, where it has seen significant profits, Guild says. He is looking forward to the company’s future potential in entering the gaming market in Japan once it is authorized.
“The next big boom for them will come in Japan, when later this year or early next year Japan authorizes gaming, and when that takes place Las Vegas Sands has a chance to expand into Japan. Las Vegas Sands is a well-run company; it is courageous and willing to go into new markets,” Guild said.
Robert Lee, an Analyst with Keefe, Bruyette & Woods, Inc., says he expects Affiliated Managers Group, Inc. (AMG) to deliver better organic growth than its peers. He says the Massachusetts-based asset manager stands to benefit from equity strategies, as well as from global strategies and alternatives. In addition to organic growth, he says the company could grow through acquisitions.
“Affiliated Managers Group has for the past two decades, one of their core strengths of their strategy is that they make investments in kind of mid-sized boutique managements, they have done it for 20 years pretty successfully, they kind of have a proven model,” Lee says. “And when they do an acquisition depending on the size, I use rule of thumb that every $100 million they spend on a transaction tends to be $0.10 to $0.20 accretive to cash flow.”
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Lee says he thinks Affiliated Managers Group’s current valuation is reasonable, and his estimates don’t include any potential acquisitions, which he believes are likely. He says the timing of a potential acquisition is unclear, but he expects to see at last one deal within the next 12 months.
“Now again, they could announce one tomorrow or Monday and may not announce one for six months, you don’t know,” Lee says. “But, I would expect that sometime over next year, you could see one or several transactions that should be incrementally accretive to earnings and those are not in [our] earnings estimate.”
Although AllianceBernstein (AB) has had weak flows in recent periods, some of its businesses could be improving, according to Keefe, Bruyette & Woods Analyst Robert Lee. He says AllianceBernstein’s private client business has been a problem area for years, and he says January data shows that business is not generating new inflows. However, Lee says the drag from outflows is moderating, a sign of possible better days to come.
“If you look at their institutional business, particularly in fixed income, mainly in fixed income that business continues to actually do better, generate better flows,” Lee says. “If you look at even their equities business — which remains a general drag, performance has picked up in different places.”
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In addition, Lee says AllianceBernstein has announced some new strategies that could gain momentum. For now Lee says the overall picture is still negative, but underlying flows are picking up.
“When you kind of look down beneath, you could see places where there was clearly improvement,” he says.
Hennessy Advisors Inc (HNNA) CEO Neil Hennessy says his firm is in no hurry to move into the fixed income arena. Hennessy says he expects interest rates to go up, and eventually encourage investors to move into equity strategies.
“When I look at the mutual fund industry, again, I look at it simply from the standpoint that there is $3.4 trillion in fixed income mutual funds and $2.1 trillion in money market funds. So when you add those two together you’ve got approximately $5.5 trillion sitting in investment vehicles that are earning next to nothing,” Hennessy says. “At some point in time, investors are going to have to move over to the equity market, and when they do, that’s just going to spur the market to go even higher, which is going to be good for equity-based mutual fund companies like Hennessy.”
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Hennessy adds that his firm is open to making acquisitions, but not necessarily seeking them out. He says he’ll only consider acquisitions that are accretive and beneficial to shareholders.
“We will continue to focus on, and we’re building out, our internal distribution through the registered investment advisor market, and we will continue to manage the Funds for the benefit of shareholders,” Hennessy says.
Gabelli & Company, Inc. Analyst Macrae Sykes says Janus Capital Group Inc’s (JNS) stock price could increase in 2014. While Janus has had large outflows and poor investment performance over the last several years, Sykes says key indicators point to improvement for the Colorado-based asset manager. First, Sykes says Janus’ investment performance should change dramatically by the middle to end of 2014.
“Their three-year numbers had been majorly impacted by poor performance in 2011,” Sykes says. “Because of this negative performance on a three-year basis, the firm had negative performance fees in 2013 of about $82 million, which were about 10% of overall investment fees. So, to the extent that they can reverse that or even make some progress on that, that’s significant operating leverage and also additional cash flow to fund operations and potentially buy back stock.”
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What’s more, Sykes says three Janus insiders, including the firm’s CEO, have recently bought back stock, which he says is a good sign in terms of expectations for the shares, which currently trade at around six times EBITDA. And, Sykes adds that Janus’ stock price could be buoyed by a potential takeout by Dai-ichi Life (TYO:8750), a strategic partner who bought a 20% stake in Janus.
“Really, any change in expectations could be a significant springboard for the equity price,” Sykes says.
Gabelli & Company, Inc. Analyst Macrae Sykes says he expects Cohen & Steers, Inc. (CNS) to begin leveraging the real assets platform it began building last year. Sykes says 2013 was a volatile year for REITs, but while the New York-based investment manager was managing its investment portfolio, he says Cohen & Steers was quietly adding new investment teams to build up its diversified real assets platform.
“They could become part of target-date funds, global asset allocations, etc., on the back of demand for real assets,” Sykes says. “And certainly there is a strong diversification argument for these products. So there is plenty of investment appetite, in my opinion.”
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Sykes also sees opportunity for Cohen & Steers in Japan. He says Cohen & Steers has leveraged its relationship with Daiwa (TYO:8601) to build strong distribution in Japan and is well-positioned to expand.
“They are looking to diversify some of their distribution over there, add some more relationships, and given all these efforts and the 2013 market returns over there as well as new confidence from the investing public in Japan, I just think that the company is well situated to capitalize on those opportunities,” Sykes says. “Net-net, it is a nice niche story within the asset management industry.”
