Equity Investment Life Holding (AEL) increased sales, margins and distribution, nearly doubling the stock price of this insurance company in the last year, says Ori Elan, Managing Director and Portfolio Manager of Elessar Investment Management, who bought the stock for his small-cap strategy and has now seen it become one of his largest holdings.
“One stock that has done very well for us in 2013 is American Equity Investment Life Holding. The ticker for this company is AEL. It is an insurance company that sells index annuities and life insurance. Throughout the past couple of years, AEL was able to meaningfully grow its index annuity sales, expand investment spreads and also invest in their distribution channels and grow them, while seeing less competition from larger players in this area,” Elan said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Elan says AEL has grown in tandem with the appropriate capital structure, even despite difficult market conditions six years ago when he first bought the stock.
“When we look to invest in a company, we look for catalysts, positive inflection points down the road, which we expect to be realized within 12 to 18 months, and that’s when we expect our price target for that company to be achieved. So you can say that we look to hold a company in the portfolio for between 12 to 18 months. However, the sell discipline, which we strictly follow, can either cause the stock to stay longer or for a shorter period of time in the portfolio,” Elan said.
Ultra Petroleum Corp. (UPL) generates positive cash flow despite low natural gas prices, even at a price average of $3.65 per Mcf in 2013, and the company would double EBITDA with a price increase in the $4.50 level, says Edward A. Crawford, Partner and Co-Portfolio Manager at Roumell Asset Management, LLC.
“Ultra is the lowest-cost natural gas producer in the country. If you look at the most recent 12-month financials to September 30, 2013, natural gas averaged $3.65 per Mcf, and Ultra generated positive free cash flow. Very few natural gas producers can say that. Ultra is very leveraged to higher gas prices as well,” Crawford said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
UPL stock plummeted along with natural gas prices a few years ago, and Crawford sees opportunities for patient investors in the stock. He sees value in the stock and a disciplined balance sheet with some downside protection with the selling of reserves, as well as some time, as debt is not due for next five years.
“In terms of management, CEO Michael Watford, with whom we met last year, has managed with great discipline. He has limited capex in times of lower gas prices so as not to take on too much debt. Watford owns about $75 million worth of stock, and he has been CEO for 15 years, so there’s a lot of continuity there, and we have a high degree of confidence in him,” Crawford said.
TE Connectivity Ltd (TEL) and TRW Automotive Holdings Corp. (TRW) were among the largest contributors to the outperformance of the Oakmark Select Fund (OAKLX), which grew 32% in 2013, and which currently holds approximately $4.0 billion in assets and in about 20 U.S.-based securities, says Anthony P. Coniaris, CFA, Co-Manager of The Oakmark Funds.
“We outperformed because of strong stock selection — as we discussed in the last quarter’s letter — as well as from an allocation to more economically sensitive industries. The latter was not some master macro plan, but rather the outcome of our detailed, bottom-up process of estimating business value. We just happened to find the most value in more economically sensitive names in sectors such as financials, industrials and consumer discretionary,” Coniaris said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Coniaris says the contribution of TEL and TRW can be attributed to the large gap he found between the long-term intrinsic value of the companies and the stock price, which the market began bridging, though he says these particular holdings remain undervalued.
“What we do is estimate the company’s long-term intrinsic value, and then look at the difference between that and the stock price to evaluate the upside of the investment. TRW and TE Connectivity are still very large positions in the fund, because they remain at significant discounts to intrinsic value despite their strong performance this year,” Coniaris said.
American Tower Corp (AMT) is set to come back from an underperformance last year, says Stifel, Nicolaus & Co. Analyst Benjamin Lowe, and is on track to see the best organic growth in five years as well as attractive same-tower growth due to the company’s solid underlying fundamentals.
“The past five years or so, for the towers overall including AMT, we have seen massive multiyear runs, so some of the lag is just the group taking a breather or consolidating some of those gains in recent years,” Lowe said. “So it’s been a great multiyear stock, and last year again I think for variety of reasons — one, rising rates; two, earlier on in the year there were concerns about potential deceleration in growth as we look into 2014 and 2015 — the stocks underperformed.”
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Lowe is positive on AMT because not only are the company’s underlying fundamentals strong, but it is on track to experience the best organic growth in years; thus he views the company trading at a slight discount on a valuation basis.
“The initial commentary around 2014 suggest that growth might not be quite as high as 2013, but it’s going to be in the same ballpark of high-single-digit plus organic same-tower growth, which is very attractive for this business. So the fundamentals are very healthy, probably arguably as healthy as they have been in several years. The stock performance last year wasn’t great, but I think the setup going into 2014 is pretty good,” Lowe said.
The American economy appears to have turned the corner but is still far from out of the woods. With unemployment still slowly dropping and job growth incrementally improving, there appears to be growing optimism about job prospects and economic growth. This optimism experienced a hiccup recently when the U.S. Government’s Bureau of Labor Statistics December 2013 job growth figures were well below analysts’ expectations. Analysts expected a large number for December 2013 (around 200,000) and were quite disappointed after BLS announced,
The unemployment rate declined from 7.0 percent to 6.7 percent in December, while total nonfarm payroll employment edged up (+74,000)…
Top executives in both small and large firms also find themselves in a similar situation. Opportunities are growing for top executives yet, underperforming firms are now more likely to change deck chairs as the overall economy shows life. Liberum Research expects to see increased turnover in the executive ranks as we move through the early months of 2014.
Liberum has put together below a six year quarterly breakdown of executive turnover totals for CEOs, CFOs and C-level executives covering North America. Most of the below quarterly numbers showed continuing declines until the second quarter of 2011. At this point, the numbers began to reverse themselves. Turnover at the executive levels of corporate America began to grow but not consistently. Companies began again to consider new blood and often looked to change their corporate strategies as kernels of opportunity began to sprout ever so slightly. Anyone investing in the market must pay special attention to executive turnover both at the top and the middle executive ranks. Failure to do so, will result in lost opportunities or worse.
Below is a simple table outlining the quarterly turnover totals as registered through Liberum Research’s Management Change Database for 2008 through the fourth quarter of 2013 for CEO, CFO and overall C-level turnover.
Total CEO Turnover Comparisons
| Year | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| 1st Quarter | 745 | 491 | 388 | 346 | 680 | 583 |
| 2nd Quarter | 596 | 380 | 321 | 581 | 665 | 619 |
| 3rd Quarter | 533 | 409 | 298 | 713 | 636 | 627 |
| 4th Quarter | 461 | 430 | 328 | 697 | 673 | 636 |
| Annual Total | 2,335 | 1,710 | 1,335 | 2,337 | 2,654 | 2,465 |
Total CFO Turnover Comparisons
| Year | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| 1st Quarter | 593 | 332 | 296 | 280 | 640 | 495 |
| 2nd Quarter | 551 | 326 | 273 | 404 | 612 | 557 |
| 3rd Quarter | 438 | 279 | 256 | 629 | 598 | 582 |
| 4th Quarter | 364 | 313 | 258 | 476 | 569 | 562 |
| Annual Total | 1,946 | 1,250 | 1,083 | 1,789 | 2,419 | 2196 |
Total C-level Turnover Comparisons
| Year | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| 1st Quarter | 6735 | 4061 | 3453 | 2863 | 5442 | 3971 |
| 2nd Quarter | 7430 | 5051 | 3199 | 4041 | 5036 | 4102 |
| 3rd Quarter | 4865 | 3690 | 2522 | 5349 | 4235 | 4123 |
| 4th Quarter | 4277 | 3439 | 2381 | 4596 | 4197 | 4196 |
| Annual Total | 23,307 | 16,241 | 11,555 | 16,849 | 18,910 | 16,392 |
As you can see from the quarterly and annual executive turnover totals in the above chart, North American public companies are operating at a more consistent level with regard to turnover. The same is true when viewed from a brief monthly perspective. December 2013′s executive turnover totals remained reasonably high in the key categories. Liberum anticipates this trend will continue as we move through January and February.
The latest monthly comparison figures with regard to executive turnover for December 2013 with those of December 2012 and November 2013 and December 2013 are as follows:
In the below report, Liberum has focused on fifty two CEO changes of special significance for the month of December out of a total of 225. We have also put together the overall turnover figures for the month of December 2013. The below information is just illustrative of how investors could view executive turnover and its possible relationship with a company’s performance. The same could be done for COOs, Presidents, Chairmans etc. just through the Liberum database.
DATE COMPANY TICKER EXCHANGE MARKET CAP $ MILLIONS
12-02 Rathbone Brothers RAT LSS 7
12-03 Polycom, Inc. PLCM NASDAQ 1810
12-04 Wolfden Resources WLF CANADA 10
12-05 Agri-Dynamics Inc AGDY OTN
12-05 Rainbow Coral Cor RBCC OBB 3
12-05 Zodiac Exploratio ZEX CVE
12-06 Domino’s Pizza, Inc. DPZ NYSE 3871
12-06 Rio Bravo Oil, In RIOB OBB 29
12-06 Selectica, Inc. SLTC NASDAQ 23
12-09 First Physicians FPCG OTN 50
12-09 Hologic, Inc. HOLX NASDAQ 5992
12-10 Blox Inc BLXX NYSE 864
12-10 Clean Diesel Tech CDTI NASDAQ 13
12-10 General Motors Corporation GM NYSE 55870
12-10 Jacksonville Banc JAXB NASDAQ 75
12-10 Lululemon Athletica Inc. LULU NASDAQ 10127
12-10 QLogic Corporation QLGC NASDAQ 998
12-11 Absolute Software ABT TORONTO 296
12-11 Crumbs Bake Shop, CRMB NASDAQ 10
12-11 EOG Resources, Inc. EOG NYSE 43089
12-11 Female Health Com FHCO NASDAQ 244
12-11 Spdr S&P 500 SPY ETF
12-12 Restoration Hardw RH USC 2510
12-13 FTI Consulting, Inc. FCN NYSE 1683
12-13 Great East Energy GASE OBB 25
12-13 QUALCOMM Incorporated QCOM NASDAQ 123200
12-13 Rsa Insurance Gro RSNAY OTN 5410
12-16 KBR, Inc. KBR NYSE 4518
12-16 Pricer -B- PRICB STOCKHOLM
12-16 Violin Memory, In VMEM NYSE 128
12-17 Centor Inc CNTO OBB 74
12-17 Halozyme Therapeu HALO NASDAQ 1663
12-18 Encision Inc ECIA OTN 7
12-18 Globalscape Inc GSB NYSE 44
12-18 Integrated Device IDTI NASDAQ 1520
12-18 QUALCOMM Incorporated QCOM NASDAQ 123100
12-18 Standex Int’l Corp. SXI NYSE 760
12-19 Arricano Re Est ARO LONDON
12-19 Bhp Billiton Limi BHP NYSE 169500
12-19 Co-Signer, Inc COSR OBB 4
12-20 Nielsen Holdings NLSN NYSE 17237
12-20 Renuen Corporatio RENU OTN 324
12-23 Acer Inc Gdrregs ACEIF OTN
12-23 CyberOptics Corporation CYBE NASDAQ 40
12-23 EarthLink, Inc. ELNK NASDAQ 516
12-23 First West Virgin FWV NYSE 28
12-23 Invivo Therapeuti NVIV OTN 150
12-23 Metabolix, Inc. MBLX NASDAQ 46
12-23 Orgenesis Inc ORGS OTN 31
12-23 SMTC Corporation (USA) SMTX NASDAQ 37
12-27 Crocs, Inc. CROX NASDAQ 1427
12-31 Deutsche Tele Ag DTEGY OTN 75116
DECEMBER 2013 MANAGEMENT CHANGE STATISTICS
C-LEVEL MANAGEMENT CHANGE STATISTICS
GRAND TOTAL – 1448
TOP INDUSTRY SECTORS
> Energy – 161
> Drugs/Biotech – 129
> Metals/Mining – 103
DECEMBER 2013 CEO CHANGE STATISTICS
GRAND TOTAL – 225
TOP INDUSTRY SECTORS
> Energy – 29
> Manufacturing – 17
> Drugs/Biotech – 16
DECEMBER 2013 CFO CHANGE STATISTICS
GRAND TOTAL – 181
TOP INDUSTRY SECTORS
> Energy – 34
> Drugs/Biotech – 17
> Banking – 12
DECEMBER 2013 BOARD OF DIRECTOR CHANGE STATISTICS
GRAND TOTAL – 539
TOP INDUSTRY SECTORS
> Energy – 69
> Drugs/Biotech – 50
> Business Services – 31
> Manufacturing – 31
Helix Energy Solutions Group Inc. (HLX) could beat expectations this year, according to IBERIA Capital Partners Analyst Trey Stolz. He says one of Helix’s business segments was performing well in the fourth quarter, and he expects that growth to continue into this year.
“They are in deepwater well intervention,” Stolz says. “It’s a segment really in its infancy, as you have a larger well count out there in the deepwater, more and more need to service those wells, Helix is directly exposed to that, and on top of that, there are other business ROVs and robotics like trenchers, things like that for lane cable in deepwater.”
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Following a positive press release from Helix in December, Stolz was recommending it as one of the best ways for investors to get exposure to offshore services.
“We felt very positively on the segment in particular for a while. And we think there is easy money to be had in the near term,” Stolz says. “On Helix, we think it’s priced pretty cheaply currently.”
Credit Suisse Group Analyst James Wicklund expects better days ahead for Cameron International Group (CAM), and he’s selected the stock as his number-two pick for 2014. He believes management has learned a lesson from the last few quarters where they’ve “overpromised and under-delivered.”
“I think they are going to improve going forward. They have had some issues with deliveries, and the fact that their shipments are at record highs and they’re not as efficient as they need to be — they’ve got a plant in Berwick that was supposed to be more completed than it is — all of those are being fixed,” Wicklund says. “There is nothing like the glare of a quarterly miss and a much more involved board to focus management’s attention on what needs to be done.”
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
While Wicklund says Cameron could be a target for activist investors, he believes any impact would not be significant. In addition, he says management has shown a willingness to repurchase stock and incur debt as necessary.
“I think all of these things are going to come together to improve the current perception of Cameron,” Wicklund says. “And clearly with its diversified manufacturing bases, it’s in a good position in several of its businesses, and it’s got valuation recovery from regaining of credibility and resetting of expectations better than most any company in my universe.”
U.S. Silica Holdings Inc (SCLA), a Maryland-based company that provides sand to oil & gas drilling companies, is in a good position to capture additional market share over the next two years, according to William Blair Analyst Brandon Dobell.
He says only a certain type of sand – Ottawa white sand, which is found in Illinois, Wisconsin and Minnesota – can withstand the heat and pressure of the drilling process. Dobell says the market is currently underestimating the amount of sand the North American drilling market is going to need. U.S. Silica, he says, has an opportunity in front of it, not only because of its access to Ottawa white sand, but also because it has a large network of storage and distribution facilities.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
“So they can get a lot of sand from their mines in Illinois and Wisconsin into the Bakken, the Permian, the Eagle Ford, the Utica, Marcellus, Haynesville, Mid-Continent, Rockies, all the basins where you need – or where you’re doing horizontal drilling and therefore you need this special kind of sand,” Dobell says.
Smaller producers, Dobell says, will have difficulty competing with U.S. Silica, because they can’t move sand from small mines to where it is needed for drilling at a competitive price.
“It’s going to cost them way too much for transportation and storage and delivery, whereas the bigger companies, like U.S. Silica, just like any big logistics company, have a lot of scale,” Dobell says. “They do it well, they can match up orders with demand, there’s a lot of flexibility to move sand where it needs to be – those are things that will allow them to take a lot of market share the next couple of years. And I think all those dynamics are underestimated in both the valuation for the company, as well as the earnings estimates in 2014 and 2015.”
National-Oilwell Varco, Inc.‘s CEO Merrill A. Miller Jr. says that when it comes to expansion, he’s got his eye on floating production storage and offloading vessels.
“As you take a look at as you drill deepwater wells, at some point in time I tell people those rigs aren’t drilling for practice. They are drilling to discover oil and gas,” Miller says. “Once they discover oil and gas, I think the approved solution on that is going to be FPSOs as far as production gas.”
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
National-Oilwell Varco has already made two related acquisitions. About a year and a half ago, the Houston-based oilfield services company purchased NKT, which Miller says makes flexible pipes that go from the FPSO to the ocean floor to the production manifold. And before that, National-Oilwell Varco acquired APL, a company that makes turrets for an FPSO.
“I think that’s an arena in which we will continue to expand and we’ll continue to look for M&A activities, because I think there will be a lot of FPSOs built over the next four, five years,” Miller says.
Trican Well Service Ltd. CEO Dale Dusterhoft says his company is poised for improved utilization rates in the first half of 2014. Dusterhoft says utilization rates were down in 2013 in many regions where the Calgary-based pressure pumping company operates.
“In Canada, you’ll probably see a slight increase in the utilization, maybe 5%, which has remained high throughout 2013,” Dusterhoft says. “There’s a little room for upping it, but not a lot.”
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Likewise, in the U.S., Dusterhoft says Trican’s crews were booked for 2014 in several key regions.
“In particular, our Marcellus area is a region that we’ve got all of our crews booked throughout 2014. I think we’ve made progress in Bakken in North Dakota,” Dusterhoft says. “We’ve got all of our crews booked out in the Eagle Ford region and we’ve still got some work to do in the Permian and in Oklahoma.”
