Apple (AAPL) presents investors with a long-term opportunity given the technology company’s strong fundamentals, even with a bumpy ride following announcements of its iPhones and China deals, says Stuart Shikiar, Chairman and Chief Investment Officer at Shikiar Asset Management Inc.
“We believe longer term Apple has another act coming and a number of additional exciting chapters to write in its history,” Shikiar said. “We think Apple is going to start doing better again, and we are happy to have our position even though it’s been a little bumpy for the last year or so.”
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Shikiar says that AAPL, which most recently released its new iOS 7 platform for mobile devices, remains a considerable holding in his portfolio, even has he has right-sized the stock. He says he initially took a stake with the company after learning in 2003 about how Apple was using iTunes to change the current music-delivery paradigms.
“The stock treated us extraordinarily well and when it peaked in September of last year, the shares got as high as $700 and then started slipping. Even though we liked the long-term fundamentals of the company, we reduced our position size from being very large to being right-sized. For the last year or so, the stock has gone down and is now beginning to stabilize once again, and it still remains an important holding with considerable value,” Shikiar said.
EMC Corporation (EMC) has the potential to see 10% revenue growth and up to 16% EPS growth due to its robust offering of data storage solutions for customers looking toward private and public cloud options, says Amit Daryanani, Equity Analyst at RBC Capital Markets.
“With EMC, our take is it’s a very broad portfolio and not just storage; they also own VMware (VMW), they own Pivotal, they own RSA Security. But to the extent that this raw data creation continues to hold up, and people continue to look at having private cloud to public cloud, EMC actually has a fairly robust portfolio of solutions,” Daryanani said.
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EMC‘s offerings provide customers with an end-to-end solution regarding private and hybrid cloud architectures, Daryanani says, which is likely to result in both revenue and EPS growth for the company.
“What I think that could mean for EMC over the next three to five years is 10% revenue growth, 15%, 16% EPS growth. They have a 1.5% dividend yield today. I think this stock could continue to work into the low $30s over the next six to nine months,” Daryanani said.
Avery Dennison Corp (AVY) has taken a mature-company approach to capital allocation, focusing on managing the cash flow for its portfolio of office products and returning capital to shareholders in the form of dividends and share buybacks, says Vincent Sellecchia, Managing Director and Portfolio Manager at Tocqueville Asset Management L.P.
“We have known Avery for a while because they bought one of our companies a number of years ago called Paxar. Avery manufactures pressure-sensitive and self-adhesive materials labeling. They also make the retail branding and information tags and labels that you might find on apparel if you go to a department store,” Sellecchia said.
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Sellecchia says AVY‘s approach to capital allocation has resulted in positive investor response. He says the company chose this approach after M&A deals were blocked by the Department of Justice, in an industry that seems fairly mature.
“It was becoming clear that management realized they were not a growth company, but rather a mature collection of businesses that generated very good cash flow. Given the change in perspective, they decided to take the cash flow and give it back to the shareholders in the form of share repurchases and higher dividends, rather than make acquisitions or put it into a large growth capital program. The stock has performed very nicely over the last 18 months or so,” Sellecchia said.
Celldex Therapeutics, Inc.’s (CLDX) innovative brain cancer, breast cancer and ultraorphan drugs have substantial commercial opportunities and are targeting highly unmet medical needs while reporting very strong data, says Boris Peaker, Executive Director and Senior Analyst at Oppenheimer & Co. Inc.
“Celldex has several innovative drugs; all of them have a very clear commercial opportunity, where they are not directly competing with any existing drugs, but their leading drugs are in breast cancer and in brain cancer. In breast cancer, they’ve reported very strong Phase II data; they’re starting a Phase III on that drug, and so it doesn’t have a lot of catalysts coming up, but the Phase II data in my view was spectacular,” Peaker said.
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Additionally, Celldex has a very innovative drug in the brain cancer space, and a clear biological test to identify patients that are likely to be responders, Peaker says. The company also has an orphan drug in development that adds to its collection of differentiated drugs that are targeting unmet medical needs.
“There are a lot of exciting developments there. They also have an orphan, an ultraorphan drug in development that’s in early stages, which is — we’re going to get some preliminary efficacy, the first efficacy around year end. So they have a number of drugs out there that are targeting really highly unmet medical need with very differentiated profiles and with catalysts on the near-term horizon,” Peaker said.
Liberum’s executive turnover data for August 2013 showed a somewhat confusing trend for the American economy. All four key executive turnover categories (CEOs, CFOs, C-level Execs and Board of Directors) saw percentage declines from the same month a year earlier yet, August saw increases in each of the four key categories from the previous month of July 2013. The somewhat confusing trend for August was also seen in the latest monthly employment numbers released by the U.S. Department of Labor’s Bureau of Labor Statistics (BLS) and ADP’s August Employment Report. August’s Liberum Research’s executive turnover data trended closely with the August monthly Employment Data released from the U.S. Department of Labor’s Bureau of Labor Statistics (BLS) and from ADP’s August Employment Report. Despite August’s tepid numbers, Liberum expects excutive turnvoer to trend upward as we move into the fall.
Walgreen Company (WAG) is in the process of a dramatic up cycle, as the company has acquired stakes in both a leading U.K. drug chain and large U.S. drug wholesaler, and is expected to earn $5 a share as well as increase its share price 50%, says Stuart Shikiar, Chairman and Chief Investment Officer of Shikiar Asset Management Inc.
“[Walgreens is] a leading drug store chain in the United States. They have about 8,000 stores and are considered to be a very fine operator. However, a catalyst has developed that we have found to be very, very scintillating and that was, they acquired a 45% interest of the largest drug chain in the U.K., Boots. Boots is the CVS (CVS) or Walgreens of England. They have 3,000 stores, and it’s a very well-run organization. Walgreens bought a 45% stake in the company with the opportunity to increase the position to 100% in about four years’ time,” Shikiar said.
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Walgreen Company has also announced an agreement with one of the largest drug wholesalers in the world, called AmerisourceBergen Corp. (ABC), which will give the company a more effective purchasing mechanism, Shikiar says. He believes WAG will be a leading global drug chain, as the company is in an up cycle and could see a 50% increase in share price.
“You now have a company that we believe will be the leading global drug chain with outstanding supply and wholesale prowess, and we believe that within the next three years this company will be earning $5 a share. We don’t think it’s been fully recognized that this company is in the process of a major dramatic up cycle and the valuation makes this very attractive. It is a stock we are keen on, and we believe it’s current price of $48 represents the type of investment that in two or three years, could be up 50% from here,” Shikiar said.
Andarko Petroleum Corporation (APC), a Texas-based company with 60% of its business in the United States, is distinguishing itself with significant international discoveries in Africa and Brazil, says Stuart Shikiar, Chairman and Chief Investment Officer of Shikiar Asset Management Inc.
“[Andarko] has a market capitalization of $45 billion. They operate in the United States, with seven or eight major onshore energy properties that they have exploited brilliantly, and approximately 60% of their business is in the United States. However, they have distinguished themselves with some gigantic discoveries in Africa, specifically Mozambique, Ghana and Brazil,” Shikiar said.
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As a solid energy company with opportunities overseas and the possibility of a future acquisition by a larger energy player, Andarko is one of Shikiar’s favorite long-term holdings.
“In Mozambique, they just sold a small part of their stake for almost $3 billion. So this is a very powerful energy company that we believe still remains highly attractive, and at some point it would not surprise us for one of the very, very large energy companies to consider Anadarko as a possible acquisition target,” Shikiar said.
Itochu Corp (TYO:8001) and Sumitomo Mitsui Financial Grp, Inc. (ADR) (SMFG) are two Japanese trading houses exposed to different businesses that are trading at attractive valuations, earning double-digit profitability and paying dividends in the 3% range, says Chad Deakins, Chief Investment Officer for Certium Asset Management.
“Itochu and Sumitomo are two of our top 10 holdings, and these stocks are related to the global trade and pricing of raw materials, iron ore and coking coal, and other resources. These stocks are called trading houses, and there are about five or six of them in Japan,” Deakins said. “They are big conglomerates, and they are trading at very attractive valuations.”
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Sumitomo is engaged in financial services-related businesses, while Itochu focuses on various segments ranging from textiles to energy. Both companies are trading at a low five times cash flow while earning solid profits and paying dividends, and Deakins expects the two stocks to rerate through the next business cycle.
“They earn double-digit profitability and pay dividends in the high 3% range. We think as we move along through the business cycle, these stocks can rerate dramatically up to another 25% or 35%,” Deakins said.
Dover Corp. (DOV) generates high returns and cash flow, with management allocating capital in ways that maximize value for shareholders, as evidenced with their Knowles spin-off into a publicly traded venture for the first quarter of 2014, said Vincent Sellecchia, Managing Director and Portfolio Manager at Tocqueville Asset Management L.P.
“To me, that’s another example of management trying to realize value for the shareholders. Dover has high returns — the EBITDA margins of Dover are over 20% with operating margins north of 15%. They generate quite a bit of free cash flow, which they have allocated to growing the company and share repurchase,” Sellecchia said.
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Sellecchia says DOV has a strong management team, and their decisions are strengthening the company. He says their decisions to maintain and spin-off parts of the company result in a strong portfolio of assets.
“I think they have an excellent management team. Bob Livingston has proven to be a strong manager, their businesses have high returns, and they have been strengthening their portfolio of businesses. They just closed a few months ago on the acquisition of Anthony, which fits nicely with their refrigeration business,” Sellecchia said.
Bank of America Corp (BAC) is expected to grow earnings per share by more than $2 in the next few years as the money center bank continues recovering from blows suffered under the economic crisis, the stock rising along with several of its peers in financials, says Neil T. Eigen, Senior Portfolio Manager and Director at Columbia Management.
“We continue to like Bank of America. The stock is $14, and to me, it’s a name that probably doubles over the next couple of years as their returns tend to continue to improve, their legal problems tend to diminish, their reserves tend to be enough to handle any upcoming problems and they start to diminish their reserves. I look for a Bank of America probably in three years to show an earnings number in excess of $2, maybe we even start talking about something close to $3 a share,” Eigen said.
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Eigen says banks are one of the best-performing groups, and he expects them to continue on their upward trajectory. He chooses stocks that may be out-of-favor by the Street, but he has taken handsome profits in the process.
“The stocks have done extremely well, they were the best-performing group last year. We had a 30%-plus weighting in the group. It really helped us, and I think the banks continue to do well. As the economy comes back, as lending picks up, as interest rates move up a little, their net interest margins expand. So they’re really in a sweet spot. But again, you have to anticipate change. If you wait for things to get better, the stocks have already moved and you’re too late,” Eigen said.
