Intersil Corp (ISIL) is generating healthy profits and delivering one of the highest dividend yields in the space at 6.3%, and despite the company’s declining revenues in the past three years, is poised to continue paying a dividend as ISIL‘s new CEO implements internal changes, says Tore Svanberg, Analyst at Stifel, Nicolaus & Co., Inc.
“[Intersil] has struggled the last three, four years mainly due to execution, potentially mismanagement, but clearly it’s a company that has struggled, revenues have declined every year over the last three years. That said, they do generate very healthy profitability; they generate good cash flow, so they actually pay a very healthy dividend, and the dividend yield is right now 6.3%, and to me that’s probably among the highest dividend yields in this space,” Svanberg said.
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Svanberg points to the company’s balance sheet in determining ISIL‘s position to continue to pay the dividend, and he also notes that the company’s new CEO has the potential to make changes internally while still maintaining the high dividend yield.
“So then the question is: How sustainable is this dividend? Well, when I look at, again, at the company’s balance sheet, I think they are in a very strong position to continue to pay the dividend. Not only that, but they also very recently hired a new CEO who I think is going to make some changes internally that will serve as catalyst. So I think, as an investor, you can patiently wait for these changes and still be rewarded with a 6.3% dividend,” Svanberg said.
General Electric Company (GE) can potentially report $2.50 per share in an up cycle and deliver a 3%-plus dividend yield to patient investors looking for a significant return, says Brian K. Langenberg, Principal and Founder of Langenberg & Company, LLC.
“Based upon our own study of GE‘s earnings power, including analysis of the understated results going back over two decades, we believe the company can potentially report about $2.50 per share in a full-power generation up cycle, provided they execute,” Langenberg said.
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Currently GE trades around $23, yet with the potential to return to a peak $1.28 dividend with a 3% yield, the stock can move upward to $40, positioning GE to be a valuable upside pick for long-term investors, Langenberg says.
“This one will require patience — few power plants being built in the U.S. — getting out back office costs and integrating their deals, and patience-of-Job acceptance that they usually overpay for acquisitions. But you get a 3%-plus dividend yield to wait, and both GE Capital and the parent are underleveraged,” Langenberg said.
Bombardier (TSE:BBD.B) manufacturers commercial aircraft and is expected to begin delivering its CSeries planes in 2013, competing in the narrow-body space and presenting investors with a longer-term growth opportunity, says Brian K. Langenberg, Principal and Founder at Langenberg & Company, LLC.
“Bombardier is a bet on the CSeries, plain and simple. The CSeries is a — call it bigger than a regional, smaller than a 737, new entrant in the narrow-body space. First deliveries are expected in 2013. We think that plane will be successful. As the CSeries goes into production, we anticipate higher sales, contribution margin and overhead leverage, lower R&D spend and a C$1 billion decline in capital spending. Those are all good things,” Langenberg said.
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Langenberg says the stock could triple in the price per share over the next three to five years depending on the success of the Cseries and industry and macroeconomic matters.
“This is a $4 stock that we see getting $7 over the next 12 to 18 months. Longer term, depending upon the degree of success of the plane, a regional jet recovery and everything else, this is a stock that, over three to five years, could get to a range of $10 to $17 per share,” Langenberg said.
Dover Corp (DOV) reaps benefits from the growing demand for smartphones by supplying manufacturers with products and components, and the company sees further improvement in performance by making its acquisitions accretive to the overall company’s business, says Nick Heymann, Co-Group Head at William Blair & Company, L.L.C.
“Today, the intended benefits from Dover’s Sound Solutions acquisition are now coming to fruition, and the consumer electronics market that they supply, particularly smartphones, continues to grow at 20% or 25%. But more importantly, the new emerging smartphone manufacturers that are growing fastest, such as Samsung (005930.KS), LG (066570.KS) and Motorola (MSI), are now more likely to bundle their products from the components that Dover‘s Communication Technologies businesses, including Sound Solutions’, but also Knowles’, supply,” Heymann said.
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Heymann says DOV‘s large acquisition of of Sound Solutions has finally become accretive, and the company is now back to generating healthier levels of free cash flow and allocating it to smaller targets, such as the recent acquisition of Anthony International.
“Dover has worked to pare its least strategic noncore businesses while simultaneously strengthening its most important core businesses. I think the result is likely to be a much more dynamic set of growth fundamentals than most envision, and investors’ confidence that Dover management will more optimally allocate the company’s FCF with a higher degree of success going forward should enable better overall growth, improved ROIC and enhanced forward fundamental visibility than in the recent past,” Heymann said.
Xilinx, Inc. (XLNX) is expanding the end markets they sell their FPGAs into by developing midtier parts for comm infrastructure and integrating embedded processors into their circuits, says Ian Ing, Vice President and Senior Analyst at Lazard Capital Markets.
“Xilinx sells parts called FPGAs, and these are broadly exposed into a lot of different end markets…number one, they’ve developed sort of midtier parts that go into a lot of comm infrastructure. Midtier parts do really well in things like wireless base station radio cards, because they have lower cost, low power and good-enough performance, and that’s attractive for the applications right now,” Ing said.
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XLNX has also expanded the market for FPGAs by integrating embedded processors, allowing Xilinx to enter a $10 billion market, Ing says.
“They integrated what are called embedded processors, so you’ve got ARM processors in these parts now. And really, you are targeting a whole new class of designers, which is the software developers being able to use these parts. So I think it is very interesting how they really just got into an additional $10 billion TAM with embedded processors,” Ing said.
QUALCOMM, Inc. (QCOM) is seeing opportunities in the smartphone space as it collects royalties on all 3G and 4G smartphones, based on application service providers that are still a positive trend in the segment, says Ian Ing, Vice President and Senior Analyst at Lazard Capital Markets.
“[QUALCOMM sells] both chipsets as well as collect royalties on all 3G, 4G smartphones that are being sold. I think the opportunity is still being underestimated. The royalties they collect are based on device ASPs for these handsets, and I think there is still a lot of support for very high device ASPs in these flagship smartphones,” Ing said.
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New features are still being added onto smartphones, and next year Ing expects to see wireless charges for content adding dollars on the ASP side, setting up QCOM to benefit as it collects its royalties from device ASPs.
“This year we’re looking at things like mobile payments, including fingerprint-sensing hardware; we’re looking at HD Wi-Fi, a new generation of Wi-Fi being added. Next year, I think there is going to be wireless charging on these phones that adds about $2, $3 of content, adding closer to $5-plus on the ASP side. So, I think there are a lot of positive trends on the device ASPs with these smartphones, which QUALCOMM collects a percentage of royalty on, so I think that’s a nice positive trend,” Ing said.
Precision Castparts Corp. (PCP) has large exposure to the continuing manufacturing of Boeing 787 aircraft, with the fundamentals and demand remaining largely intact despite global macroeconomic concerns, says Michael F. Ciarmoli, Vice President and Equity Research Analyst at KeyBanc Capital Markets Inc.
“We also recently upgraded Precision Castparts to ‘buy,’ probably one of the higher-quality management teams, one of the more unique and differentiated business models in the sector. It’s a larger-cap name, $27 billion market cap, but when we’re looking at this mix of which companies are leveraged to the OE production cycle, we really do favor Precision Castparts‘ end-market profile: A lot of exposure to the Boeing 787, roughly $12 million of content, so as that platform begins to ramp up to 10 per month in the latter portion of 2013 and into 2014, we see PCP being a big beneficiary,” Ciarmoli said.
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Ciarmoli says the broader industrial complex has seen weak international growth and uncertainty, creating investor angst. The commercial aerospace group, however, maintains much of the old story thanks in part to the long build cycles of aircraft.
“The demand drivers underpinning new aircraft production and deliveries remain largely intact, and I am finding that investors don’t have to concern themselves with some of these short-term macro fluctuations, whether it’s a crisis in Cyprus or weakening consumer spending. What we’re seeing is that investors who have been invested in some of the other industrial names — where outlooks have been unpredictable, earnings reports have been mixed — we’re seeing more interest and more money flow into the commercial aerospace sector,” Ciarmoli said.
Orbital Sciences Corp (ORB) manufactures satellites and launches rockets in the defense industry and provides NASA with much-needed services, and the company displays encouraging financial metrics at a time when interest in space travel is on the rise, says Michael F. Ciarmoli, Vice President and Equity Research Analyst at KeyBanc Capital Markets Inc.
“The one top pick we have on the defense side is ‘buy’-rated Orbital Sciences, a name that’s performed very well year to date. They are a rocket-launch provider and a satellite manufacturer, one of the better organic stories in the defense sector, and also a key provider to NASA for its cargo-delivery services. They successfully launched their first new Antares rocket several weeks ago; they will be having another launch later this year,” Ciarmoli said.
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Ciarmoli says ORB benefits from the renewal of interest in space travel, and he says the company is showing good momentum and increased free cash flow.
“A very good story shaping up there, which will likely be augmented by an inflection in free cash flow, and I think there will also be good momentum stemming from this seemingly emerging space travel industry. We always think about the sector in terms of commercial aerospace and defense, and space kind of falls somewhere in the middle. I think a lot of the headlines from SpaceX, Virgin Galactic, and what NASA is seeking to do to lower overall costs, puts Orbital in a very good spot,” Ciarmoli said.
There have been several highly successful biotech companies formed from the patent libraries of universities and from research institutes. Often these are private companies owned by the clinical researchers and the institutions that fund them, but occasionally these companies are registered in the public markets and are available for general investment.
Cyclacel Pharmaceuticals (CYCC) was formed in 1997 to exploit several biotech innovations developed at the University of Dundee. In an interview from September of last year in The Wall Street Transcript, Spiro Rombotis, President and CEO of Cyclacel Pharmaceuticals, stated that, “Our lead drug, sapacitabine, is now in a pivotal Phase III trial for acute myeloid leukemia, or AML, a disease of mostly elderly people… sapacitabine offers to patients with AML … the first drug in its class to be given by mouth. Everything else, whether approved or used in clinical trials in the U.S., is available only by intravenous injection. And for these older patients, who are typically frail and for whom travel is a challenge, the ability to receive a drug at home by the oral route is a big plus.”
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Cyclacel has lofty aspirations: “Our goal at Cyclacel is to develop novel drugs taken by mouth with low toxicity that tweak the cell cycle and restore its control mechanisms enabling the body to weed out cancerous cells, and thus, extend survival. Sapacitabine jams the division of leukemia blasts, resulting in reduced blast levels and enabling normal bone marrow cells to regrow,” Rombotis said.
Mr. Rombotis has a prestigious professional background. Before joining Cyclacel at its inception, he was the Vice President of International Operations and Business Development; Managing Director, Europe; and Director, Japanese joint venture, at The Liposome Company, Inc. He also served as Vice President of Pharmaceuticals for Central and Eastern Europe and as Director of International Marketing at Bristol-Myers Squibb (BMY). He was Head of European Marketing and Sales, Head of Corporate Development and one of the first employees of Centocor, Inc., and worked in business development at Novartis AG (NVS).
On May 21, Mr. Rombotis bought 100,000 additional shares of Cyclacel at $3 per share, according to this SEC filing, and has accumulated a total of 268,292 shares in his personal portfolio. Mr. Rombotis was joined in this share purchase by his Chief Financial Officer Paul McBarron as detailed in this filing.
Are these insiders signaling a positive outcome to this Phase III trial?
Christopher C. Grisanti is a magna cum laude graduate of Harvard Law School who gave up his partnership track law career at Simpson Thacher & Bartlett to become a professional stock picker. He’s now the Owner and Co-Founder of Grisanti Capital Management. In an interview on February 15, 2013, Grisanti cites HollyFrontier Corp (HFC) as a top pick:
“Many of the Wall Street analysts that have analyzed these refiners for 30 years don’t want to say things are different. They have a picture of refineries as very cyclical companies, but I think they don’t appreciate that there is a secular up trend that will continue, we think, for three or four more years that will help these guys earn record profits not for six or nine months but for literally half a decade. That’s why our biggest position is HollyFrontier (HFC), which is a terrific refiner. Valero (VLO) is our second biggest position. HollyFrontier paid five special dividends last year, they are generating so much cash,” Grisanti said.
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HFC announced on May 16 that it would pay yet another special dividend along with its regular quarterly shareholder payout; a special cash dividend in the amount of $0.50 per share, payable on June 10, 2013 to holders of record of common stock on May 29, 2013. The company will also be paying a regular quarterly dividend of $0.30 per share. This dividend will be paid on July 3, 2013 to holders of record of common stock on June 12, 2013.
Mr. Grisanti goes on to say that the next step for investors is the pipeline portion of this sector:
“The second way to play the oil renaissance, besides refineries, are pipelines. Pipelines are going to be a growth industry for at least another five years. Holly is a great refinery because it is near the oil. If that oil can be moved, especially if it can be moved to either coast, it’s even more valuable. If we can get the oil to the East and West Coast, that will be a tremendous boon to the refineries there because right now they have to import their oil from overseas. They are paying more for their oil so they would love to get their hands on the cheap oil.“
Perhaps this is why HollyFrontier’s partial subsidiary Holly Energy Partners, L.P. (HEP) is attracting institutional investors and insider purchases. Holly Energy Partners is a publicly traded limited partnership operating a system of petroleum product and crude oil pipelines, storage tanks, distribution terminals and loading rack facilities in West Texas, New Mexico, Utah, Arizona, Washington, Oklahoma, Kansas, Nevada, Wyoming and Idaho. HollyFrontier currently owns a 39% interest in HEP, including the 2% general partner interest.
Bruce Shaw, the President of Holly Energy Partners, bought another 7,000 units of his company on May 10, as reported to the SEC on May 14, for $37.34 per unit. This brings his total holdings to 32,972 units.
Institutional support for HEP is also being shown by the dean of MLP investing, Jerry Swank, who made an initial purchase of 5675 units for his investment fund Cushing MLP Asset Management, LP. Jerry Swank is the Founder and Managing Partner of Swank Capital, and he has 35 years of experience in investment management and investment analysis.
The combination of institutional support and insider buying into HEP indicates a positive story developing for this high-yield security.
