In what many analysts consider a surprise, Bob Kimball, RealNetworks’ CEO and a real force in turning the troubled company in a new direction after little more than one year has abruptly resigned. So far, Kimball has not really commented on his move. According to the firm’s press release outgoing CEO Kimball stated:
I took on this role to lead a restructuring and transformation of RealNetworks into a more lean, efficientand effective business and we have completed that phase of RealNetworks’ transformation. Over the past year we have simplified our business, removed more than $70 million in annualized operating expenses and created an entirely new, award-winning product called Unifi. We are delivering on our promise to build products people love. All this work has set the stage for Real to embark on its next phase with a clean bill of health and a strong foundation.
Investors Savings Bank (ISBC) featured company in The Wall Street Transcript
Dominick Cama, COO of Investors Savings Bank (ISBC), talked to The Wall Street Transcript about his company. Click here to read the complete interview.
TWST: Please start by briefly telling us the history of Investors Savings Bank.
Mr. Cama: Investors started in 1926 as a traditional savings and loan, making mortgages, providing CDs, offering traditional thrift products. Investors then evolved into a wholesale model – that is, buying mortgage-backed securities and funding those securities with wholesale borrowings from Wall Street. That business model continued for a number of years until 2003, when we decided to change the model from one focused on wholesale activities to one more dependent on retail activities. That meant making more loans and attracting more core deposits. We made the change because we felt the franchise would have more value if it were more retail like. Now we are working with retail customers instead of wholesale sources of business. This gives us an opportunity to expand the franchise and sell more bank products.
Volatility Drives Increased Retail Trading Volumes
Commodity price volatility and the positive market over the past two years is driving trading volumes higher among both longer-term and more active retail traders, says Richard Repetto, a principal at Sandler O’Neill + Partners, L.P.
“Equity volumes have been somewhat subdued, but have been a little bit better recently. On the retail side the retail trading activity has been relatively very strong,” Repetto said. “And so the key drivers for overall volumes, the industry volumes, derivative volumes or futures and options, it’s certainly been the recent volatility — that’s one thing that’s driving the strength of volumes.”
Repetto points to TD Ameritrade (AMTD) as his top pick in the online trading space. He says AMTD has the potential for continued earnings growth, it outperforms its peers and it has a longer-term strategy that may incorporate M&A.
“It’s a perfect example of buying on fundamentals and getting an option, so to speak, on consolidation,” Repetto said. “We think the company will be returning capital to shareholders in return of a buyback, and we think that it could even be more aggressive over the next year and up until the time E*TRADE (ETFC) deal or some other transaction surface.”
Demand Shifts to Equity & Alternative Products
Asset managers‘ inflows are increasing, as investors add equity and alternative products to their portfolios, a shift from the preference for fixed income that has dominated the investment landscape over the past two years, says Gabelli Analyst Macrae Sykes.
“I expect inflows to increase relative to the last two years because of the improving economy and greater confidence by investors,” Sykes said. “I believe investors are focused on equity products and alternatives products that provide uncorrelated returns to the market. We’re also seeing a shift towards equity products with alternative returns attributions.”
Sykes says BlackRock (BLK) is his top pick among asset managers. BLK is uniquely positioned to benefit from increased institutional demand for alternatives, Sykes says, and it has numerous competitive advantages over its competitors.
“[BlackRock‘s] asset mix is changing positively due to AUM increases from the ETF and alternatives businesses, which have higher margins,” Sykes said. “So although aggregate firm AUM is growing at industry rates, the higher-margin businesses are growing faster and therefore will enable the firm to increase earnings. BlackRock generates significant free cash, which management is using to buy back shares and increase the dividend.”
Amid Wavering Domestic Demand, Quick-Service Restaurants Look Abroad
Quick-service restaurants have their sights set abroad, as international expansion provides growth opportunities beyond a domestic environment marked by reduced traffic, Argus Research Analyst John Staszak says.
“Fuel prices are high and people are feeling pinched because of rising prices, but I’m still kind of bullish on quick-service restaurants. I think they should do okay, but it’s kind of weak demand here because of joblessness and the weak housing,” Staszak said. “So I’m really looking at quick-service restaurants that are growing internationally.”
Yum! Brands (YUM) is a quick-service restaurant with contrasting domestic and international realities. While the company has struggled to increase domestic same-store sales for its KFC brand, Yum! is quickly increasing its presence in China.
“Yum! Brands is growing rapidly in China, and they have a lot of room to grow in China,” Staszak said. “They just have 1.5 restaurants per million customers, and they usually handle more than that, 60 restaurants per million people here in the United States. So they’re far from saturation in China.”
Latest Acquisition Target in the Specialty Chemicals Industry: The Lubrizol Corp. (LZ)
The specialty chemicals space continues its favorable run that began in 2010, with strong end-market demand despite commodity cost headwinds. Improved portfolios and leaner balance sheets make some specialty chemicals companies ripe for acquisitions, says Credit Suisse Managing Director John McNulty.
The most recent evidence is Berkshire Hathaway’s (BRK-A) March 14 announcement to acquire The Lubrizol Corp. (LZ) for $135 per share in an all-cash transaction. The specialty chemicals company, which produces technologies for the transportation, industrial and consumer markets worldwide, will be acquired at a value of approximately $9.7 billion — one of Berkshire Hathaway‘s largest acquisitions ever — a 28% premium over Lubrizol‘s March 11 closing price.
Lubrizol gained an increase in earnings power over the past several years, benefiting from consolidation in the specialty chemicals industry, said Senior Research Analyst Dmitry Silversteyn in a June 2010 interview with The Wall Street Transcript. Silversteyn correctly forecasted a target price in the $130 range for Lubrizol, up from June 2010′s stock price in the $80-$85 range.
The analyst sees the expansive opportunities in specialty chemicals as appealing to many types of investors.
“There are investments here for every type of investor, both in terms of cap consideration as well as in terms of value, growth at reasonable price, or just outright growth. I think this is a volatile enough industry for short-term traders,” Silversteyn said in a March 2011 interview with TWST. “It also has evolving stories that will take some time to work where the market is still skeptical as to their ultimate success, which are suitable for value investors. I think if you have a theme and a style, there are stocks in my universe that would fit that.”
Portfolio Re-Risking Boosts Demand for Asset Managers
As investors take on additional risk, asset management companies with above-average equity and alternative asset exposure are seeing increased demand for their products, says Daniel Fannon, a senior research analyst at Jefferies & Company, Inc.
“The backdrop in the fourth quarter is clearly a move towards more risk. So we’re seeing a greater demand or greater growth towards more risk-oriented assets, and that includes equities as well as alternative-based products,” Fannon said. “So we’re seeing demand for liquid alternatives as well as increasingly private equity, which is more on the hedge-fund side, as well as more risk going back to what would be traditional asset managers.”
Fannon’s top stock picks in the asset management space are Invesco Ltd. (IVZ) and Affiliated Managers Group (AMG). These companies benefited from favorable market activity over the past 18 months, which boosted their margins and asset levels, and accelerated inflows.
“Those are both firms that I think are either actually gathering inflows on a consistent basis,” Fannon said. “And that would be AMG with their emerging market and international exposure, or a firm like Invesco that is positioned to see flows improve as the markets get better and the distribution relationships that they’ve forged over the last couple of years really begin to mature and manifest, and see flows come through as a result.”
Restaurants That Reflect Labor Segmentation Emerge as Winners
Restaurants employing differentiated concepts that appeal to insulated demographic sectors with tighter levels of employment are outperforming their peers, says Phillip Juhan, CFA, an analyst at BMO Capital Markets.
“We believe there is this dichotomy that exists within the restaurant space, and it’s really a result of real stratification in the labor markets. So there is this labor divide in the U.S., and on one side, you have this group of younger, less-educated, less-skilled, blue-collar workers who tend to earn less that continue to suffer from high levels of unemployment. And on the other side of the labor divide you have an older — and by older I mean 35-plus — more-skilled, more-educated, white-collar worker who tends to earn more that’s enjoying relatively robust levels of employment,” Juhan said. “I think that backdrop really sort of gives you a sense as to why the winners are winning and why the losers are losing.”
Juhan has an “outperform” on Panera Bread Co. (PNRA), a fast casual dining company targeting the more financially secure demographic. Moreover, PNRA has pricing power, and its stock valuation has increased by 20% since early February, Juhan says.
“Panera fits well into our industry thesis, that we’ve described a couple of times here now, with high-quality products, broad appeal, specific appeal to higher-income households and frankly, a lot of levers to pull to continue to drive the top line,” Juhan said. “Panera can continue to accelerate capacity growth and leverage recent/ongoing investments in their loyalty program, increased advertising and catering infrastructure.”
Infrastructure, Timber and Agriculture: Hedge Against Inflation and Play Emerging Market Growth
In addition to providing a hedge against inflation, infrastructure, timber and agriculture have relatively inelastic demand, and they are heavily attuned to emerging market growth, says Michael D. Underhill, the CIO and Founder of Capital Innovations, LLC.
“People are buying fewer cars, they are spending less money on things like appliances, but do you ever hear people saying, ‘I’m eating less,’ or do you ever hear people say, ‘I’m really using the toilet less’?” Underhill said. “So that inelasticity demand for water infrastructure and waste water is there; that can’t go away. And so that ability to pass on price increases through regulated utilities makes infrastructure attractive.”
Underhill says such global growth dynamics as a rapidly increasing population and infrastructure vacuums make these asset classes even more attractive to investors, because demand for infrastructure, timber and agricultural goods will increase alongside global growth.
“Population demographics [drive] consumption patterns for food and water, transportation development, energy needs and growing natural resource depletion, the ubiquitous battle for food, fuel, fire,” Underhill said. “When you look at those population demographics and the supply chain dynamics coupled with constraints in the emerging markets, it is not difficult to see that these stresses are leading to a virtuous circle of investment opportunities.”
Thinking Outside the Box is Not Always Best – Sears
Eddie Lambert, the once famed investor, who has been struggling for the last number of years trying to turn his controllinginvestment in Sears into something positive, just announced, after a three year search, the appointment of another new CEO. Lambert’s selection of Lou D’Ambrosio, a former IBM executive and CEO of Avaya, is another suspect out
-of-the-box selection that has many people scratching their heads. D’Ambrosio an effective high-powered executive with substantial CEO and management experience primarily in the telecom and tech fields has no experience in retail. A lack of retail experience would seem to be imperative for an organization like Sears. While D’Ambrosio has been working with Lambert and Sears as a consultant he is now going to be in charge. What can Lambert be thinking?
According to an article by Jeannine Poggi for TheStreet.com,
In a letter to investors, Lampert said D’Ambrosio is the right man for the job due to his “information and technology background, leadership style and experience in leading and transforming a Fortune 500 company.”« Previous Page — Next Page »
