The supply of metallurgical coal has yet to satiate Chinese steelmakers’ appetites, and the shortage gives coal producers leverage while attracting investors to met-coal companies, says Jeremy Sussman, a senior analyst at Brean Murray Carret & Co., LLC.
“We think that global metallurgical is going to be in short supply for the foreseeable future,” Sussman said. “China has had the biggest impact in terms of patterns of change recently. In 2008 China accounted for just about 2% of the global seaborne coal market in terms of imports. This year, they are on pace to be somewhere in the 15%-plus, maybe 20% range of total seaborne imports.”
Australia and the U.S. account for about 75% of the seaborne market for met coal. However, Australia lacks the infrastructure to fulfill rapidly growing demand, and logistical complications in the U.S., including EPA regulations and Western mines’ lack of access to ports, will keep exportable production low, Sussman says. As a result, coal producers will have the upper hand in negotiations with steelmakers.
Alpha Natural Resources (ANR), the largest U.S. met-coal producer, is his top pick, Sussman says, adding, “Alpha’s trading is just about five and a half times 2011 and actually above five times 2012 estimates, which, given our view on the global tightness of this particular commodity — metallurgical coal, that is — frankly, we think investors buying Alpha here are still getting a very nice bargain at those levels.”
Investment demand for gold continues to increase, as central banks become net buyers of the commodity, which is forecasted to top $1,600 an ounce by 2012, says Jorge Beristain, an analyst at Deutsche Bank Securities.
“What we’re seeing now is emerging-market central banks stepping in as new buyers of gold for the first time, while developed-market central banks have stopped selling,” Beristain said. “So we’re seeing central banks going from a net supply position to a net demand position, and that could be termed as additional investment demand as well, and one of a more long-term nature.”
China, Brazil and Russia each hold less than 10% of their assets in gold, compared to two-thirds by central banks in developed markets, Beristain says. As these markets develop, gold demand is predicted to increase further.
“As emerging market countries become wealthier both from a balance of trade and simply continuing to maintain a relative similar percentage of gold, that could be a driver for increased gold demand,” Beristain said. “But additionally, we think that these central banks are re-evaluating how much gold they want to hold as a percentage of their overall assets, which could be a further driver.”
Back in late September we examined for the second time the problems William Weldon, Johnson and Johnson’s JNJ (NYSE) CEO, faced after firm encountered a spate of major over the counter drug recalls. Johnson & Johnson under Weldon’s leadership has not done a great job in handling these problems and for that matter, continues to find itself facing new problems. Just recently one of the firm’s subsidiaries had to recall one of the firm’s over the counter antacid products, Rolaids. Up to this point the board has appeared to support Weldon but we finally 
have seen some action in this area. Earlier this week J&J, as reported in the Wall Street Journal, announced some management changes that have increased the battle for Weldon’s succession. According to the Journal,
J&J, New Brunswick, N.J., named Alex Gorsky, head of the medical devices & diagnostics unit, and Sheri McCoy, who heads the pharmaceutical unit, as vice chairmen of the executive committee and members of the office of the chairman, effective Jan. 3, 2011.
The race to succeed Weldon had previously appeared to be narrowed to Gorsky and McCoy in September when Colleen Goggins said she planned to step down as head of J&J’s third major unit, the consumer healthcare business. The consumer unit has been beleaguered by a series of product recalls due to quality lapses.
Johnson and Johnson must find new ways to get its house in order. Despite good financial results the continuing recall problems could ultimately have a very adverse impact on the firm going forward. Stay tuned as succession plans appear to be moving full steam ahead.
A secular trend toward software as a service is driving growth for smaller SaaS players while presenting opportunities for longer-term investors, says Gregory Dunham, an analyst at Credit Suisse Group.
“There is just a general shift that is driving growth for many of these interesting companies out there as they are providing a solution that’s cheap, it’s easy to deploy [and] you get much higher ROI on some of these offerings because it doesn’t require upfront capital investments,” Dunham said.
Dunham points to SuccessFactors (SFSF) as the fastest-growing SaaS company and one of his top-rated stock picks. SFSF developed the Employee Central product, a suite with the potential to become a full human resources information system, and it is releasing five products that could each be a billion-dollar market in Inform, SuccessFactors‘ workforce analytics product.
“They will post probably north of 30% billings growth on an organic basis this year. They generate $0.20 on the dollar in free cash flow. So they generate good cash flow, they are growing the fastest, and they are releasing — they are evolving the product portfolio to really address a very big market opportunity,” Dunham said.
As some states consider legalizing casinos and gaming to replenish revenue streams, gaming suppliers will benefit from any expansion in the space, KeyBanc Capital Markets Analyst Dennis I. Forst says.
“Even though the replacement market and the economy are weak, we still are favorably disposed toward the gaming suppliers because no matter who wins the beauty contest, they are going to have to buy slot machines and table games,” Forst said. “And that’s a big opportunity for the IGTs (IGT) and WMSs (WMS) of the world.”
Forst says that of his top four suppliers, his favorite picks at current prices are WMS Industries and Shuffle Master (SHFL). He says WMS has the hottest games, the best balance sheet and the most technology, while Shuffle Master dominates as the table game supplier.
Forst adds, “IGT is the 500-pound gorilla, probably losing a little domestic market share, but given their huge library and their software content and also the R&D effort, they are continuing to make the international markets more important to them.”
Online advertisers and e-commerce companies increasingly use social media, such as Facebook, to reach consumers, revealing individual interests more efficiently and generally benefiting the Internet space, Social Media Analyst Lou Kerner of Wedbush Securities says.
“Certainly everybody is integrating with Facebook and deploying the Facebook Connect button on their Web sites, even MySpace, and they all want access to the information available in the social graph,” Kerner said. “Microsoft’s (MSFT) Bing, with its partnership with Facebook, is already leveraging the ‘like’ button information into its search results, and so that’s a good example of how the social graph is being leveraged for search today.”
Considering the impact of social media, investors should have exposure to both Internet advertising and e-commerce companies that are moving advertising dollars online to leverage social media, Kerner says. This includes companies like Amazon (AMZN) and Travelzoo (TZOO), and those using Facebook and Twitter to build a following, like Verizon (VZ), Coke (KO) and Kraft (KFT).
“The most important thing to realize about the social layer is that it’s going to broadly benefit the Internet in total,” Kerner said. “As a result of the social layer, advertising and e-commerce are both going to become more efficient online.”
Jeffrey Kindler, Pfizer’s PFE (NYSE) CEO for the last four years, announced his resignation on Sunday. The firm announced that Kindler would be replaced with longtime employee and executive, Ian C. Read. Kindler’s weekend resignation announcement has been interpreted by many as an ouster. Pfizer has been languishing for sometime under Kindler’s tutelage. This has all been happening while many of the other big pharma companies have been doing quite well. Despite a major reorganization and tremendous acquisitions (2009 acquisition of Wyeth Drugs) while in char
ge, Kindler, a lawyer by trade with a focus on sales, has found himself under pressure from shareholders and apparently the board. While in charge, Kindler saw a number of research related failures with regard to potential blockbuster drugs and has been in charge as
major patented drugs will see their protection expire shortly, e.g., Lipitor.According to the company’s press release Kindler was quoted on the change as follows,
My nearly nine years at Pfizer and, particularly the last four and a half as CEO, have been extremely exciting and rewarding. I feel our team can proudly boast of some transformational accomplishments. However, the combination of meeting the requirements of our many stakeholders around the world and the 24/7 nature of my responsibilities, has made this period extremely demanding on me personally. Now that we are about to complete a full year of operating Pfizer and Wyeth together, with our world-class team fully in place, I have concluded the time is right to turn the leadership of the company over to Ian Read. Ian is an outstanding and experienced pharmaceutical executive who I know will make the next phase of the company’s future a successful one. He is more than ready to take on these responsibilities and I am excited at the opportunity to recharge my batteries, spend some rare time with my family, and prepare for the next challenge in my career.
The sudden change at Pfizer seems to make a great deal of sense. The appointment of Read, an in-house executive with vast experience, is the right type of change for such a large company that needs to get back down to basics on all its different business fronts. Keep a close eye on the firm as we move forward. Read is already in charge.
Thomas G. Conforti, Executive Vice President and Chief Financial Officer of Wyndham Worldwide Corporation (WYN), talked to The Wall Street Transcript about his company. Click here to read the complete interview.
TWST: Wyndham is a well-known name but it would be helpful if you could start with a brief history of the company and an overview of your brands and operations.
Mr. Conforti: Wyndham Worldwide’s corporate history can be traced back to the 1990 formation of HFS, Hospitality Franchise Systems. It initially began as a hotel franchisor, then later it extended its hospitality business and became a major real estate and car rental franchisor as well. In late 1997, HFS merged with another company to form Cendant, and then it stayed a part of Cendant until 2006 when Cendant spun off all of its businesses, and we became an independent public company. So those are the historical origins of our company.
Now we have three business units. We have a hotel franchising business with such recognizable brands as Days Inn, Super 8, Ramada, Howard Johnson, and other brands as well, and of course Wyndham. In our hotel business, our brands are mostly found as economy and midscale brands. Wyndham is an upscale brand, and we’re developing a greater presence of Wyndham around the world. We have a second business unit, the Wyndham Exchange & Rentals business. That division includes a European vacation rental business that has operating presence in the UK, Denmark, Holland. Many of the rental properties that we rent can be found throughout Europe. Brands that are associated with our European Vacation Rental business include the Hoseasons brand in the UK. Our Scandinavian business is branded under the name Novasol, and our business in Holland has the brand Landal. They are all European vacation rental business, where we act as a value-added intermediary between people who own vacation homes and people who want to rent them. We recently purchased a U.S. vacation rental business, ResortQuest. The business unit also includes a time-share exchange business under the brand name RCI. We are the largest time-share exchange company in the world. Combined, our vacation rental and exchange business generates around $300 million of EBITDA.
As the demand for granularity in managing covered lives increases, pharmacy benefit managers are placing greater focus on pharmacogenomics, or personalized medicine, and more payors are accepting it, says Tony Perkins, an analyst at First Analysis Securities Corp.
“Right now we are seeing payors accept or seek pharmacogenomics more often than they have in past,” Perkins said. “These payors have the ability to analyze their covered lives‘ genetics to prescribe the correct drug at the correct dosage for that person. We believe payors like the benefit and are willing to pay extra for it.”
Perkins points to MedcoHealth Solutions (MHS) as the leader in pharmacogenomics, with 11 million covered lives and more than 250 payors. He says there is a higher client retention rate for personalized medicine, making the pharmacy benefit manager–payor relationship stronger.
“More payors are interested in offering the benefit to their covered lives and more PBMs will be offering the benefit in the near future,” Perkins said. “Therefore, we believe the supply and demand may not be equal at this point, but in the near future, we would assume more supply is going to come online to fulfill the industry demand. We think pharmacogenomics is still somewhat under the radar, especially in the middle market, because not all payors are aware of the benefit.”
Longer patent periods and lower clinical and regulatory risks make biologics an attractive investment opportunity, says Dr. Jason Kantor, a senior analyst at RBC Capital Markets.
“I think we’re still very much in the middle of a long-term trend moving towards biologics,” Kantor said. “Pharma companies have realized that they need to drive a substantial portion of their revenue and their pipeline from these types of products.”
The path to generic biologics is paved with technical and legislative hurdles, which also bodes well for the space right now. Over the longer term, Kantor likes Seattle Genetics (SGEN), a pure-play antibody company.
“They have a lead drug, which has just demonstrated very robust activity in Hodgkin’s lymphoma and a rare form of T-cell lymphoma, and they are planning to take that to the market themselves next year,” Kantor said. “They’ve got a pipeline of drugs behind that, and along with the partners as well. It’s one of the small-cap companies that has all the essential ingredients to grow from a $1 billion- to $2 billion-market-cap company into the true mid-cap range of $2 billion to $5 billion over time.”
