The never ending saga of Bank of America and the search for Ken Lewis’ replacement continues. According to a story by Dan Fitzgerald and Joann S. Lublin for the Wall Street Journal,
Bank of America Corp.’s search for a new CEO has slowed as directors sift through outside candidates that are in short supply, according to people familiar with the process.
Check out the entire story.For more:NY Post
As part of our recent 69 page Transportation & Logistics Report we spoke with David Campbell Sr. at Thompson, Davis & Company. He gave his outlook for the entire sector including some smaller companiesthat seemed well positioned to survive;
TWST: You mentioned a couple of smaller names as well. What’s the interest in smaller names in a tough environment like this?
Mr. Campbell: The smaller, well-capitalized companies like Forward Air and Express-1 are beneficiaries in the United States of their financial strength, vis-à-vis some larger companies that don’t have profitable operations. We look for beneficiaries of financial strength, and the capacity to carry more business without adding debt to balance sheets. These two are good examples of that
TWST: Where are they picking up market share from?
Mr. Campbell: We think that companies like Forward Air and Express-1 would benefit from traffic lost by Roadway or other highly leveraged, bigger competitors that may be terminating markets in their systems. Forward Air does not carry ground freight, but some of its freight could be and has been carried by less profitable trucking companies. Forward Air may benefit from gains in market share, as well as growth in the international part of its business, where the company picks up and delivers international freight in the U.S.
TWST: As the economy gets better, can they hold their gains in market share or are they likely to give some of those up?
Mr. Campbell: It may be difficult for competitors who lost the traffic to get it back. Customers are satisfied with Forward Air and Express-1 services, and so they are probably going to retain a lot of that traffic.
In our Recent Online And Direct To Consumer Retailing, Frederick Moran Managing Director of The Benchmark Company, LLC compares online retailers’ performance to that of traditional brick-and-mortar retailers, noting that the former group better withstood the economic recession as a result of being younger, less burdened by inventory and generally more efficient. However, he goes on to clarify that the secular market shift toward online retailers continued but did not accelerate during the downturn. Mr. Moran had four buy recommendations below is one to get the other three read the full Online And Direct To Consumer Retailing Report ;
Mr. Moran: Maybe I will just mention my specific thesis on each of my buy recommendations. I have four “buy”-rated stocks right now. The first one is GSI Commerce, ticker GSIC, a $19 stock with a $25 price target. GSIC is a $1 billion company, both in terms of revenue and market cap, and it is an extremely unique e-commerce operator. They don’t actually brand anything or sell any of their own products, all they do is facilitate the Internet service for other retailers. They basically produce the Web site, control the warehouse, take the orders and do the deliveries for 100 different partners from Dick’s Sporting Goods to Sports Authority to the professional sports leagues and others. This year GSI is growing new partners at a record pace and seeing positive growth out of their existing partners. The company has never lost a partner to taking the service in-house or to a competitor. The only time they’ve lost a partner is because that partner went bankrupt for company-specific reasons. So I think GSI has the ability to grow cash flow 15% to 20% a year, including this year during the downturn. And we could possibly see an acceleration from that level if the economy allows for it.
Adaptec’s ADPT (NASDAQ) CEO, S. Sundaresh, has come under increasing pressure. Adaptec creates hardware and software to manage, protect and store digital data. Last week on October 22, RiskMetrics Group and Proxy Governance Inc. pressed for the removal of Sundaresh as Adaptec’s CEO. The pressure ratcheded up today when Steel Partners, the activist hedge fund and large shareholder in the company, continued its push to get Adaptec shareholders to follow suit by signing what is known as the White consent card. Steel Partners put out a press release today over Business Wire that was included in a Reuters link. Adaptec continues to fight back to
try and stop the Steel Partners push. Back on October 6, Adaptec put out its own release to counter the arguments being made by Steel Partners.
Keep a close eye on how this all plays out. Activist investors are beginning to raise their heads again.
Nanette Byrnes wrote a fascinating blog last Friday for Businessweek’s Management IQ. Her blog piece examined a study by Paul Kaltya of McGill University that looked at how certain CEOs have managed their respective company prior to retirement and what it has meant in relation to stock performance and the CEO’s respective retirement payouts. Byrnes wrote,
The study by Paul Kalyta of McGill University finds that a CEO whose retirement pay depends in part on the company’s performance in his final years at the helm, will manage earnings up as he approaches retirement. After he’s gone, the stocks tend to drop sharply.
By contrast, companies whose CEOs don’t have this type of provisions in their Supplemental Employee Retirement Plan, or SERP, don’t suffer similar spikes and drop offs.
Event-driven funds should take a look at the study as well as anyone interested in executive turnover and its potential impact on stock performance. The report can be found in the Accounting Review as pointed out in Ms. Byrnes piece.
In the October 19 Biotechnology Report, Biotech industry expert Maged Shenouda discusses the outlook for the sector and for investors. Mr. Shenouda is an Executive Director in the health care group of UBS Investment Research, specializing in coverage of large-cap biotechnology companies. An Analyst since 1999, he joined UBS in 2004 from J.P. Morgan, where he had served as a Biotechnology Analyst since 2000. Mr. Shenouda earlier worked as biotech and European Pharmaceuticals Analyst at Bear, Stearns & Co., and as an Associate Pharmaceuticals Analyst at Solomon Smith Barney. Prior to that, he was a Management Consultant with Price Waterhouse, focusing on the pharmaceutical industry, and he served as a Pharmaceutical Sales Representative for Abbott Laboratories. Mr. Shenouda holds an MBA in marketing from Rutgers University and a B.S. in pharmacy from St. John’s University’s College of Pharmacy. He is a registered pharmacist in New Jersey and California.
TWST: What do you expect the sector to look like in five years?
Mr. Shenouda: We probably will have fewer large-cap names. I think we’ll probably see some acquisitions – I think Biogen Idec (BIIB) is on its way to being acquired at some point, with Carl Icahn involved in the name as well and having put themselves on the block about a year ago. That seems to be a foregone conclusion now. But the big question is at what price will it be acquired? Then we could see maybe one other name going. With one or two names going away, the sector becomes a few large caps with most companies in the mid- and small-cap categories. We’re also going to see more and more collaborations between biotech and pharma and/or large-cap biotech.
TWST: What stocks do you feel are representative of your investment approach and what particular industries or sectors are you favoring?
Mr. Katz: The biggest sectors right now in the portfolio are technology, financials, industrials and energy, and we also have of late been building exposure in the healthcare area where we have been under-weighted. In terms of our technology positions, we are focused on the bluest chip companies, market leaders in their respective field, so names like (DELL) Dell, Microsoft (MSFT), Cisco (CSCO) on the mega-cap side, of the mid-size businesses, companies like Novellus (NVLS) and Analog Devices (ADI). We also have some Internet exposure with positions in both eBay (EBAY) and Yahoo! (YHOO). In terms of the energy exposure right now, we like names such as Conoco (COP), Chevron (CVX), Devon Energy (DVN) and Valero (VLO). Energy actually has been one of the few groups that have underperformed the market by a significant margin this year. It was also a loser in last year’s sell off. As a result we think energy stocks have a lot of pent-up excess performance. Oil prices have gone from $35 to $70, but the energy stocks haven’t really reacted to that yet. So that’s an area that we also like. We’ve mentioned financials before. Our favorites there are names like Morgan Stanley (MS), American Express (AXP) and Western Union (WU). We also have a position in Bank of America (BAC) which has been a rougher ride than most. But we think that the company has righted itself, that they have a very good business franchise, and have easily north of $3 per share of earnings power. So right now, we think is worth in the $35 to $40 range, hence it can go up another 100% from here. Then we have a mix of other businesses like a Walgreen’s (WAG) or a Wal-Mart (WMT) or a Tyco International (TYC). On the healthcare side, we have tried to focus on businesses that are least exposed to the Obama Administration. Healthcare efforts of companies like a Medtronic (MDT) or a Zimmer (ZMH) or a Genzyme (GENZ) are all very good non-pharmaceutical businesses, which provide a lot of value and we think are less subject to politically induced pricing pressure. They are selling at 10 or 11 time earnings whereas they normally sell at an overall stock market multiple, which is significantly higher.
Mindy Grossman, the CEO of HSNi (HSNI), in her exclusive interview with the Wall Street Transcript, is now seeing almost 50% of sales coming from a product “that hasn’t been on television for 72 hours prior or after” indicating that the HSNi business is now becoming much more than a television shopping network. This is an extremely positive development and Ms. Grossman states that “my organization’s complete focus is to do everything we can to create significant value in this business” as speculation builds about a merger between HSN and QVC, the rival shopping network owned by Liberty Media (LINTA).
It’s official, Ken Lewis, Bank of America’s embattled CEO announced his planned resignation for the end of the year. Lewis in a letter to Bank of America employees explained his reasons for resigning. The letter included in the WSJ’s Deal Journal stated that Lewis’ decision to resign was his alone and that he was not pressured to do so. Whatever the reason, his planned exit is the end of a sad chapter at the bank and hopefully the beginning of a new era for the bank, an unlikely scenario at this point.
The important issue now is for the board to find a new CEO who can help to restore confidence in the bank and its future.
Standish M. Fleming of Forward Ventures specializes in venture capital investing, mainly in biopharmaceuticals. He invests in early clinical-stage assets and he has founded a number of companies. Generally, he invests in early venture rounds but in fairly mature technologies that are already in clinical testing and in the case of medical devices often in marketed products. He does have some concerns;
“What is probably the biggest long-term threat to the sustainability of the bio-venture market is an ongoing and permanent dislocation between pricing and underlying values, whether the values are too high or too low. That creates an environment in which we cannot reliably invest in and build these companies over the extended period of time that we need to bring a new pharmaceutical to market.”
Going forward he also has some concerns
“It takes a cost of $2.1 billion to bring a new molecule to market today. That price continues to grow at a geometric rate. If people cannot reasonably expect to recoup that kind of investment, they are simply not going to make it. Innovation is going to be the first thing to die in the pharmaceutical world. We can lose generations of potential new drugs here and destroy an infrastructure that we may never be able to rebuild.”
