in our 7-27-09 Oil & Gas Report we spoke with Chris Pikul of Morgan Keegan & Co., Inc. and he gave us his outlook for the Sector and did have two companies he liked at this juncture:
Mr. Pikul: There’s a two-pronged approach here. As oil continues to provide strength to the group, I’ve been recommending some small cap levered companies, specifically Whiting Petroleum (WLL) and Berry Petroleum (BRY). Both companies trade at a discount to what I think their net asset value is. Largely they were beaten up due to financing concerns, but both have since repaired their balance sheets to a great extent.
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Detroit, Michigan- home of the struggling U.S. auto industry- has fared worst than most in the face of the current economic climate. We spoke with portfolio manager Christopher Ruth of Comerica Asset Management– based out of Detroit, Michigan- about how the city is handling the downturn, and what the outlook is for the future:
Mr. Ruth: This current economic downturn is on par with what happened back in the horrible recession of 1981 and 1982. Michigan’s unemployment rate is getting right up to where it was back in the early 1980s…The difference this time around, for Michigan in particular, is that the automotive industry going into this recession is a smaller portion of the Michigan economy than it had been in the early 1980s. The current economic decline is still very painful and the Michigan unemployment rate, currently above 14%, is certainly very troubling. We are likely closer to the ultimate bottom caused by the automotive industry this time than what occurred in the 1980s. The other big difference today is that no one has the feeling that the auto industry will bounce back, which everyone thought back in the early 1980s. This time around, we all know it’s different and while we are relieved that at least auto sales have stabilized, it’s now, “Show me that the government’s intervention can actually work out.”
For the Investing Strategies report, including a full interview with Mr. Ruth, as well as portfolio managers from a variety of portfolio focuses and investment styles, click here.
Thomas Bonney of CMF Associates wrote a piece for the deal.com examining the increasing reduction of barriers between the cfo and coo positions in many companies. Bonney wrote,
CFO and COO role shifts are most frequently on the rise at companies where there is a weakness in leadership at either position. The challenges of the current economic environment have exposed individuals who have reached the peak of their functional level competency and are unable to develop a broader skill set that extends across functions; these individuals are increasingly being terminated by boards and private equity firms in conjunction with overall talent upgrade initiatives to deal with tougher times.
Another driver behind the blending of the CFO and COO roles is businesses’ heightened need for rapid and accurate decision-making, despite an environment that fosters fewer reliable, relevant facts. External competitive and economic pressures are resulting in increased financial and operational ambiguity, while, at the same time, mandating better executive judgment calls. In the sub-$100 million revenue world of the middle market, this decision-making must cross functional lines, thus further blurring the line between CFO and COO responsibilities.
The article should be read by anyone interested in corporate management.
In our recent REITs Report we spoke with David Aubuchon of Robert W. Baird & Co. Inc. where he discussed the outlook for REITs and a new asset class of REITs – Data Centers:
“Digital Realty focuses on data centers. That is a fairly new real estate asset class and there’s a huge amount of demand for data centers, given the huge increase in Web-based activities from social networking sites, retailing, outsourcing from corporations, and the amount of video and music that is conducted over the Internet. It’s pretty dramatic. All of that is really increasing the demand for data center space, places to store our data digitally.”
“Digital is the one REIT I cover that could be labeled as having positive fundamentals now and for the foreseeable future.”
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This week, as part of our Investing Strategies Report, we spoke with analyst Sandy Mehta of Acumen Capital Managment. Acumen is a company that focuses specifically on investing in Asian companies. Here are some of the companies they’re looking at favorably now:
For the complete Investing Strategies Report, including a full interview with Mr. Mehta and a variety of other portfolio managers, click here.
Former CitiGroup chairman Win Bischoff has just been appointed chairman of the U.K.’s Lloyds Banking Group. Bischoff who failed to show much foresight while chairman at Citi is now in a similar position. Does anyone ever learn from previous history?
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As part of our Oil & Gas E&P Report we spoke with Philip J. McPherson of Global Hunter Securities, LLC and he gave us his Outlook for OIL & GAS E&P and a unique play in the E&P market:
“When I look at the future and I look at the energy space, I still think it’s one of the best places to be in the long term and whether you want to believe in it because of the inflationary trade or the weak dollar, I just go back to the fundamentals of the amount of people who are increasing their energy consumption.”
Unique play in Oil and Gas – Evolution Petroleum (EPM)
“Evolution Petroleum has a unique play in that they have a big partner in Denbury Resources developing a large oil field in Louisiana. The amount of oil in this project, assuming a $60 oil deck, is worth approximately $5 or $6 per share and currently the company is trading at $2.50 a share so I think you’ve got an easy double there just as an NAV play.”
2009 is a year when E&P companies are not getting paid to grow so maintaining a strong balance sheet and maintaining production rather than growing is actually being rewarded, more than growing simply for the sake of growth.
In our Investing Strategies report this week, we talked with a variety of Portfolio Managers about their investment strategy. As part of this, they talked a little about the exact moment they decide to sell one of their holdings. Here’s what three of them had to say:
Tina Larsson, Pendo LLC (International Core Value Investing):
Ms. Larsson: We sell if we made a mistake and our initial thesis was wrong or didn’t hold. We sell if the performance met or exceeded our expectations, or if our risk/reward characteristic has changed and no longer meets our investment guidelines, or if an additional investment idea has a more favorable risk/reward characteristic.
Michael Keller, Brown Brothers Harriman (Large Cap Core Investing):
Mr. Keller : We sell when a stock reaches its intrinsic value. The good outcome from our perspective is when we purchase a stock at a large discount to intrinsic value, the intrinsic value and share price grow over time and eventually converge, and we exit at or near our estimate of intrinsic value. We don’t try to ride a stock above its intrinsic value because of positive price momentum. We prefer to transfer our assets into a different security with a discount to intrinsic value or just revert to cash. We consider that a good outcome, and we’ve been able to do that successfully a few times over the last couple of years.
Greg Melvin, C.S. McKee (Large Cap and Small Cap Equity and Fixed Income)
Mr. Melvin: [We] sell when they get to be overvalued or fairly valued with no technical support or higher risk. We rank every stock one to 100 on valuation, one to 100 on technicals – which is price momentum and earnings momentum – one to 100 on risk, and when they get to be 70 or above, they become sell candidates. We may sell them earlier than that, but they’re sell candidates when they get into the overvalued stage, and then generally buy something from the top three deciles.
For the complete Investing Strategies issue, including full interviews with each of these portfolio managers, as well as additional portfolio managers from a wide variety of investment strategies, click here.
Wolseley WOS (LSE) the distributor of building materials announced its CEO since 2006, Chip Horn
sby, would resign immediately. Hornsby was made CEO in 2006. Not long 
after his ascendance to the top, the company found itself facing the growing housing difficulties particularly its operations in the United States. At the point at which the housing market began to decline, Hornsby initiated a number of strategies to cut overall expenses particularly in the building supply area. Even with these policies in place, the firm saw its share price and profits continue to decline.
In Hornsby’s place the board has selected Ian Meakins. He was previously chief executive of currency exchange company Travelex. Prior to that he held executive positions wi
th the pharmacist chain Alliance UniChem and drinks maker Diageo. Meakins is an accomplished executive it is difficult to determine if he is a good fit for Wolseley. One can expect some real changes in strategy after he takes over his post and gets situated. Stay tuned.
In this week’s issue of TWST we spoke to Heather Douglas and Andrew Mikitchook of Thomas Weisel Partners Canada Inc. about Investing in Gold. For Heather it’s Kinross Gold that stands above the rest;
Ms. Douglas: Among the seniors, we have been recommending Kinross Gold. They’ve delivered two key projects in the last year, Kupol and Paracatu. They are in the process of delivering growth and now they are re-establishing an interesting pipeline with Fruta del Norte in Ecuador and Lobo-Marte in Chile. Kinross has a very nice operating margin, so their cash costs are quite attractive, and their valuation in our view is attractive relative to their peers
To unearth the full story be sure to read the entire 99 page report on Gold and Precious Metals which includes 1 analyst, 2 money managers, and 21 sector firms. Also remember to follow us at Twitter at twst.com/wstranscript for exclusive content
