As part of our special focus on Gold and Precious Metals, we spoke with analysts Heather Douglas and Andrew Mikitchook of Thomas Weisel Partners about the space. Their outlook for this space, for the near term at least, was actually quite positive:
Ms. Douglas: Our 12-month expectations are positive for gold. We are aware that the early summer months are usually a more sideways period for the commodity, and we view pullbacks as opportunities to re-enter. We’ve identified some interesting developers who, even if the gold price doesn’t move, have the opportunity of showing price appreciation as they advance their projects, have exploration success, and bring projects into production. So that’s our June 2009 view.
TWST: It sounds more positive than anything else.
Ms. Douglas: Still positive. For the generalists, I do recommend exposure to gold first and then extra work to look at the companies, to be familiar with the specific risks with each of the companies.
TWST: When you say gold first, how do you recommend they play it?Ms. Douglas: It depends on the investor. The GLD ETF is obviously one way, but there are other ways for them to get only the gold exposure diversification they are seeking without the additional operating and country development risks associated with each of the companies.
For the complete Gold and Precious Metals issue, including a full interview with both Ms. Doulgas as well Mr. Mikitchook in addition to interviews CEOs of topic companies in the space, click here.
Steve Ladurantaye wrote a piece for Canada’s Globe and Mail about the increasing activism associated with Mutual Funds with respect to corporate management. According to Ladurantaye’s piece,
Mutual funds are becoming increasingly aggressive in voting against company management and using annual general meetings to push socially responsible agendas.
“You are seeing a less friendly attitude toward director nominees, for one thing,” said Laura O’Neill, director of law and policy for the Shareholder Association for Research and Education. “It’s a relatively positive sign that shows some movement toward a more critical approach to management.”
Don’t expect mutual funds to pressure management across the board but we can expect to see increased pressures on management by mutual funds when they determine specific corporate policies are not in their interest.
You can now follow The Wall Street Transcript on Twitter at twitter.com/wstranscript
Stay connected for breaking news, issue updates, new commentaries as they are posted and exclusive content not available anywhere else.
Susanne Craig and Joann S. Lublin wrote a story that appeared in today’s Wall Street Journal that examined the dearth of financial CEOs available to come in and run many of our troubled financial companies. According to the story,
The strain of the credit crisis, curbs on executive compensation and the specter of government scrutiny are making it harder for financial firms to lure chief executives, according to directors, executives and search firms.
“There aren’t any highly attractive CEO prospects in the financial-services industry,” said Peter D. Crist, head of Crist|Kolder Associates, an executive-search firm in Hinsdale, Ill. “The best players won’t risk their careers going to a troubled enterprise.”
… One problem is that the financial industry’s crisis has shown that some firms simply might be too much for anyone to conquer. Eventually, boards will find new CEOs who are confident enough to give it a try no matter how big the risks. For now, the pickings are slim, said recruiters involved in continuing searches.
I am not quite as sanquine about the prospects for finding new CEOs to run the troubled financial firms as are those referred to in the story e.g., executive search firms, directors and executives. I agree that finding the right candidates will be challenging but that is always the case. There are good candidates out there and many are up to the challenge, even if compensation does not meet their initial expectations. Decide for yourself, check out the story.
Speaking this week with Paul Taylor of the BMO Harris Investment Management in Toronto, we asked him to give us some of the companies he’s looking at in the Canadian market:
For the complete Investing Strategies report, including a full interview with Mr. Taylor, as well as other portfolio managers in a wide variety of investment styles and focuses, click here.
Dealscape today ran a piece about an IDD story on what Bank of America might do should Ken Lewis get the ax. The crus of the matter is the bak would turn to its Board of new members for Lewis’s replacement. According to the story,
IDD Magazine is reporting that BofA has a “Plan B” if the board decides to ditch CEO Kenneth Lewis. That Plan B, unsurprisingly, is to replace Lewis with one of the bank’s new board members, all of whom have banking experience.
Even a cat only has nine lives, we will just have to wait and see what happens with Lewis.
In our interview with analyst Jason Seidl of Dahlman Rose & Co., we spoke a little about the current state of the companies in the railroad space. According to him things are getting worse, not better, and all because of coal:
Mr. Seidl: If you look year to date, carloadings are down almost 18.5%. If you look quarter to date, they’re down almost 23%. It is a significant falloff, but, again, I’m pointing at the fact that it actually hasn’t gotten better, in fact it’s gotten a little worse. I think the reason for that is that coal is rolling over. Coal has gone from being down just over 5% in the first quarter to down nearly 18% thus far in the second quarter.
There are two main reasons for coal being under so much pressure right now, a drastic decline in exports and sluggish domestic demand. You have the lack of an export market, which is driven by coal prices and demand. Indeed, we are currently out of the money compared to South African coal. On the demand front, it is fairly obvious what has happened to the steel industry in Europe and this has been weighing heavily on demand for metallurgical exports to Europe. While China has started to import some coal, it is only on the margin.Looking at the domestic utility market, we find that demand is not much better. If you look at the burn levels for a lot of the utilities in the first quarter, we were down over 3%. While 3% may not sound like much, it is actually quite severe for a utility market.
For the complete interview with Mr. Seidl, including a full overview of the Railroad space and stock picks, click here.
Carol Bartz, the new CEO of Yahoo who has already managed to successfully defy predictions about her appointment to run Yahoo, offers a number of very useful ideas about the role of corporate board directors. Yesterday Eric Savitz posted a terrific piece on Barron’s Tech Trader Daily blog that examined Bartz’s Sunday keynote speech at the Stanford Director’s College. Anyone interested in corporate governance or the roles of board members must read the blog piece.
Jack Dolmatt-Connell, an executive compensation consultant, wrote a totally on point piece for Forbes on the best way to structure the pay for General Motors’ CEO. Unlike so many CEOs at public companies, Dolmatt-Connell suggests the following (which I wholeheartedly agree with):
The new CEO’s pay should be tied to his or her performance and linked to the company’s recovery, not just awarded to be competitive.
It should be put together the way private-equity-backed firms do it. That is the best model for creating a true risk-reward proposition. It is elegantly simple, featuring modest base salaries and bonuses, significant upside potential via stock options that promote shareholder value creation, little to no downside protection in the form of severance arrangements, and a required personal investment in the company.
Such a pay structure can be easily understood by investors and taxpayers, and it creates a laser-like focus on significantly increasing enterprise value and guiding the company toward becoming a stable, viable and competitive organization that repays the taxpayer. With this plan, shareholders and taxpayers win, but the CEO and executives also win, and potentially win big. If the CEO doesn’t succeed, he or she gets very little, and the taxpayers’ loss is minimized.
The auto companies are not the only firms that should be considering this approach to executive compensation. Let’s hope President Obama’s team considers Dolmatt-Connell’s suggestion on executive compensation. Should GM file for bankruptcy it is imperative a new compensation package be established for all GM executives.
Stay tuned.
As part of our special focus on Investing in Utilities in the latest issue of TWST, we spoke with analyst Marc De Croisset of Macquarie Capital (USA) Inc. Mr. De Croisset told us one name that has been looked over by investors but presents a good investment is Portland General Electric (POR). We asked him to tell us a little bit about it, and why it’s been overlooked by investors:
Mr. De Croisset: It’s a puzzle to me [as to why investors are not interested]. There is some litigation overhang, which we think has more bark than bite. There is some volatility in the earnings stream due to the structure of the fuel recovery mechanism. The utility is also regionally focused. This may scare some people away as it leaves POR in a no man’s land of investor risk appetite. We view this as an opportunity and not a liability. POR just got left behind…POR issued equity in the first quarter. We don’t expect another equity issuance for some time. The rate base growth of that story is very significant, and I’m hard pressed to understand why it’s trading at such a deep discount to book value.
For the complete Investing in Utilities issue, including a full interview with Mr. De Croisset as well as interviews with additional analysts and CEOs of top companies in the space, click here.
