In our latest issue of TWST, we spoke with portfolio manager Adam Seitchik of Trillium Asset Management. Trillium is a company that practices socially responsible investing. While the idea of socially responsible investing sounds ideal, we felt it was important to talk to Mr. Seitchik about how exactly it works. It turns out that there are four central components to Trillium’s socially responsible investment strategy:
For the complete Investing Strategies report, including the full interview with Mr. Seitchik, as well as portfolio managers from a variety of styles and philosophies, click here.
Collin Gerry of Raymond James in a recent interview as part of our Oilfield Services report gave us his views on deepwater;
Mr. Gerry: The only side of the energy complex that we are bullish on right now is deepwater. If you take a step back and you look at the global picture for oil supply, we’ve picked all the low hanging fruit. A lot of highly prolific areas of the world have seen peak production, areas that now include Russia and Mexico. The North Sea and the US have been in a state of decline for a while now. The next frontier is deep water. The reason I say that is because we’ve had some geological success there. Brazil has certainly made some pretty significant finds off their coast. The US Gulf of Mexico is a very prolific deepwater market, as is West Africa, and now you’re starting to see places like India and China bid for deepwater rigs and try to explore some of their opportunities. Thematically, I would say it’s deep water, because it’s an oilier play, and from an oil service perspective, it’s a less volatile play. Deepwater development can take five to 10 years, so you don’t care if front month oil goes from $60/bbl to $40/bbl. It’s a long-term investment perspective — you are looking at what oil will average over the next 10 years. It’s not as volatile as some of the shallower stuff or some of the land drilling in North America. The deep water is where we are positioning our recommendations.
Deepwater isn’t as volatile as land or shallow drilling. With a 5 to 10 year development process you are looking at a more longterm less erratic investment with deepwater companies.
As the government’s bank stress test results come closer to being released, rumors continue to fly that Citi’s CEO Vikram Pandit may be forced to become a sacrificial lamb. While not over impressed with the results he has had over his short stint as CEO, Pandit was never dealt a good hand from the beginning of his tenure. He has certainly made a serious effort to address the bank’s problems. Mark DeCambre wrote a story that appeared in today’s New York Post entitled CEO STRESSED OUT, TREASURY’S TEST MAY FORCE OUSTER OF CITI’S PANDIT. According to the story,
… sources tell The Post that regulators think they might have to make the bold move of removing Pandit to signal Washington is taking as hard a line with the banks as it did with General Motors when it effectively ousted GM CEO Rick Wagoner.
While DeCambre may be correct, I suspect Pandit will keep his position for awhile. The risks of changing him right now while his tenure has been so short may actually make the situation worse. Time will tell. Stay tuned.
In our interview with Jason Helfstein of Oppenheimer as part of our Internet Services Report he mentioned Move Inc. and why they stand out from the rest;
Mr. Helfstein: Move owns Realtor.com. They’re the leading real estate Website by a significant factor. They’ve made a number of changes over the last two years to position the company much more aggressively from a content Website standpoint and they have an exclusive relationship with the National Association of Realtors (NAR), which basically gets them the best data. So really if you’re a consumer and you’re looking to buy a house, that’s the place you go. They’ve got very strong relationships with agents and brokers around the country, and while all the listings are free, they then try to convince those agents and brokers to kind of upsell. They also have the leading CRM or client relationship management software for real estate brokers and agents, and I think there is an opportunity for them to tie that into the Website. So just like Google, you only pay, as in advertising, if somebody clicks, you can track the effectiveness, and I really believe there is an opportunity for that to happen over the longer term in the real estate sector with Move’s Website. In the short term, are they feeling pain because of the real estate cycle? Of course, but in the most recent quarter, the core part of their business was down just a few percent, and that’s pretty impressive, given what’s going on.
Internet is cyclical but the good news is that, in some cases,it is less cyclical than other areas of advertising. Search advertising and e-commerce are both taking market share so they aren’t seeing the negative trends that exist in the more traditional advertising market.
Scheherazade Daneshkhu wrote a piece for the Financial Times entitled, CEO attrition gives directors chance to step up. According to the story,
Plucking a CEO from among a company’s existing directors is becoming a trend, says Marc Sanglé-Ferrière, head of the Paris office of Russell Reynolds, the US executive search company, who says traditional succession planning does not work in a time of crisis.
“The new CEOs have tended to come from outside or to have been a recently-recruited board member. We are seeing that, as part of succession planning, companies are increasingly looking to put on the board one or two non-executive directors who could have the potential to become the CEO,” he said.
While the focus of the story was on European companies, Liberum has seen some of the same circumstance crop up in the United States. It is not a large trend but there have been a number of cases.
We recently spoke with Nathan Judge of Atlantic Equities LLP about the Gas Transmission space as part of our Oilfield Services/Pipelines & Distributors Report. With the new administration in place one thing is for sure some changes are coming;
Mr. Judge: Generally, the Administration has emphasized the need for energy independence, and energy independence is a pretty broad statement. The Administration has also been looking at things like reducing carbon or actually regulating carbon emissions, perhaps putting some type of penalty on emitting carbon. Those have very different effects on the gas transmission, gas pipeline business, but generally there is an underlying supportive environment from the Administration to promote additional gas transmission infrastructure in the country. Policies to limit carbon could also provide an additional boost to natural gas demand. That said, there have also been some changes implemented by the Administration that would reduce the amount of tax breaks that E&P producers get. That potentially could lower the amount of gas being provided from some unconventional basins. So we have a mixed bag as far as that is concerned. There is also this big question mark around changes in personnel at the FERC, the Federal Energy Regulatory Commission. The previous Chairman has recently resigned and there is an interim Chairman who could potentially be the permanent Chairman. That’s important because we have historically seen some fairly robust returns over the life of these projects, and if there is a change of returns allowed by the FERC on these pipelines, it potentially could be lower than it has historically, which would be a very big negative for the group.
This still seems like a developing story so gather as much information as possible and pay attention.
As part of our special focus on Water Utilities, we spoke with analyst Timothy Winter of Jesup & Lamont Securities Corporation. He gaves 2 picks that he feels are worth investors attention in the Water Utilities space:
For the complete Water Utilities report, including a full interview with Mr. Winter, as well as interviews with other analysts in this space, click here.
Earth Day Special- In a recent interview with Terence Gallagher of Kaufman Bros., LP he introduced us to Carbon Trading.
Mr. Gallagher: Carbon trading had its origins in the United States through SO2 and NO2 trading. SOX and NOX, as they are called, was started to reduce these pollutants and cut down on acid rain. Kyoto decided to adopt this model and apply it toward CO2.
Currently, according to New Carbon Finance, the worldwide market is $118 billion, with the majority of that market being Kyoto-based. Kyoto was established to encourage the developed countries of the world to invest in cleaner power in the developing countries. This provides a method for the developing countries to gain assistance and use cleaner, more expensive power as their needs increase. As a reward, the developed countries receive credits that they can apply to their CO2 caps.
One of the big issues that this market has to work out if it is going to grow further is that the carbon credits are not fungible. There are too many ways to define a ton of carbon that is taken out of the atmosphere. Currently, there are existing and potential markets all over the world, and there is limited overlap among the applicable products.
The ratchet continues to turn a notch on Bank of America CEO, Ken Lewis. According to an analysis by Elinor Comley of Reuters,
The government may now add to the pressure from shareholders, analysts said. The sudden departure of Wagoner after nine years in the top job at GM signals the Obama administration is looking for management changes at bailed-out companies.
“His longevity in the job is probably very much in question,” said Keith Wirtz, chief investment officer of Fifth Third Asset Management and a former CIO at a Bank of America subsidiary. Fifth Third holds shares in the bank.
The bank disagreed with the assessment. “We do not see the parallel with the U.S. auto industry,” said a Bank of America spokesman, noting that since 1991 the bank has been profitable in every quarter except one, and made a $4 billion profit in 2008.
Still, shareholders say Lewis is in a precarious situation, citing both the government bailout as well as the fourth-quarter losses at Merrill, which suggest Bank of America did not perform adequate due diligence.
Lewis’ time as CEO of Bank of America may finally be coming to an end. As the pressure continues to grow, Lewis and the board will find it more and more difficult to justify his position as CEO. Keep a close eye on B of A.
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When we recently spoke with Adrienne Tennant of Friedman,Billings, Ramsey for our Specialty Retail Report she identified one company as her top pick;
Mrs. Tennant: I liked Hot Topic (HOTT) throughout the back half of last year and into this year, and it is still my top pick for 2009, despite its excessive valuation. You have to have something that kids or people, or whoever the target market is, would want to pay full price for. For Hot Topic thus far, it’s been a connection, which was either one they locked into or it was by design, with this “Twilight” movie phenomenon that came out in November. It is based on a four- book series, and they have not only taken that “Twilight,” target market, but they have taken other categories of products around that target customer and they have merchandised this store not only to capture the customer for “Twilight”, but also to continue to have the customer come into the store for all these other things. In the recession of 2001, post that recession, we saw the teen kid going a bit darker, going for something a bit off the beaten path, and that fits in nicely with the Hot Topic theme. So I do like that one.
Once again the younger demographic seems to be pushing this sector and Hot Topic is leading the way
