In our talks with portfolio managers this week, we spoke to Peter Swan of Managed Asset Portfolios- an asset management company out of Rochester, Michigan that takes a multi-cap approach and looks for low price to earnings ratio, high return on assets, and high return on equities. He gave us five picks from his sector of coverage, International Stocks:
For the full investing strategies report, including interviews with portfolio managers from a variety of firms, and stock picks, click here.
Our other special focus this week is on Steel. We talked with analyst Bob Richard with Longbow Research, who told us about what steel pricing was going to do in the immediate future, given the lessening in demand:
TWST: With the slack demand, has the industry pretty much maintained pricing discipline?
Mr. Richard: Yes, they have. Pricing came down in the back half of 2007, but we didn’t see severe volume discounts. Eight years ago, producers would fight each other tooth and nail on steel pricing and then undercut the other guy the following week. Now, with a restructured industry, with the much lesser pension obligations, you don’t have the cash requirements that you had before the 2001 restructuring. The producers are therefore able to exhibit much more pricing discipline than they were at the beginning of this decade.
For the full Steel report, including interviews with a variety of analysts, as well as an outlook for 2008 in the steel industry, click here.
With the market crash this morning, it may be hard for many investors seeing much of a silver-lining to the doom cloud that 2008 seems to be so far.Our special focus this week on restauraunts continues this trend, with senior analysts predicting a fairly negative outlook for 2008:Bryan Elliot, Raymond James & Associates:
TWST: Bryan, what is your outlook for 2008 at this point?Mr. Elliott: Very uncertain. We have entered a tunnel from a consumer spending standpoint. Essentially the purchasing power of consumers overall is very uncertain right here. We are in the dark part of the initial entry into the tunnel. We don’t know if we have five S-curves in front of us or if we are going to have a pretty straight line and pretty soon we will see the little pinpoint of light at the other end of the tunnel. It is truly unknowable, in my view, at this time.
Lynne Collier, Keybanc Capital Management:
TWST: Lynne, what is your take on the outlook?Ms. Collier: Looking into, 2008, I think QSR will outperform. The casual dining players, in an effort to combat higher input costs, have been raising prices fairly aggressively. So I believe that we will likely see negative traffic again in 2008. Again, in terms of casual dining performance, the more differentiated companies that have superior price value will be better positioned to outperform in 2008. I think the cost outlook is a little better in terms of the comparisons being easier. On the demand side of the equation for 2008, I think it is going to continue to be difficult, especially for casual dining.
For the full roundtable, including an overview of 2007 , and here to look going into 2008, click here.
Atrial fibrillation is the second largest cardiac disease treated in the US, with nearly 2.2 million people suffering from it, and 600,000 or 700,000 diagnosed each year. As such, there is a huge market for products dealing with atrial fibrillation- a multi-billion dollar market. Anaylst Dr. Jan Wald talks a little bit about stock picks in that market:
“If we divide the market into endocardial and surgical segments, and we speak about the endocardial segment first, the two companies that have full product lines are Johnson & Johnson (JNJ) and St. Jude (STJ)…I think St. Jude is probably the best positioned in the market to succeed.”
“There is a company we follow called AtriCure (ATRC), which is developing surgical ablation tools. We think AtriCure is currently the leader in the market, the best in class. There is another company, CryoCor (CRYO), which is using an endovascular approach, a percutaneous approach using cryoenergy, which we think is interesting.”
For the full interview with Dr. Wald, including a complete overview of the cardiac care space and more stock picks, click here.
A new year means a new realm of possibility. Despite the grim outlook at present, our portfolio managers are still speculating what might happen once the market rebounds. Portfolio Manager Kenneth Solow has his ideas:
Mr. Solow: Looking forward into 2008, we are wondering, if the economy does rebound, if we’ll get something other than what the consensus expects. If we get some kind of a pickup in growth in the second half of 2008, if it turns out that bonds are pretty much over-bought and we get a reversal in the fixed income portion of the portfolio, can we get returns out of the alternative section of our portfolio? Today, our alternatives include a number of different securities, one of which is a commodity futures fund that mimics the Dow Jones-AIG Commodity Futures Index…. We also own international real estate through a mutual fund. …Whether these positions will continue to actually add value in these volatile markets, and whether they will continue to reduce portfolio volatility while doing so, is to me, a key theme going forward, and we will be watching very carefully to see if that portion of the portfolio continues to work for us in 2008.
For the full investment strategy issue, including an outlook for 2008 from a variety of investors and stock picks, click here.
Looking at a company’s performance may seem to many like an ideal method to evaluate whether or not to invest in a particular company. A company is doing well, so you invest in them. David Hay, of Evergreen Capital Management, thinks differently, however.
Mr. Hay supports a theory called “Right Cycle Investing”, a process that relies more on the inherent cyclical nature of the market:
“In the financial markets…[there is an] inherent cyclicality and reversion to the mean. If you rely exclusively on recent performance, it’s going to work for a while but when it’s wrong, it’s so wrong and you can end up giving all your profits back and then some, in a relatively short period of time.”
As you might imagine, this kind of approach requires a very personal approach to portfolio management- as following performance is so ingrained in our minds:
“You need to do some handholding basically to keep the clients with the strategy long term and of course, usually when it’s looking its worst is about when it’s ready to shift to a positive. A good example is in 2007 when large cap growth had just been lagging and lagging and a lot of people were giving up on the concept, but now it’s a leader…It is this re-education process away from the way that human beings are wired to behave that was great when it came to running away from a saber-toothed tiger but not very good in dealing with bull and bear markets.”
For the full interview with Mr. Hay, including a complete overview of “Right Cycle Investing” and stock picks, click here.
I know what you’re thinking and no, this has nothing to do with the Presidential Primary in Michigan today. This has to do with our second special focus this week, Cardiac Care.
Analyst Ed Shenkan of Needham & Company spoke to us briefly about a new technology in Cardiac Care- the robotic surgery platform- that will create a huge new market which started in 2007, and which will continue to grow in 2008.
The robotic surgery platform, first developed by Hansen Medical (HNSN), with competitor Stereotaxis (STXS) following closely behind. The robotic surgery platform has a number of advantages to typical catheter surgery. The robot platform’s control gives a greater ease of manipulation versus a typical catheter, and greater degree of “inter-operator variablity”.
Additionally, with the use of the robotic surgery platform, physicians can perform operations outside of the radiation field in adjacent rooms- which is good, as most busy physicians reach the maximum allowable level of radiation after 10-14 years of practice.
For the full Cardiac Care Report, including full coverage of new and growing technologies in ’08 and stock picks, click here.
Starting in mid to late August this year, Gold made a significant jump in price. Though there are a many obvious reasons that have been batted around as to why this was the case, analyst Victor Flores of HSBC Securities has his own take on the jump in Gold price:
Mr. Flores: There has been a fair amount of discussion about the reasons for that big move that gold made, starting in mid- to late August from the levels close to $650 up to almost $850 in a very short period of time. There has been a lot of discussion about the subprime issues and banks taking write-downs and a number of other things, but I see it very simply. I think it is really a reflection of the weakness in the dollar. The rise in the gold price pretty closely matches a rather dramatic fall in the dollar to new lows. Gold has just moved in tandem with that decline. To me, it really is very much a dollar-driven move.
For the full Gold & Precious Metals report, including interviews with over 25 CEOs and stock picks, click here.
Speaking to analyst Tristan Gerra about Semiconductors this week, he recommended to us a high-quality Semiconductor company that has recently come upon an “attractive entry point” due to a Q4 that dissapointed expectations, Altera (ALTR):
Mr. Gerra: Altera is one of the higher-quality names in the semiconductor space. They have virtually no debt, they consistently generate gross margins north of 60%, and they have over $1 billion in cash….This is a company that has basically been growing the top line at double digits consistently since 2003. EPS has gone from $0.23 in 2002 to what we think will be over $1 in EPS for next year. It’s clearly a company where the compounded annual growth rate has outpaced the rest of the semiconductor industry, and it’s trading at about 18 times next year earnings at this point. It also has one of the best quality management teams in our space, in our view…Altera’s stock has corrected significantly recently because of a somewhat disappointing Q4 guidance, which in our view did not reflect on any changes in fundamentals at the company and which created an attractive entry point a few quarters out.
For the full Semiconductors interview, including a broad range of opinions on the state of this sector, and more stock picks, click here.
International markets- both developed and emerging- are becoming more and more of interest to investors in the US. David Heller of Advisory Research talked to us a little bit about the problem areas and potential challenges in international investing:
For the full investment strategy issue, including both domestic and international investment strategy tips and stock picks, click here.
