John Franzreb discusses small-cap capital equipment companies. Mr. Franzreb says there are three themes pervading the sector: exposure to the oil and gas market, manufacturing efficiency and the importance of restructuring actions. He says the small-to-micro industrial space is a good place to invest because it is tied to manufacturing efficiencies on the factory floor, new product introductions and ways to improve processes without adding significant labor cost and overhead. Mr. Franzreb says once the global GDP starts resuming more meaningful growth, the returns on the small-cap space will be sizable.
Full interview available here.
Tim Nollen says the TV ad market has strengthened, as marketers are questioning the value of digital advertising and falling back to TV. He says another theme is around cord-cutting and what digital distribution of TV content means in general. Third, he says there’s been more focus on improving the existing system in terms of measurement.
Full interview available here.
Joseph DeNardi covers defense and airline companies. Mr. DeNardi says the defense industry has had another year of outperformance and has become a flight to safety for investors. However, he is cautious going forward because valuations have been pushed up. For airlines, Mr. DeNardi says it’s the opposite. He says pricing trends have been worse than expected, which has contributed to some of the underperformance.
Full interview available here.
Liam Burke covers diversified industrials that are global in nature. Most of his names are market leaders. Mr. Burke says stocks have performed well this year. He also says valuations on many industrial names have become high. Mr. Burke’s expectations are modest into 2017. He says the industry has been in a fairly low-growth environment, which is likely to continue. He adds that the bright spots are North America, in particular the automotive, housing and nonresidential construction areas.
Full interview available here.
Managing Director Arthur Norton of Araglan Capital Management says his firm’s largest position is in the energy sector and in Exxon Mobil Corporation (NYSE:XOM).
ExxonMobil is an extremely well-managed and diversified exploration and production company. They are the largest in the world. We highlight their management, which I think is very good, probably the best in the industry, and it has performed for us shareholders as long as we’ve owned it.
They have a highly manageable debt level. Although, we constantly look at their debt-to-equity ratios, even though they’ve used debt recently to be able to sustain the dividends that they want, which is very beneficial to us […]
One of the focuses that we have with a company is: Are they earning their cost of capital? And Exxon definitely is earning its cost of capital to allow it to pay the dividend. To the extent it does, it has an impact upon the committed deliveries, also its continued exploration. Yes, it has that potential, but it also has the financial flexibility to be able to use that, which is what they’re doing to be able to have that adequate resource both to pay the dividend they have as well as to do the explorations they do worldwide.
Amy Yong covers telecom and pay TV. Ms. Yong says consumers are becoming more demanding when it comes to better and virtual content as competition rises in the industry. She says consumers are using broadband more for their video consumption needs and are less tolerant of ads. Ms. Yong adds that the next trend will be a focus toward vertical integration or the idea of convergence.
Full interview available here.
Stephanie Wissink says the evolution of the toy industry comes down to two things: demographics and media convergence. She says the Millennial parent audience is digitally savvy about researching products before purchasing. When it comes to media convergence, she says there’s a strong divergence of performance between content-backed products and noncontent products. She says the vast majority of product discovery is now happening through new digital formats, and broadcast media that used to catalyze new product discovery has changed dramatically.
Full interview available here.
Benjamin Mogil covers three segments in the media sector: traditional large-cap media companies, theater chains and special situations. Within each segment, he likes some companies better than others. He says now he is most cautious on large-cap media names because of issues surrounding cord-cutting and cord-shaving, which is being driven by the rest of over-the-top video options.
Full interview available here.
American International Group Inc
President Brian Boyle of Boyle Capital says American International Group Inc (NYSE:AIG) is an example of an investment with activist involvement that has a clear and sensible plan to enhance value by returning capital to shareholders.
AIG was one of the poster children for the abuses of the financial crisis. They’ve spent a number of years working through their problems and repairing their reputation. They’ve had to sell a number of businesses along the way, and it remains a work in progress.
However, when you look at AIG today, it is a fairly simple story that comes down to management and its ability to execute. In early 2016, management announced an ambitious plan to return $25 billion to shareholders by the end of 2017. Over the past few quarters, we feel management has executed fairly well on that plan. However, waiting in the wings are Carl Icahn and John Paulson, both of whom have representation on the board of AIG.
Book value on AIG today is around $84 a share. Current share price is around $59. We believe that at the very least, AIG should trade at book value, given the type of franchise that they have. Icahn and Paulson have proposed that AIG sell off the life insurance assets, or at least parts of the life insurance business, and use that capital to buy back stock at a discount to book value.
Diversified industrials have had a good year, analysts say, but investor sentiment seems to be that the valuations of many of these companies is high in terms of historic multiples. These companies have seen more revenue growth and less currency pressure. Capital equipment has also performed well and analysts say there are value opportunities in the oil and gas industry now that prices seem to have stabilized. Analysts also focus on manufacturing efficiency and restructuring actions. Commercial airspace sector sales are expected to rise upper-single digits for most OEM companies and suppliers, analysts say. These companies are trying to bring the aftermarket in-house.
Full report available here.
