Unrecognized Growth at a Reasonable Price in Asian Equities
2012-02-10 12:35:22
With slower GDP growth expected in the Asia Pacific region in 2012, investment themes focus more on economic-sensitive sectors where unrecognized growth at a reasonable price is likely to be unearthed in Asian equities, says Khiem Do, Chairman of Asia Multi Asset Team and Member of the Global Multi Asset Team at Baring Asset Management."We continue to be underweight in the more expensively valued defensive sectors, including utilities and telecom. We also remained underweight in the financials sector, although over the past few months we have been adding to Chinese banks and some other Chinese financials," he said. "In the overweight sectors, we continue to like technology, consumer discretionary, industrials and energy."
Do says he expects China will grow by about 8% to 8.5% in 2012, although lower than last year's GDP growth rate of 9.2%, this year's forecast still will be deemed as a solid and respectable growth rate to be exhibited by the second-largest economy in the world, especially within the context of a sluggish OECD economy.
"Net net, I hope that over the next five to 10 years, instead of dumping Asian equities at the first sign of macro risk, foreign investors would consider to do exactly the reverse. In other words, they would look to add to long positions if and when Asian markets were to fall in sympathy with their Western counterparts," he said.
A Focus on Diversification, Discounts & Distributions
2012-02-09 12:40:38
Diversification across asset classes, an emphasis on buying stocks at a discount from net asset value and an intense focus on distributions provide investors ways to hedge against unpredictable moves in the market this year, says Jonathan S. Raclin, a registered Principal of Barrington Asset Management, Inc. and Managing Director of its Enterprise Portfolio."I don't see much new on the horizon for 2012. Almost everything relates to politics in Europe and their massive debts as well as in our country, where we seem locked in place, both parties stuck in a pit of re-election considerations," he said. "I would imagine we will probably have a number of surprises this year as well. It is hard to anticipate natural disaster, revolutions and debt crises."
Raclin says his firm is equally weighted in a cash reserves fund, a gold and silver bullion fund, a convertible and high-yield bond fund, a high-yield stock fund, a large-capitalization growth fund, an emerging markets fund, an energy fund and a natural resources fund with concentration in agriculture and water.
"As emerging economies continue to become more prosperous, one result is an increase in demand for protein. Protein means meat, and protein means the consumption of soybean-based products for feedstock," he said. "I also think coal will be a very important area, mostly because China and India are enormous consumers of electricity, and they have coal-based electrical infrastructure."
Macro Trends Lead to Long-Term Value-Oriented Approach
2012-02-08 12:28:25
Large-cap, high-quality stocks with high dividends, global exposure and high barriers to entry are the types of above-average businesses to focus on in the current volatile macroeconomic environment, says Robert Joseph Sanborn, CFA, Partner and Portfolio Manager at Sanborn Kilcollin Partners, LLC."We continue to think it's more of a downside-oriented capital preservation environment as opposed to an upside-oriented opportunity environment. And what we are looking for in our stocks generally is, very simplistically, we like to buy a long that has a market value this is much less than what we think a rational LBO buyer would pay for it," he said.
Sanborn points to Altria Group Inc. (MO) as an example of a large name in an industry with high barriers to entry. He says the tobacco industry is essentially a worldwide duopoly in most markets benefiting from partnerships with governments, few strong competitors and brand loyalty of its customers.
"You have a very stable competitive environment with a very stable product, and the one in which you can look out over the long term, and say that the odds of technological change or obsolescence are very low, and the net result is Altria has outperformed the market over a one-, five-, 10-, 20-, 30- and 40-year basis, a significant factor," Sanborn said.
Midwestern Regional Banks To Grow Through Consolidation
2012-02-07 13:04:06
Increased consolidation activity in the banking industry is expected to offer more opportunities to generate earnings and franchise value growth for regional names, potentially as early as this spring, when the industry will enter a new round of M&A, says Tom Mitchell, Senior Analyst at Miller Tabak + Co., LLC."One of the things that everybody has to do right now is tighten their belt. There's nothing like an intelligently structured consolidation to reduce the expense ratios of the combined entities. At the margin, that reduces the expense ratio of the whole industry. I think there will be a lot of more of that kind of activity," he said.
Mitchell names Fifth Third Bancorp (FITB), an Ohio-based bank, as a top pick. He says he believes the Midwestern area of the U.S. offers particular opportunities, partly because the automobile industry in the region shows improvement, which is a positive directional factor for the regional banking industry.
"What will get investors most interested again will turn out to be consolidation activity, which will change the way that investors look at the area," Mitchell said. "We do analysis on what we think the stripped-out balance sheet values of banks assets and liabilities are. In most cases, we think that the excess value in the deposit franchise is a good deal higher than tangible book value."
Offshore Drilling & Oil Services to Resecure Pricing Power
2012-02-06 13:11:43
Demand growth for deepwater drilling and well-completion services in the oil and gas industry is expected to outpace supply, and allow the industry to resecure pricing power due to customer spending plans and contracts, which will execute the growth embedded in the plans, says Scott Gruber, CFA, Senior Research Analyst at Sanford C. Bernstein & Co., LLC."One of the very few segments within oil services which has yet to secure pricing power is offshore drilling and well-completion services," he said. "And I think there is a very high probability that the international service companies like Schlumberger, Halliburton and Baker Hughes secure pricing power for their offshore services in 2012."
Gruber has chosen Schlumberger N.V. (SLB) as his top pick among the international oil services companies because it is one of the highest-quality companies in the space, and has a healthy balance sheet. He says SLB should generate $5 billion in free cash flow over the next two years, which will be used to facilitate continued buybacks.
"For the near-term investor, there is controversy around a key catalyst, and that catalyst is offshore well drilling and well-completion pricing. We're confident that Schlumberger secures pricing power this year and margins will rise, and as a result the earnings growth that we foresee into 2013 is achievable, and therefore, the stock is cheap at the current valuation," Gruber said.