One-on-One with Holland

03/04/2005 12:00 am EST

Focus:

Michael Holland

Chairman, Holland & Co., LLC

The Lou Dobbs Money Letter offers great insight into the investing world through both Lou's own commentary and advice as well as his one-on-one interviews with the nation's "blue chip" CEOs and money managers. Here are highlights from his recent talk with Mike Holland

"Mike Holland is an extremely successful investor with a stellar career that has included senior positions at Blackstone Group, Oppenheimer and Co., and Salomon Brothers," notes Lou Dobbs. "Currently, he runs his own fund, the Holland Balanced Fund, and is an acknowledged expert on investing in China. Mike is a strong believer in long-term value and he’s also not afraid to go against the conventional wisdom on Wall Street. These traits make his investing insights invaluable."

"When we spoke about a year ago, I said I liked the energy area," says Mike Holland. "And that is still true today. Even though the stocks have done well, I think any significant back-off in the prices of any of the energy stocks could be viewed as an opportunity to buy them because I think we’ve got a systemic challenge here—supply vs. demand in energy, petroleum, natural gas, and so on. One of the main premises on which I continue to believe in energy, is that China hasn’t slowed down, and doesn’t look like it’s going to.

"ExxonMobil (XOM NYSE) is still the largest holding in my fund, although I’ve cut it back a little bit. It has been one of my best performers in The Lou Dobbs Money Letter, up 27% over the past 12 months, and it should continue to respond to the supply/demand imbalance in energy through next year and beyond. I think the huge and still-growing demand for services from Schlumberger (SLB NYSE) speaks well for the next several years’ outlook. The company’s fourth-quarter earnings soared 86% on rising oil prices in North America and increased oilfield activities worldwide. We’ve already seen 45% gains on this one, and I expect this to continue as the imbalance of supply vs. demand in oil and gas persists through 2005.

"As for other investments, I would certainly look at the big blue-chip companies that have lagged the market. I think some of the blue chips are very attractive relative not only to the rest of the stock market but also to fixed-income investments, which I think have a significant amount of risk. 3M (MMM NYSE) continues to be a major beneficiary of persistent global economic improvement. They reported a 16.3% increase in fourth-quarter profits. For the full year 2004, 3M earned $3 billion, up from $2.4 billion a year ago. So it’s still a good one. Likewise, American Express (AXP NYSE) is a major beneficiary of the huge rebound in leisure and travel spending, and saw a similarly impressive 17% increase in earnings this past quarter. I still think American International Group (AIG NYSE) is one of the world’s best companies, despite being associated with an Eliot Spitzer investigation. The stock is back up more than 8% in the last three months, and if the investigation doesn’t come up again, they’ll be fine.

"Strong consumer-banking activity and continued international growth contributed to a 12% increase in fourth-quarter net income at Citigroup (C NYSE). I think the company should have a better-than-solid year with continuing improvement in the capital markets worldwide in 2005. As far as I’m concerned, the transformation at IBM (IBM NYSE) into an information technology service company has been a complete success. The company reported a net profit of $3.1 billion for the fourth quarter, compared with $2.71 billion for the same quarter a year ago, with profits rising in all five industry sectors. I think the stock is poised for further gains. Johnson & Johnson (JNJ NYSE) is another one that remains one of my largest holdings. The 34% drop in profits the company saw in their fourth-quarter report was a result of a one-time tax charge for the repatriation of funds under the American Jobs Creation Act. I continue to believe that J&J’s pipeline of innovation will provide new products and cash flow that will sustain an above-average grower.

"We’ve seen very strong corporate performance at Microsoft (MSFT NASDAQ), plus its surprisingly positive dividend move. These have not yet been appreciated by the stock market, but I think they will continue to grow 10% to 15% despite their enormous size.  PepsiCo (PEP NYSE) is one of the best-managed consumer companies in the world. In particular, its snack business continues to outperform expectations, with each of its 16 brands generating $1 billion or more in annual retail sales. Plus, the board of directors recently declared a quarterly dividend of $0.23 per share (payable to shareholders on March 31, 2005). Finally, Wal-Mart (WMT NYSE) took a lot of headline hits last year, but the company’s nascent and aggressive PR campaign couldn’t be more timely. Its detractors have really strained the limits of credibility. I think the fundamentals of the business have never been stronger."

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