The best corporate managers are always one step ahead. Salesforce is the second coming of Amazon.com...
07/23/2004 12:00 am EST
With 33 years of portfolio management experience, Susan Byrne is deservedly among the best and the brightest. She is chairman and CEO of Westwood Holdings, which is also the the investment advisor to the Gabelli Westwood Funds. Here are some of her latest ideas.
Christopher Davis, research analyst for Morningstar, recently profiled Susan Byrne. He notes, "In a big turnabout from the 1990s bull market, dividend-paying stocks are in vogue. The income dividends provide also is a welcome cushion when earnings and stock prices are falling. Some fund managers make the case that investors could come to value growing dividends in this decade just as highly as they did earnings growth in the 1990s. That's exactly what Gabelli Westwood Equity’s Susan Byrne believes. She says firms that can grow their dividends would become increasingly attractive in a slow-growth economy.
"Byrne tries to identify sectors she thinks can benefit from long-term trends. She then seeks companies she believes are undervalued relative to their growth prospects. Energy stocks such as ExxonMobil (XOM NYSE) and ChevronTexaco (CVX NYSE) have long been favorites, although Mr. Market hasn't agreed. Byrne still has stuck with the companies, though, pointing to the excellent earnings both posted as oil prices spiked in 2002's fourth quarter and 2003's first. Those earnings are sustainable, she argues, because she believes oil prices will remain elevated despite the end of the war in Iraq. Byrne also notes both companies generate a lot of free cash flow, which gives them the financial wherewithal to increase their dividends. If investors begin to place more of a premium on such firms, as she expects they might, Exxon and Chevron would likely benefit.
"Byrne also initiated a position in Starwood Hotels & Resorts Worldwide (HOT NYSE), which has gotten battered over concerns the SARS virus will further weaken the already struggling travel industry. She says the company is ‘extremely cheap,’ arguing the stock trades at a big discount to the value of its assets. Byrne also notes that Starwood stock yields around 3%, and thanks to its sturdy balance sheet, investors don't have to worry about its nicely sized dividend shrinking."
Meanwhile, in a recent interview with Time magazine, Susan Byrne notes, " After all we’ve gone through, why wouldn’t you want a dividend? The check clears; you get the money. Everything else about the market is a judgment. Longer term, companies that pay dividends will be where you want to be. For dividends to go up a lot, you want to watch where the cash is. Congress is trying to pass a law that lets companies bring money back from overseas without paying tax on it. That would repatriate a lot of dollars available for dividends.
"Meanwhile, among defensive plays, we own Alcoa (AA NYSE), which we consider a defensive holding. Alcoa doesn’t just make aluminum. It owns alumina, which is the starter, the yeast, and which is in short supply. Alcoa pretty much controls alumina in the world. That makes it special.I also believe in the financials, names like Lehman Brothers (LEH NYSE), which recently reported earnings above expectations, and Bear Stearns (BSC NYSE), which is one of the best managed companies on the planet.
"A number of healthcare companies are also attractive. I don’t know whether we will have a national purchasing system of drugs. From my viewpoint, it’s irrelevant. Drug prices would come down with controls, but usage would soar. That’s the nature of the business for Pfizer (PFE NYSE) and Merck (MRK NYSE), both of which I find attractive. I also want companies that no matter what happens, they would be able to pay me a dividend.
"For a defensive play in housing look at real estate investment trusts (REITs). They are up three years in a row, and everybody thinks they’re done. But I like Tejon Ranch (TRC NYSE), which is one of the largest landowners in California. I also like Rayonier (RYN NYSE), which owns 1.6 million acres of Florida timber. It’s a real estate play with a 6% dividend for safety."
Now about new highs being celebrated, amidst deterioration of a slew of internals: This suggests nei...
In part 1 of our commentary, we discussed the current Fundamental Gravity of our “Slowing Drag...
Some analysts are making the case that it’s time to look outside the U.S. at stocks in non-U.S...