Hooray, the Barron's Roundtable is Here
As I have mentioned in the past, I have always been a huge fan of Barron's semi-annual investment roundtable. The series of articles usually turns up tons of interesting investment ideas that have been proven to outperform the market over time. I talked about the roundtable pundits' excellent track record in a December blog post that in my opinion is definitely worth reading if you haven't already:
The Barron's Roundtable is Legit
Overall the panel has significantly outperformed the S&P. From 2002 through 2012 the Compound Annual Growth Rate, or CAGR for short, was an excellent 11.2%. It has been slightly less of late, from 2005 through 2012 the CAGR was 8.6%. This compares with annualized returns of 0.7% and 1.3% respectively for the S&P.
Anyhow, this week's issue of Barron's contains the first article in its beginning of the year roundtable series. Better yet, it has stock picks from one of my favorite pannel members, Mario Gabelli. So when I opened up the article, I immediately skimed through all of the macro mumbo jumbo and arguing amongst pannel members about the economy, etc...and went straight to Gabelli's section. He didn't have as many ideas as usual that jumpped out and grabbed me as something that I wanted to buy, however there were a few interesting ideas.
The first is his recommendation of Hillshire Brands (HSH).
What I like about this stock:
- It's a spinoff (from Sara Lee), of course.
- It's a potential takeover target, as many spunoff companies ultimately are. Per Gabelli "Three or four companies were looking to buy Hillshire from Sara Lee before it was spun off.
- HSH is using its solid cash flow to rapidly pay down its $694 million in debt.
- Gabelli's Bottom Line, "The stock trades for $29 and change, and could be $35 to $50 a share two years out...It will be bought by someone. Meanwhile, management is doing a terrific job of getting back to basics."
- "The sausage market is growing by about 5% a year in the U.S." I really don't care about this statistic, but I found it funny for some reason :)
I doubt that I am going to put real money behind this idea, but I do believe that it will out-perform the S&P 500 going forward and I will add it to my CAPS portfolio.
Gabelli went on to talk about Nathan's Famous (NATH), man he has hot dogs on the brain right now...I wonder if he's trying to corner the mystery meat market.
As an interesting side note at this point, I vaguely recall hearing that the founder of Nathan's was my father-in-law's cousin (I'm actually not kiding). That automatically makes me an expert on the company :).
Gabelli likes how Nathan's has reduced its share count by 2 million shares to 4.2 million. He thinks that the stock does not curently reflect a solid deal that NATH made with Smithfield to market its products starting in 2014, making the stock appear more expensive that it will ultimately be. Again, this idea is interesting and sort of a special situation in that there seems to be a coming revenue stream that is not showing up in the company's numbers yet. That's pretty neat, but probably not enough to motivate me to put real money down. This is probably a pure CAPS play just to follow how well Gabelli's idea turns out.
His next rec was Post Holdings (POST). I added it to my CAPS portfolio here in February after it was spunoff by Ralcorp (RAH), saying shortly, but sweetly "Ralcorp spin-off that should benefit from improved sales efforts now that it is an independent company."
It has done very well for me returning 34% versus 11% from the S&P 500. Pretty good. I haven't followed it extremely closely, but I have a feeling that a lot of the easy gains have been made here. Time will tell. Here's what Gabelli had to say about POST, "The company will earn about $1.50 a share in the current year, ending Sept. 30, which can grow to $3 in the next three or four years. Stiritz stared out in the business by filling shelves. With product innovation, marketing attention, a focus on cash flow, and a brand with longevity, you don't have to worry about the next Twitter. I have a large number of Twitter followers. You can become my second one."
He talked about another spinoff that I own a little later on, the former ITT division Xylem (XYL). Xylem's performance, post-spinoff has been fairly disappointing to me, returning 4.2% vesus an 18% gain since I added it here in CAPS in November of 2011. Hey, I'll take it at least it's in the green, but that's not the sort of returns that I was hoping for. I own this one in real life as well. I think that part of the problem here is that XYL was fairly richly valued after the spin. I continue to own the company here in CAPS and in real-life. I like its prospects going forward. Here's Gabelli's thoughts:
"It is assembling one of the best packages of water-infrastructure and water-treatment companies in the world. When I talked about it here last year, I was worried about a slowdown in state and local spending. Business in southern Europe is slow. Short term, earnings are lackluster. The stock rose about 10% in the past year, to $28. There are 186 million shares. The company had $788 million of net debt as of the end of September, the latest published number. Revenue last year was an estimated $3.8 billion, which could rise to $4.6 billion by 2016. Ebitda could rise to $800 million from $625 million. Capital spending is about $130 million a year. Per-share earnings could go from $1.80 to $2.50. This is a yummy for a large corporation that wants to have distribution and products in water industry. Europe accounts for a third of the business; the U.S. is a third, and Asia-Pacific is 11%. They are accelerating their involvement in acquaculture [fish farming]. "
Here's the best part:
"The company could be bought at a 50% premium to its current stock price within two years."
Nice. A part of the outperformance of spinoffs is that they often make attractive buyout targets.
He also mentoined one of his former picks that I currently own here in CAPS and real life, National Fuel Gas (NFG). Here's what I had to say about NFG back in June of last year.
"I took a look at National Fuel Gas
) when Mario Gabelli mentioned it in a previous Barron's Roundtable. As a result of a collapse in the price of natural gas NFG is thirty-something percent cheaper today than when I first saw him mention it. It's starting to look more interesting at this level.
At its core, NFG owns a valuable natural gas utility and a pipeline that when looked at on a sum-of-the-parts basis make up nearly the entire valuation of the stock today. That means anyone who purchases it at this level not only gets a relatively solid company that has increased its dividend for 42 consecutive years (currently yielding around 3.3%), but through its significant Marcellus acreage essentially a free call option on natural gas prices.
While the upside on a company like NFG likely isn't as great as it would be on a pure nat gas play like some other companies, including he messed-up Chesapeake Energy
), I suspect that the downside is significantly less as well...and that is something that I always pay VERY close attention to in my real-life portfolio. Almost all of my stocks pay me solid dividends to wait for some potential catalyst to materialize. NFG fits that bill nicely and may be my next real-world purchase.
Here's what Gabelli had to say about the company in this week's Barron's:
National Fuel Gas [NFG] is a Buffalo, N.Y.-area utility which I recommended in the past. Natural gas has dropped to $2.40 per thousand cubic feet from $4.40 per Mcf. National Fuel Gas bought significant acreage in what is known as the Marcellus shale area. The utility has about 750,000 customers and generates good cash flow. It is worth about $17 a share. They have a midstream business -- pipelines -- that is worth about $20. The balance of the company is the Marcellus acreage. Assuming gas prices rise to $4 to $4.50 per Mcf two or three years from now, the stock could be worth close to $80, up from $44. The company pays a dividend of $1.46 a share and yields 3.3%."
The stock has been a big disappointment for me here thus far in CAPS, returning a negative 21% versus a 16% gain in the S&P 500 since I picked it in January of 2011. Fortunately, my real life cost basis is better than that. I don't know the exact figure off of the top of my head, but I think that I'm about flat on it. I continue to own NFG and like its prospects going forward. Here's Gabelli's update on the company from the new Roundtable:
"National Fuel Gas [NFG] has been a disappointment. Shares haven't moved much, because the price of natural gas has fallen to $3 per Mcf [thousand cubic feet] from $5. There are 83 million shares, and the stock trades for $49. Net debt is $1.5 billion. The company owns large acreage in the Marcellus shale. It also operates the gas utility in Buffalo. The third part of the business is a midstream pipeline in the Marcellus area that they can monetize by creating a master limited partnership. There is no reason this company can't be split up. It pays a nice dividend. If natural gas were to rise to about $4.50 per Mcf, you would have a $100 stock. At current gas prices, the stock is worth about $85. The MLP could be worth $20 to $25 a share."
Other companies that he talked about include:
- Viacom (VIA), which he likes for its massive share buybacks. Hmmm, not special situation-esque enough for me.
- Graco (GGG). Housing play. Increasing synergies from a recent acquisition from Illinois Tool Works (ITW). Meh, OK but nothing special to me
- Patterson Cos. (PDCO) - Gabelli loves the dental industry as the U.S. population ages. Though i do find this statement about the company interesting: "This is a takeover or split-up candidate." Gabelli has gone activist on companies ftom time to time trying to encourage them to sell themselves. Plus PDCO could spinoff its veterinary-supply business. This is more of a macro play, which serves as a nice tailwind for many of my investments, but rarely the main reason for investing in a situation.
- Weatherford International (WFT). He likes the domestic energy macro play. Thinks that the company can overcome some recent missteps, specifically "accounting, tax, and management issues" I'd like to find out more about that, what exactly happened, how it impacted the share price and ow it's fixable.
- Smart Balance, now known as Boulder Brands (BDBD). Gabelli continues to like this company. It has always been a tad expensive for my taste, but it certainly has done well. I have no regrets in not buying it. I'm trying to stick to my knitting.
- Fisher Communications (FSCI). This was his last pick. Fisher's stock soared a week or two ago after Gabelli pushed it to sell itself.
Well, that's all the time that I have for now. Thanks for reading everyone! Enjoy the playoff games today.