67 WALL STREET, New York – December 28, 2011 – The Wall Street Transcript has just published its Large Cap Value and Other Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This Large Cap Value and Other Investing Strategies Report contains in-depth interviews with today’s top Money Managers, revealing their expert insight into financial markets. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Bottom-Up Stock Selection – Cyclical Sectors – Enduring Trends and Thematic Investing – Top-Down Investing
Companies include: Citrix Systems (CTXS); Edwards Lifesciences (EW); Wells Fargo (WFC); 3M (MMM) and many more.
In the following brief excerpt from the Large Cap Value and Other Investing Strategies Report, interviewees discuss their portfolio focus, investing strategies and outlooks on today’s market climate.
Christian Sessing, CFA, is a Senior Equity Analyst and Co-Portfolio Manager at AMI Asset Management. He is responsible for providing due diligence on current and prospective equity investments. He began his career as an Equity Analyst with a regional brokerage firm, and before joining AMI he spent more than five years as an Equity Analyst at Crowell, Weedon & Co., where he had a five-star rating for stock-picking performance from StarMine. Mr. Sessing earned a B.S. in business administration with a concentration in finance from California State University, Northridge. He is a member of the CFA Institute and the CFA Society of Los Angeles.
TWST: What are some of your favorite names or investment ideas right now?
Mr. Sessing: Currently, one of the larger positions in the portfolio and one of our oldest positions is Church & Dwight (CHD), which is the manufacturer of Arm & Hammer baking soda and related products. It’s been a company that has grown somewhat through acquisitions, but also through expanding that Arm & Hammer brand to additional products. If you remember them many years ago, it was primarily baking soda. Well today, it’s liquid laundry detergent, it’s cat litter and related pet products, things like that, so they’ve been able to expand that well-known brand name to additional products. The company has delivered shareholder returns in the midteen area for many years. They’ve been able to acquire smaller, sort of less-loved type of companies like OxiClean, and have been able to integrate them into their portfolio with great success. That’s our biggest name in the staples sector.
Another name we like, which would be a good example of the recurring revenue, is Stericycle (SRCL). It is the largest disposer of medical waste. If you look at it, as long as there is medical waste being created, the business is going to be stable. It has been able to grow in the mid-to-high single digits on an organic basis, with additional growth through acquisitions. It has about a 10% market share in the U.S. and has been rolling up small regional players. It has also expanded internationally, and recently broke into new countries that have similar market dynamics to the U.S. in terms of high regulation of medical waste. That includes Romania, Brazil, Japan, the U.K. and a few others. So it’s been an interesting name, and a good example of that recurring revenue that we like.
TWST: It seems in terms of the global economy that a lot of growth in the future is anticipated to come from outside of the U.S., and specifically emerging markets.
Mr. Sessing: Emerging markets are going to grow faster than the U.S., and we like companies that have exposure to that, but it’s a double-edged sword. You get the benefit in the good times, but you also tend to get a greater hit in rough times. Some of these emerging market countries can have their own internal disasters – currency, political – so you have to consider that as well. I will give you an example of a company that has been mostly U.S.-focused – Perrigo (PRGO) – which is a large manufacturer of store brand, over-the-counter medicines. Despite the fact that the U.S. might be a slower, no-growth type of area for OTC products in general, we see much faster growth for store brands. With consumers a few years ago, you might have had roughly a 5% penetration of store brands, meaning 95% of people were buying branded Advil and the other 5% were buying CVS (CVS) brand ibuprofen. Well, that trend actually accelerated during the last recession, for obvious reasons, because the store brands tend to be 20%-30% cheaper. But we see that as actually accelerating even in good times.
Many private label products in the grocery store tend to do well during rough times, only to give back those share gains in the good times as consumers turn back to their brands. But what we’ve seen in the store brands in the medicines in particular is there is less of a stigma to buying a CVS brand ibuprofen. There’s no status to buying Advil, whereas in food products or other private labels, there may still be that desire to buy Heinz (HNZ) ketchup versus buying Kroger (KR) brand ketchup. But in the store brand medicines, we don’t see that. We think that there is still quite a low penetration of consumers using store brands, and we see that only accelerating, because we think consumers are catching on that they can buy store brands with the exact same ingredients for substantially less. They have actually been expanding into China with the infant formula they recently acquired, so that is a move into the international space for them, but they have primarily been a U.S.-focused company for many years.
TWST: Looking ahead to 2012, what’s your outlook for the market in general and more specifically large-cap growth investments?
Mr. Sessing: We don’t see a double-dip recession. We see it continuing to improve, albeit slowly. We think 2012 is going to be a modest growth year as we continue to see unemployment come down, but we don’t think it’s going to be a blockbuster year by any means.
I think the big risk at this point is obviously Europe, which everybody is focusing on. Do we start to see other countries run into some serious problems like Greece has? Do we see that impacting global growth? It may. These austerity measures that are going into play in Europe will have some drag on their economies, which of course will have a drag on the global economy. So there is an area where we think that global companies will probably be a little more disadvantaged, especially companies that have large exposure to Europe and some of those problem countries. We think they are going to see slower growth than, say, their pure U.S.-focused brethren.
All in all, we think things will improve. Obviously, Europe needs to be worked out. We think if they can come up with a comprehensive solution to the various countries’ problems in Europe, that we can see some real market rallies, but at this point that’s what’s constraining everything.
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