{"id":2027,"date":"2016-06-14T16:02:55","date_gmt":"2016-06-14T16:02:55","guid":{"rendered":"https:\/\/londonvalueinvestor.com\/?page_id=2027"},"modified":"2016-06-14T17:13:46","modified_gmt":"2016-06-14T17:13:46","slug":"lvic-barrons-article-by-jonathan-buck","status":"publish","type":"page","link":"https:\/\/www.valueinvest.com\/london\/digest\/lvic-barrons-article-by-jonathan-buck\/","title":{"rendered":"LVIC – Barron’s Article by Jonathan Buck"},"content":{"rendered":"

The following article was written on 26th May 2016 by Jonathan Buck, Europe Editor of Barron\u2019s.<\/strong>
\nTo view the article on Barron’s website or to subscribe for full access please click here<\/a>.<\/strong><\/p>\n

Oaktree\u2019s Howard Marks Likes Oil Investments<\/h1>\n

Marks touches on oil investments and social-media stocks at the London Value Investor Conference<\/span><\/h2>\n

Europe\u2019s leading low-cost airlines, a couple of health-care companies, and a maligned online grocer were recommended by investment professionals last Thursday at the fifth annual London Value Investor Conference. Howard Marks, co-chairman of Los Angeles\u2013based Oaktree Capital Group , who appeared at the conference by video link, said he has taken the plunge and invested in oil-related assets. He also suggested that shares of social-media companies are too rich for the value crowd.<\/p>\n

\"2016_05_30_cmyk_NL_\"<\/a><\/p>\n

Marks, addressing about 450 attendees at London\u2019s Queen Elizabeth II Conference Centre, blamed lower interest rates for distorting valuations. \u201cLower base interest rates have made all assets relatively more attractive than they otherwise would have been,\u201d he said.<\/p>\n

The manager said he doesn\u2019t consider oil a value investment because it is impossible to calculate its intrinsic value. But he said he has made \u201coil-related investments,\u201d which he wouldn\u2019t specify, since January, when West Texas Intermediate, the U.S. benchmark crude, slipped below $30 a barrel. WTI oil settled last week at $49.51, suggesting healthy returns for Oaktree (ticker: OAK).<\/p>\n

In a recent article in Barron\u2019s, Marks offered some advice to Trump, Sanders and others about playing by rules of the economy.<\/p>\n

Other speakers at the conference, which raised 25,000 pounds ($36,555) for the Children\u2019s Rights Division of Human Rights Watch, shared picks including Ryanair Holdings (RYA.Ireland), Europe\u2019s leading budget airline, and easyJet (EZJ.UK). Ryanair was featured in Barron\u2019s European Trader column three weeks ago. Apparently, we aren\u2019t alone in spotting its potential. \u201cRyanair is a gold nugget in a muddy river,\u201d said Jonathan Mills, co-founder of the SF Metropolis Valuefund, which counts the Dublin-based carrier among its top holdings.<\/p>\n

The shares have jumped nearly 10% in the past two weeks, supported by the industry\u2019s lowest fares, relatively low staff costs, and solid profit margins. Mills didn\u2019t offer a price target, but our story suggested that Ryanair\u2019s shares could soar 30% in the next 12 months. At Friday\u2019s close of 14.05 euros ($15.61), they trade for 11 times 2017 estimated earnings.<\/p>\n

\"2016_05_30_cmyk_NL_\"<\/a><\/p>\n

EasyJet can\u2019t match Ryanair\u2019s growth, but is on a much better trajectory than Europe\u2019s legacy carriers. \u201cAs long as Air France-KLM [AF.France] is alive, companies like easyJet and Ryanair have a long way to go,\u201d said Fran\u00e7ois Badelon, founder of Paris-based Amiral Gestion, who recommended easyJet.<\/p>\n

EasyJet\u2019s sales, which totalled \u00a34.69 billion in the year ended in September, are growing at about 5% annually. EasyJet plans to hold costs flat through 2019, which will drive profits higher. Earnings per share are expected to grow at a double-digit pace for the next few years at least. The dividend yield, currently 3.6%, could inflate, too, if easyJet ramps up its payout from 40% of profits to 50%.<\/p>\n

The stock, which closed on Friday at \u00a315.52, trades for less than 10 times projected 2017 earnings. Badelon calculates fair value at \u00a320.89, implying upside of 35%.<\/p>\n

In the market for medical equipment, Elekta (EKTA.B.Sweden), which manufactures radiotherapy equipment for treatment of cancers, could offer value as a turnaround story. Shares closed on Friday at 65.50 Swedish kronor ($7.85), giving the company a market value of about SEK25 billion. The stock has retreated 9.2% in 2016, but trades for 26 times projected earnings for fiscal 2017. That seems lofty, but its average in the past five years is above 20, and earnings are forecast to accelerate as the company recovers from some missteps.<\/p>\n

\u201cMultiples don\u2019t tell you the right story\u201d because analysts\u2019 consensus estimates are below the company\u2019s projections, said Alex Morozov, director of European equity research at Morningstar, who recommended the stock.<\/p>\n

Analysts\u2019 skepticism isn\u2019t hard to understand. The company\u2019s recent problems have included aggressive sales and accounting practices, low cash-flow conversion, and market-share erosion.<\/p>\n

BUT ELEKTA<\/strong> is getting its act together, particularly in the U.S., where it is a distant No. 2 to Varian Medical Systems (VAR), although combined they account for about 95% of the market. Elekta\u2019s declining share seems to have bottomed out, aided by a new strategy focused on targeting large networks and aftermarket services. A new chief executive steps in next month, the third in two years.<\/p>\n

Morozov sees enormous potential for Elekta\u2019s linear accelerators and surgery devices in emerging markets, where many patients don\u2019t have access to radiotherapy. Sales, estimated at SEK11.4 billion in the year ended in April, could grow 6% to 8% annually for the next five years, and profit margins, in the teens in recent years, could surpass 20% by 2018.<\/p>\n

\u201cThe market is missing that the company\u2019s wide economic moat is intact,\u201d said Morozov, who put fair value at SEK90, or 37% above the latest share price.<\/p>\n

Another health-care sector play, recommended by Michael Keller, co-manager of Brown Brothers Harriman\u2019s Core Select fund, is Perrigo (PRGO), which manufactures over-the-counter consumer goods and specialty pharmaceuticals. Perrigo\u2019s problems include the end of big price increases; its shortcomings were highlighted in the Trader column on May 7. But Keller and his colleagues think a selloff in the stock presents an opportunity. Perrigo shares, which traded on Friday at $96.61, have lost a third of their value since the start of the year and sell for just 10.4 times estimated 2017 earnings.<\/p>\n

\u201cThe share-price weakness has been overly severe,\u201d said Keller.<\/p>\n

Drivers for the stock include a demographic shift to increased pharma usage, store-brand products taking market share, and the conversion of $29 billion of prescription medicines to OTC products in coming years.<\/p>\n

EUROPE\u2019S BANKS<\/strong> have plenty of challenges, but Schroders fund manager Nick Kirrage believes that Royal Bank of Scotland Group (RBS.UK) is undervalued. It is majority owned by United Kingdom taxpayers following a government bailout during the global financial crisis, but the bank has gone a long way to turn things around. From 2008 to 2015, its loan book and risk-weighted assets came down by more than 60%, while its regulatory capital increased. RBS is almost a pure-play retail and commercial bank with no investment-banking risk.<\/p>\n

At Friday\u2019s close of \u00a32.51, RBS shares were off 17% in 2016. They trade for 11.1 times next year\u2019s estimated earnings, and only 0.6 times tangible book value.<\/p>\n

Dan Abrahams, managing partner of Alfreton Capital, said U.K. online grocer Ocado Group (OCDO.UK) could be a winner. The stock, which sells for 80 times estimated 2017 earnings, is also a favorite among short sellers. Facing greater competition in the market for grocery deliveries in the U.K., especially if Amazon.com (AMZN) enters the fray, Ocado could profit from licensing its software to bricks-and-mortar grocers that offer delivery services at a loss. The company continues to plow money into investments.<\/p>\n

There was plenty of talk about emerging markets. James Montier, on the asset-allocation team at GMO, says they are genuinely cheap versus developed markets, especially after resources and financial stocks are stripped out. Jean-Marie Eveillard, formerly a portfolio manager at First Eagle Investment Management and now a board trustee, sees potential in India. \u201cI am much more positive in the long term about India than I am about China,\u201d he said.<\/p>\n","protected":false},"excerpt":{"rendered":"

The following article was written on 26th May 2016 by Jonathan Buck, Europe Editor of Barron\u2019s. To view the article on Barron’s website or to subscribe for full access please click here. Oaktree\u2019s Howard Marks Likes Oil Investments Marks touches on oil investments and social-media stocks at the London Value Investor Conference Europe\u2019s leading low-cost […]<\/p>\n","protected":false},"author":2,"featured_media":0,"parent":760,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"_links":{"self":[{"href":"https:\/\/www.valueinvest.com\/london\/wp-json\/wp\/v2\/pages\/2027"}],"collection":[{"href":"https:\/\/www.valueinvest.com\/london\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.valueinvest.com\/london\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.valueinvest.com\/london\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.valueinvest.com\/london\/wp-json\/wp\/v2\/comments?post=2027"}],"version-history":[{"count":1,"href":"https:\/\/www.valueinvest.com\/london\/wp-json\/wp\/v2\/pages\/2027\/revisions"}],"predecessor-version":[{"id":2028,"href":"https:\/\/www.valueinvest.com\/london\/wp-json\/wp\/v2\/pages\/2027\/revisions\/2028"}],"up":[{"embeddable":true,"href":"https:\/\/www.valueinvest.com\/london\/wp-json\/wp\/v2\/pages\/760"}],"wp:attachment":[{"href":"https:\/\/www.valueinvest.com\/london\/wp-json\/wp\/v2\/media?parent=2027"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}