Cyclical stocks
Interview: Philadelphia Corp for Investment Services---Mervine, Forrest---Fund Manager
>> astra zenaka pleaded guilty to criminal conspiracy in a u.s. court. they agreed to pay $355 million to settle charges it worked with doctors to default the government. astra zeneca admitted filling free samples of the zoelenex. astra zeneca down 2% in the latest session. our next guest looks for inexpensive stocks that are out of favor, buying more cyclical stocks now because of the economic recovery. we welcome forest irvine, fund manager at philadelphia corporation. welcome, sir. thank you for being with us today.
>> thank you.
>> let’s talk about your view on the market today. with the nasdaq up 23% year to date, and the other gains for the s&p and the dow, what do you make of how this market has come and where is it going?
>> well, i think we have a push in the market that’s been due to let us say, an absence of bad news abroad and bad news in this country as far as terrorist acts are concerned, and i think there is a general feeling that things are getting better. i mean even in stocks like u.s. steel, for example, you can see progress being made. i am―i would say, optimistic about the stock market. i think we’ve seen the lows. i think it’s a good time to go shopping.
>> you are looking for out-of-favor value stocks .
>> i’m looking for stocks that are cheap relative to what they could be in the market.
>> what are you finding out there? is it harder to find names that you would consider value stocks ?
>> no. you have to sometimes go to the stocks that people are not terribly familiar with, but i think i think―or stocks that people haven’t thought about in a long long time. like i mentioned u.s. steel. u.s. steel has a lot of good things going for it. the steel industry has shrunk, the number of competitors are much less. u.s. steel has a big number overseas now, and they have a great relationship with their working force and their pension fund is completely funded with no unfunded liabilities. so it’s in pretty good shape to do things.
>> a lot of value investors end up selling into these rallies because those stocks that were values month before don’t seem to be values anymore. why haven’t you sold too much stocks recently?
>> probably because i guess i’ve been looking at stocks and buying a few. i do have a few stocks that i’ve owned for quite a while. in fact, one in particular for several years. and it’s not impossible that we could sell more. we’ve sold about half of the position in this particular stock . and i mean it’s the cod corporation, but we still have a lot of cod.
>> cod itself is up 17% so far this year. not so long ago it added r.c. cola to its stable of brands. it’s based in canada but has operations in the u.s. and mexico as well. what do you like about cot here?
>> i like the fact that cot has become a self-contained, self-sufficient company. the r.c. cola acquisition has growing the marketing. what led us to it, a large ratio per sales per share. cot had at one time 10 times in sales what it had in shares in the price of its stock . that was quite remarkable. it’s reduced now, of course, but it still has a lot of good things going for it. cot has an excellent management team that has brought along -- we are looking for thed double digit growth in both sales and earnings for probably the next couple of years.
>> one of their big businesses is how they serve big names like wal-mart and safe way and sainsbury with private label brands. are you at all concerned that those chains could simply award those contracts to another bottler other than cot because of the change in distribution and not cot themselves?
>> i think that’s always a risk but i think they enjoy, they like working with the cot people. the cot people know them, they know what they want to do. cot is not going to compete with them. i think if they went to another provider in the volume that they need, they’d almost have to go to one of the big cola makers like pepsi or coke. that would be kind of difficult because people would find out you could buy pepsi or coke in a different cancelling for 30% or 40% less and they would be competing against their own brand. so i don’t see that as a great problem.
>> getting back to your portfolio, you have 35 stocks . is that the limit that you have?
>> generally about that. a lot of them are very popular names that you would easily recognize.
>> i note that you picked up calgon, and american express. you see value in american express? a lot of people don’t.
>> i’ve owned american express. american express really is not a new purchase. we bought american express in the high 20’s. low 30’s. i’m still holding it. i haven’t sold any stock yet. i think it could go a little bit higher. i’m in no rush to really get out of american express right now. i think things are getting to work out well. as travel resumes american express is a travel company that should do quite well.
>> up 21% so far this year along with a number of other financials that have done quite well.
>> none of this precludes our doing something with these. if we get a little nervous about things, we’ll definitely act.
>> thank you very much. forest irvine is a fund manager at philadelphia corporation for investment services. the world’s largest carmaker prepares for one of the biggest planned offerings in the u.s. we’ll have more on that story coming up next.
