Abby Joseph Cohen's Picks
Bristol-Myers Squibb/BMY$34.13Mosaic Company/MOS59.74Expeditors International ofWashington/EXPD42.70Hankook TireWorldwide/000240.Korea18,850 wonNoble Energy/NBL$105.57
renal cancer in early-stage clinical trials.
How will these drugs affect earnings?
Longer term, earnings could grow by at least 10%. The stock has a 4% yield, so investors can collect something while they wait for higherearnings to come through. Our analysts estimate 2013 earnings of $1.80 a share.My second recommendation,
[MOS], refers to itself as a crop-nutrition company. In other words, it produces fertilizer. Mosaic wasformed in 2004. Cargill, which owned a majority of the company, spun off its stake in 2011 in a $24 billion transaction. Mosaic is a significant supplierof both phosphate and potash base nutrients. It is No. 2 in fertilizer ingredients after
Potash Corp. of Saskatchewan
[POT]. Two things areinteresting about Mosaic. It has significant distribution operations in places such as Brazil, China, India, and other parts of Latin America, all areas where the middle class is growing and demand for food is rising. In addition, some charitable trusts and family foundations associated with Cargill havelockup agreements on Mosaic shares that begin to expire in May 2013 [the shares can't be sold before then]. The presumption is that, after the lockupsexpire and the shares are sold, the company will be able to consider capital-allocation strategies, such as dividend increases and share repurchases laterin 2013.
Apart from this, how is Mosaic doing?
The company reported fiscal-second-quarter earnings on Jan. 4. Revenue was down a little because fertilizer prices were a bit lower. In addition, international shipments were hurt because thecompany, and the industry, were engaged in contract negotiations with India and China. There has beenan agreement with China, so now things are moving in the right direction.However, business was strong in North America. On a longer-term basis, my Goldman Sachs colleagueslike the fundamentals for crop demand and pricing, which is favorable for both potash and phosphateprices. Inventories are low, and a recovery is likely within a year or two. Mosaic offers both earningsgrowth and return of cash. The company has $2.5 billion of net cash on its balance sheet.
Is there a reason you prefer Mosaic to Potash? Potash is the lowest-cost producer.
Our team prefers Mosaic because of valuation and the catalyst it sees. Mosaic trades for about13.5 times fiscal 2013 earnings and 10 times fiscal 2014 earnings [the fiscal year ends in May]. It yields1.7%.My next company,
Expeditors International of Washington
[EXPD], is based in Seattle, not Washington, D.C. It has significant exposure to global trade, especially trans-Pacific trade, and therefore,trade with China. Freight growth appears to be picking up at the airports in Hong Kong and Shanghai,and we are seeing a reversal of very tough trends at seaports in the Pacific in 2012. If investors wantexposure to China without buying Chinese stocks, this is a good way to get it and participate in aninflection in the Chinese economy.Expeditors describes itself as a global logistics company. Basically, it expedites trade. It has about 250 locations around the world in cities such as SãoPaulo, Beirut, and Shanghai. The company helps customers get merchandise in and out of countries. It works with customs agents. It has about 13,000employees around the world.
How do you expedite trade?
You smooth the process by working with a lot of customs officials. This is important for small-and mid-cap companies that might not have such expertise themselves.
Expeditors used to sell at a high price/earnings multiple. Does it still?
Yes. It sells for 26 times last year's expected earnings, falling to 21 times this year. It yields 1.2%.The stock disappointed last year. One of the risks for Expeditors, as seen in 2012, is that their businesshas become more cyclical.Keeping with the Asia theme, Korea looks interesting. It has a number of large companies that areengaged in international trade.
Hankook Tire Worldwide
[000240.Korea] trades in Korea. Thisstock, too, has performed poorly in recent months. There have been concerns about protectionism, weakening demand, and such. Our teams in Asia and the U.S. are seeing a pickup in demand for automobiles, including Korean vehicles sold in the U.S.and elsewhere. Korean auto manufacturers, including
[000270.Korea], are having discussions about building manufacturing facilities inthe U.S., which could bode well for Hankook.
You aren't concerned that if my forecast for a strong dollar and weak yen [detailed in last week's Roundtable issue] comes true, the Koreans will be hurt? They are the major competitors to Japanese automotive companies.
Our currency team doesn't share your view, although one could argue that if there is some weakening in the yen, it would hurt the Korean won.My final pick is in the energy area. As we discussed this morning, investors are focusing on the technological and competitive advantage that many U.S.energy companies have, and just how much they are laying out in capital expenditures. Until now, investors haven't been enthusiastic about energy. Thesector is significantly underweight among hedge funds and others.
[NBL] could benefit from increased interest in the sector. Noble has
Goldman's senior investment strategist puts anoptimistic spin on the federal budget deficit, explainswhy stocks are cheap, and makes the case forinvesting in Bristol Myers.
Jennifer Altman for Barron's
Abby Joseph Cohen: "Our teams in Asia and the U.S.are seeing a pick-up in demand for automobiles,including Korean vehicles sold in the U.S. andelsewhere."
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