End of the Post-Financial Crisis World Poses Risks for a New
Generation of Investors
Gives Top Stock Picks for an Uncertain Age
Advises Crowd Not to Get Bit by FAANGs
NEW YORK–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/assetmanager?src=hash” target=”_blank”gt;#assetmanagerlt;/agt;–At the 10th annual Chief
Investment Officer Summit in New York, Jack Murphy, CIO of Levin
Easterly Partners, said that government intervention following the
financial crisis was a sedative on the economy and markets that is
wearing off, leaving a new generation of investors that is awakening
without memory of risk. These were Murphy’s first public remarks as CIO
of Levin Easterly, the long-only asset management firm that was launched last
month through Easterly’s acquisition of the institutional investment
business of Levin Capital Strategies.
Describing Levin Easterly’s strategy, Murphy said, “We have always run
essentially the same playbook, which is to find value through predictive
research, generating good stock selection decisions. We’ve done it in
war and peace, through rising and falling rates and in both recession
and growth, and so we have a proven track record of making money in a
consistent, repeatable fashion. We don’t need to do big sector bets or
big binary bets, which is where so many managers run into trouble.”
Murphy Provided Attendees with Top Picks for an Uncertain Age
Murphy told attendees that he believes there are times, such as now,
when the market wants certainty. When people buy business momentum at
any valuation and sell business uncertainty at any valuation, it offers
a great opportunity for Levin Easterly, which is an active manager that
acts decisively. In these uncertain times, Murphy outlined stocks he
thinks make sense right now, including:
1. GENERAL MOTORS (NYSE: GM): “Shares of GM are down, but it has a good
dividend yield, an improved balance sheet, a de-risked pension plan and
considerable free cash flow. It has invested in a potentially
game-changing automated driving company and is coming out with new
crossovers, SUVs and pickups in line with consumer tastes,” said Murphy.
2. KRAFT HEINZ (Nasdaq: KHC): “When Kraft and Heinz merged to create
Kraft Heinz, the company used zero-based budgeting to cut costs. It
failed to invest in its products and now, despite pre-merger margins and
free cash flow, shares are down by two-thirds. Kraft Heinz is going to
have to invest in its top line, perhaps by monetizing familiar brands.
If it does so, it will be rewarded; in the meantime, shareholders can
earn a 5% dividend yield while they wait,” said Murphy.
3. WALMART (NYSE: WMT): “Walmart is the world’s biggest retailer, and
it’s solidly in command of its markets, supply chains and industry
trends. What’s most significant is Walmart’s pivot towards technology
and e-commerce, which can enable it to compete effectively with Amazon,”
4. NOKIA (NYSE: NOK): “We believe Nokia will show continued improved
execution in future earnings reports, especially with regard to the
profile of the upcoming 5G cycle and improved cash flow from operations.
Further, Nokia’s balance sheet should continue to support a high degree
of stock repurchase, supplemented by further restructuring. Nokia also
trades significantly below comparable companies and also offers
investors a 4% dividend,” said Murphy.
5. BIO-RAD LABORATORIES (NYSE: BIO): “Bio-Rad produces products used by
the life sciences and clinical diagnostics industries. We believe BIO’s
35% stake in Sartorius AG has great value. In addition, BIO’s five-year
restructuring and ERP implementation could drive upside to its 20% 2020
margin goal. We also believe that they will continue to excel on
effective sales and margin execution,” said Murphy.
Don’t Get Bitten by the FAANGs
Murphy advised audience members about the dangers of getting bitten by
the FAANGs right now. “The so-called FAANG companies (Facebook,
Amazon, Apple, Netflix and Google) are alike in offering game-changing
technology, but their financials are dissimilar enough that investors
ought to be wary,” he added.
Amazon (Nasdaq: AMZN) trades at about 80 times free cash flow. Apple
(Nasdaq: AAPL), on the other hand, has $150 billion of net cash on its
books and – discounting employee stock compensation – trades at around
50 times free cash flow. “You can have problems if you make a mistake at
50 times free cash flow, but they are likely to be a lot less severe
than if you make one at 80 times free cash flow,” said Murphy.
Looking Ahead: China, Growth and the 2020 Elections
Murphy addressed major geopolitical issues such as China trade, the
perceived global slowdown and the 2020 U.S. elections. He believes that
pressure is building on the U.S. to make a deal with China, and that,
accordingly, negotiations are taking place in the media in advance of a
U.S. election year. As a result, he expects that a clean win for America
on trade is less likely.
Murphy believes that the outcomes of China, global growth and the U.S.
elections are the kind of binary bets that are best avoided, saying, “We
don’t usually try to hit home runs. That’s not our business. But you can
take advantage of consensus when it makes a binary bet. And
that’s where you can invest in something like Pfizer on one side of the
portfolio or Caterpillar (NYSE: CAT) on the other side, where its China
business will continue to grow over time.”
About Levin Easterly
Levin Easterly is a private asset management firm specializing in
serving institutions with approximately $6.1 billion of AUM. The firm is
focused on bottom-up, fundamental research with the goal of preserving
capital and generating profit consistently through all market
environments. For more information, please visit Levin Easterly at https://LevinEasterly.com.
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