I’ve been looking at the financial sector. Just looking because I’m not sure I’m smart enough to understand the assets that financial companies own. What has me very intrigued is Berkowitz, who has a lot of credibility, going all in on the sector at prices considerably higher than what Mr. Market is offering today.
I came across another interview with a guru who thinks financials are compelling. However unlike Berkowitz who had no financial exposure prior to the housing bubble collapse, this guru did not see it coming. So how expert his opinion is, remains a bit of a question:
Here is the interview with Chris Davis:
FORTUNE -- As the son and grandson of investing legends, both named Shelby Davis, Chris Davis is to the mutual fund born. He took a few detours -- at various times considering the priesthood and the CIA -- but years ago found his way into the family business. At 45, he's been chairman of Davis Advisors for 13 years and is committed to the tenets laid out by his forebears: He seeks bargain-priced shares of established companies (often financials) and holds them ... and holds them.
Davis manages, with Ken Feinberg, the $34 billion Davis New York Venture fund (NYVTX). It has posted 8.3% annualized gains since 1995 (when Davis took the helm) to beat the S&P's (SPX) 7.3%, according to Morningstar. He acknowledges he has struggled over the past five years, trailing the index by a percentage point per year. As he puts it, "we're taking it in the teeth." But Davis has earned some patience. He explained why he's still buying financials -- and why he believes he's well-positioned for a comeback.
The Fed recently allowed many banks to increase dividends and buy back shares after a second round of stress tests. Is the worst over?
Obviously the headlines are bad, and there's a lot of regulatory uncertainty. What are the characteristics of financial companies that make them attractive to a long-term investor? No. 1 is they're not obsolete-able. Making a spread on money is about the oldest business there is. We like that financials tend to trade at very low valuations. Let's use Wells Fargo (WFC, Fortune 500) as an example. Wells has outperformed the market over the last one-, three-, five-, and 10-year periods. And it trades at eight times earnings. Yet Wells and the other survivors are obviously way better off than they were before the crisis.
You have big stakes in Wells, American Express, and BNY Mellon.
This is a phrase my grandfather used: Financial stocks are the opportunity to buy growth companies in disguise. If a company has the name "financial" in it, it's the F-word. People immediately put a lower multiple on it. So to the extent that people view American Express (AXP, Fortune 500) as a financial company and they view Visa (V, Fortune 500) as a processing brand, Visa trades at a much higher multiple even though a huge percentage of American Express's earnings comes from exactly the same business as Visa's. And American Express is likely to adapt and lead the way when people move to whatever comes after a credit card.
Besides financials, the next biggest chunk of your fund is in energy stocks -- many of them natural gas.
For 40 years oil prices tended to trade at a 7-to-1 ratio to natural gas. Now it's at 25 to 1 because so much natural gas has been found. What we like about gas is it's cleaner, it produces less carbon, and we have huge domestic reserves. The new technology, horizontal drilling and fracking, is a huge opportunity. Now there are risks, right? But there are risks of having oil assets in Venezuela and Libya too.
I think that Occidental Petroleum (OXY, Fortune 500), EOG Resources (EOG, Fortune 500), Devon Energy (DVN, Fortune 500), and Canadian Natural Resources (CNQ) are four of the best-managed companies in energy. Management really, really matters in a commodity company. It doesn't matter if you get the commodity right -- if you get the commodity right, all the stocks are going to go up. But eventually the commodity prices level out. So Exxon's (XOM, Fortune 500) distinguishing feature is capital discipline. The same is true with Devon, EOG, OXY, and CNQ. They all have been very good at growing reserves per share. Very few companies are good at that; they all grow reserves, but they do it by issuing lots of shares and doing acquisitions.
For the remainder of the article: http://money.cnn.com/2011/04/19/pf/funds/chris_davis_bargain_stocks.fortune/index.htm
I came across another interview with a guru who thinks financials are compelling. However unlike Berkowitz who had no financial exposure prior to the housing bubble collapse, this guru did not see it coming. So how expert his opinion is, remains a bit of a question:
Here is the interview with Chris Davis:
FORTUNE -- As the son and grandson of investing legends, both named Shelby Davis, Chris Davis is to the mutual fund born. He took a few detours -- at various times considering the priesthood and the CIA -- but years ago found his way into the family business. At 45, he's been chairman of Davis Advisors for 13 years and is committed to the tenets laid out by his forebears: He seeks bargain-priced shares of established companies (often financials) and holds them ... and holds them.
Davis manages, with Ken Feinberg, the $34 billion Davis New York Venture fund (NYVTX). It has posted 8.3% annualized gains since 1995 (when Davis took the helm) to beat the S&P's (SPX) 7.3%, according to Morningstar. He acknowledges he has struggled over the past five years, trailing the index by a percentage point per year. As he puts it, "we're taking it in the teeth." But Davis has earned some patience. He explained why he's still buying financials -- and why he believes he's well-positioned for a comeback.
The Fed recently allowed many banks to increase dividends and buy back shares after a second round of stress tests. Is the worst over?
Obviously the headlines are bad, and there's a lot of regulatory uncertainty. What are the characteristics of financial companies that make them attractive to a long-term investor? No. 1 is they're not obsolete-able. Making a spread on money is about the oldest business there is. We like that financials tend to trade at very low valuations. Let's use Wells Fargo (WFC, Fortune 500) as an example. Wells has outperformed the market over the last one-, three-, five-, and 10-year periods. And it trades at eight times earnings. Yet Wells and the other survivors are obviously way better off than they were before the crisis.
You have big stakes in Wells, American Express, and BNY Mellon.
This is a phrase my grandfather used: Financial stocks are the opportunity to buy growth companies in disguise. If a company has the name "financial" in it, it's the F-word. People immediately put a lower multiple on it. So to the extent that people view American Express (AXP, Fortune 500) as a financial company and they view Visa (V, Fortune 500) as a processing brand, Visa trades at a much higher multiple even though a huge percentage of American Express's earnings comes from exactly the same business as Visa's. And American Express is likely to adapt and lead the way when people move to whatever comes after a credit card.
Besides financials, the next biggest chunk of your fund is in energy stocks -- many of them natural gas.
For 40 years oil prices tended to trade at a 7-to-1 ratio to natural gas. Now it's at 25 to 1 because so much natural gas has been found. What we like about gas is it's cleaner, it produces less carbon, and we have huge domestic reserves. The new technology, horizontal drilling and fracking, is a huge opportunity. Now there are risks, right? But there are risks of having oil assets in Venezuela and Libya too.
I think that Occidental Petroleum (OXY, Fortune 500), EOG Resources (EOG, Fortune 500), Devon Energy (DVN, Fortune 500), and Canadian Natural Resources (CNQ) are four of the best-managed companies in energy. Management really, really matters in a commodity company. It doesn't matter if you get the commodity right -- if you get the commodity right, all the stocks are going to go up. But eventually the commodity prices level out. So Exxon's (XOM, Fortune 500) distinguishing feature is capital discipline. The same is true with Devon, EOG, OXY, and CNQ. They all have been very good at growing reserves per share. Very few companies are good at that; they all grow reserves, but they do it by issuing lots of shares and doing acquisitions.
For the remainder of the article: http://money.cnn.com/2011/04/19/pf/funds/chris_davis_bargain_stocks.fortune/index.htm
