At Capital Management, Arnie Schneider occupies the positions of president, chief investment officer and principal. In this regard, Schneider uses independent analysis to identify undervalued securities with potential for positive change. The strategy is based on a fundamentals approach to valuing securities. A proprietary ranking system establishes ambitious hurdles for new holdings.
Arnold Schneider´s top conviction picks are the following:
Arch Coal Inc. (ACI): Arch Coal is the nation's second-largest coal producer. It is specifically engaged in the mining, processing and marketing of low-sulfur bituminous coal. The Company sells its coal primarily to electric utilities in the eastern United States. The Company also exports coal, primarily to European customers.
In the third quarter of 2011, Arch reported adjusted earnings per share of $0.08 and record $211 million in EBITDA. Quarterly revenues reached $1.2 billion and EBITDA grew year-over-year even with lower PRB shipment and a long-wall outage in Appalachia.
Arch is now in a good position to expand metallurgical production for the next several years. Should prices remain strong, Arch will benefit greatly.
Peabody Energy Corporation (BTU): Peabody Energy is the world's largest private-sector coal company. Peabody has mining operations in the Powder River Basin and the U.S. Southwest and Midwest, as well as Australia and Venezuela. Peabody also markets, brokers, and trades coal and develops electricity-generation projects.
The company is financially healthy. In the last quarter, it delivered revenues of $2.04 billion and EBITDA rose 10% at U.S. Mining operations. This consolidated EBITDA for the quarter totaled $504 million and included $9 million of transaction costs related to the MacArthur track acquisition.
Peabody has a unique presence in Australia and is benefiting from high Asian prices vis-a-vis soft U.S. prices. With vast undeveloped coal reserves in different regions of the U.S., Peabody can pick and choose where to break ground, thus being able to be opportunistic and generate attractive returns on capital. Peabody's presence in the PRB is on track to deliver higher margins and return on capital in the long run.
Recent EPA regulations have been positives for PRB coals, with less sulfur content.
Consol Energy Inc. (CNX): CONSOL Energy produces coal and natural gas. CONSOL's coal mines are located in Northern and Central Appalachia, the Illinois Basin and Utah.
In terms of performance, CONSOL´s development in Asia is outstanding as coal demand is exceeding supply. CONSOL is able to sell coal into these markets at a very attractive margin. Furthermore it has been a solid acreage position that allows it to pay no royalties.
CONSOL's superb mines in Northern Appalachia are very efficient and would be quite difficult to replicate.
CONSOL's strong cash flows and healthy balance sheet will enable it to easily fund its natural gas drilling programs. In fact, most funding will mostly come from internally generated cash.
Cisco Systems Inc. (CSCO): Cisco Systems is the world's leading supplier of data networking equipment and software. Its products include routers, switches, access equipment, and network-management software that allow data communication among dispersed computer networks. The firm has also entered newer markets, such as video conferencing, web-based collaboration, and data center servers.
Cisco's balance sheet is extremely healthy, with far more cash than debt, and free cash flows average of more than 20% of revenue over the past several years. Cisco generated double-digit year-over-year order growth across each of its key customer segments and geographies.
As Internet traffic grows, demand for Cisco's networking gear will grow too. UCS servers are showing early signs of success. Although they now have relatively low gross margins, these servers will potentially expand Cisco's footprint in its customers' data centers.
Cisco Systems Inc. has a market cap of $84.9 billion; its shares were traded at around $15.435 with a P/E ratio of 10.8 and P/S ratio of 2.1. The dividend yield of Cisco Systems Inc. stocks is 1.6%. Cisco Systems Inc. had an annual average earnings growth of 23% over the past 10 years.
SunTrust Banks Inc. (CTI): SunTrust Banks Inc. is a commercial banking organization. The company provides a wide range of services to meet the financial needs of its growing customer base in Alabama, Florida, Georgia, Maryland, Tennessee, Virginia, and the District of Columbia. Its primary businesses include traditional deposit and credit services as well as trust and investment services.
Although the economy has been tumbling and the sector has exercised important pressure, the quarterly results have been sound and benefited from the sharp decline in provision for credit losses, a slight improvement in revenue and better credit quality.
Earnings per share were $0.39 and the projected population growth for its markets is 10% from 2008 to 2013.
As one of the largest players in its hometown of Atlanta, SunTrust stands to gain market from the numerous banks that are failing in that struggling market