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Bram de Haas
Bram de Haas
Articles (253)  | Author's Website |

John Rogers: Market Isn't Going to Drop 20%

Rogers of Ariel Investments fame talks to CNBC, giving several investment ideas and his outlook for markets

February 06, 2018 | About:

I’ve been writing a lot of bearish articles over the past year and with the S&P 500 down close to 5% today, I’ll switch it up with a more upbeat sound. It’s already a bad enough day. John Rogers (Trades, Portfolio), CEO and CIO of Ariel Investments, appeared on CNBC Tuesday morning and shared his view on markets as well as a couple of interesting stock picks.

Madison Square Garden Networks (NYSE:MSGN)

One of Rogers' favorite picks is Madison Square Garden Networks. On the recent earnings call, management explained how much tax reform will impact the business. The Guggenheim analyst then proceeded to bring his earnings estimate up from $2 to $3 which would put the company at 8x forward earnings.

The table below shows the analyst estimates Reuters tracks:

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I’ve marked in green how the analyst estimates are shifting, but they are really only beginning to shift. Rogers could be on to something here, and it looks like an interesting company to explore. Even looking at the mean estimate for 2019 earnings, the company trades below 10x earnings. Such opportunities aren’t a dime a dozen currently. Not even after a couple of days of market turmoil.

As Rogers puts it: "It’s an extraordinary cheap stock."

In addition, Rogers believes we will see this type of adjustment happen time and time again because of tax reform. The effect will be most profound on domestic stocks because multinationals have usually been able to lower effective tax rates to a level closer to the new tax level.

Here are the firm's top positions as tracked by GuruFocus:

Ticker Company Industry Market Cap ($ Mil) % Weighting as of 2017-09-30
BIDU Baidu Inc Online Media 78,237 3.14%
FAF First American Financial Corp Insurance - Specialty 6,273 3.02%
LAZ Lazard Ltd Brokers & Exchanges 6,796 2.87%
KMT Kennametal Inc Industrial Products 3,604 2.57%
MSFT Microsoft Corp Application Software 677,582 2.36%
NOK Nokia Oyj Communication Equipment 30,095 2.28%
KEYS Keysight Technologies Inc Computer Hardware 8,398 2.26%
LH Laboratory Corp of America Holdings Medical Diagnostics & Research 16,616 2.19%
CRL Charles River Laboratories International Inc Medical Diagnostics & Research 4,740 2.11%
GILD Gilead Sciences Inc Biotechnology 102,372 2.04%
NTRS Northern Trust Corp Asset Management 22,683 2.04%
ZBRA Zebra Technologies Corp Industrial Products 6,224 2.01%
KKR KKR & Co LP Asset Management 10,478 2%
MSGN MSG Networks Inc Entertainment 1,893 1.88%
IPG The Interpublic Group of Companies Inc Advertising & Marketing Services 8,071 1.86%
JLL Jones Lang LaSalle Inc Real Estate Services 6,626 1.83%
SLCA US Silica Holdings Inc Metals & Mining 2,573 1.72%
SJM JM Smucker Co Consumer Packaged Goods 13,249 1.65%
MAT Mattel Inc Travel & Leisure 5,579 1.49%
AFL Aflac Inc Insurance - Life 33,661 1.49%

Lazard (LAZ)

Rogers is also bullish on European stocks and names Lazard. It is Ariel's third-largest holding. Lazard is a well-known banking and investing franchise from France. Its management team is very optimistic on Europe's economy.

From a valuation perspective, it is not immediately attractive, as trades at 31x earnings and 5.7x book value. A 2.8% dividend is nice but not exactly unique. When we consider the 8x free cash flow multiple, things start to look much more interesting:

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Then there's the backdrop of the ongoing shift from active to passive investing. At some point that's going to reverse. It may not be tomorrow but with a net cash position, Lazard has the balance sheet to weather tough times.

Rogers outlook

To leave you with an upbeat outlook today, here is the video. Rogers did raise a modest amount of cash at the funds but doesn't expect we will see the market down 20% for the year. Perhaps a comforting thought today.

Ariel CEO: Why I continue to be bullish from CNBC.

Author: Long KKR

About the author:

Bram de Haas
Bram de Haas is the managing editor of The Black Swan Portfolio

Visit Bram de Haas's Website


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