Topics covered: Bottom-Up Stock Selection - Cyclical Sectors, Exposure to Emerging Markets - Large-Cap, Deep-Value - Value Oriented Strategy - High-Quality Companies - Value Investing, Deep Value
Companies include: Morgan Stanley (MS), Citigroup, Inc. (C), Exxon Mobil Corp. (XOM) and many others.
In the following excerpt from the Investing in Dividend-Paying Companies and Other Strategies Report, an experienced portfolio manager discusses his methodology and top picks:
TWST: TWST: Would you be able to give us a few examples of top stock picks or top holdings, and tell us why you like them?
Mr. Mentzer: This is always a challenge at the end of a quarter, to make sure I don't give you a name that's been in motion. What I could indicate in general is, a typical value manager is looking for areas that have been beaten down, that nobody wants. I'm not quite to that extreme. I'm looking for names that are maybe at the bottom of their range or a channel, and I'm looking for a catalyst. If the valuation is acceptable, and they have a good dividend yield so I'm getting paid to wait, in essence, and maybe in the economic forecast there's some ray of sunlight that could be a catalyst.
The one that really jumps out at me right now that's just starting to work are the smaller-cap banks. It fits my criteria for valuation, dividend yield and the value momentum. The value's certainly there, the momentum is just starting to pick up, and the catalyst is these higher rates, which should help on the net interest margins.
Everybody's left the small-cap banks alone, there hasn't been any interest, because the assumption is there's going to be too much compliance for them, but that's not been the case. Names like Morgan Stanley (MS), Citigroup (C) - I just haven't had any allocation toward those. But the smaller-cap banks, in the territory of $1 billion to $3 billion in market cap, I own half a dozen of these names.
Not a big representation, but they are performing exceptionally well in the last couple months. So that's an area, and the yields are robust, they're 3.5%, 4%. It's just a perfect scenario, and they're just now starting to work. The catalyst has been the Fed suggesting that they need to let rates rise, and that steepening of the yield curve is going to be what helps them gain the earnings momentum that they desperately need...
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