INSTITUTIONAL INTELLIGENCE | Crouch Connection, March 2017
Last week I attended the 38th Annual Institutional Investors Conference hosted by Raymond James in Orlando, Florida. This confab consisted of almost 300 presentations over three days by the executive management teams of companies followed or recommended by the Raymond James Research Department, and attended by approximately 1000 portfolio managers from all over the world.
Each session consisted of a 15 to 20-minute presentation by the CEO or CFO, followed by questions and answers. I believe there is no better format to become familiar with a company and to assess the talent of management. I monitor the quarterly conference calls of as many companies as I can to get the latest information about the companies’ businesses, but the opportunity to see and hear these stories in person is priceless.
The sessions ran the spectrum from the “company I would never buy” to the “surprise opportunity I would not have suspected”; from the nation-wide retailers like Home Depots and Tractor Supply Companies of the world to the moderate-sized real estate trust companies like Rayonier (timberland) and National Retail Properties (free-standing retail properties). Each presentation was an opportunity to see our economy through the window of a very specific business.
The common thread that ran through almost every presentation was cautious optimism. The new consumer confidence that has been felt since the election seems to be real and sustainable.
We heard from Buffalo Wild Wings and Texas Roadhouse that the restaurant business has been especially challenging this past year, but Texas Roadhouse CEO Scott Colosi was convincing that the energy that their employees bring to work every evening would keep the customers coming back.
We learned from AutoZone CEO Bill Rhodes that delayed tax refunds due to IRS electronic filing changes would likely cause some customers to delay purchases from March into April, negatively impacting first quarter earnings, but likely adding to second quarter results.
Presentations by home builder Toll Brothers’ CFO Martin Connor gave us reassurance that the pent-up demand for housing caused by the Great Recession has not been filled…they estimate we need another 6 million homes in the U.S. Flooring manufacturer Mohawk Industries CFO Frank Boykin echoed that sentiment expressing confidence that the housing industry was very healthy.
Presentations by HealthSouth Corporation and Baxter International convinced me that my aversion to healthcare stocks might be the best policy, at least until Congress decides what to do with our healthcare system (that was probably NOT their objective).
We heard a fascinating presentation by Raymond James analyst Tavis McCourt about the “Autonomous Driving” revolution going on in the Automobile Industry, projecting that almost all cars will probably have automatic braking systems within a very few years, but that totally autonomous driving vehicles will be relatively scarce for several years because of cost and liability concerns by the big Auto manufacturers.
John Roberts, President and CEO of trucking giant J. B. Hunt Transport commented that we will be no more likely to see trucks without drivers than we are to see airplanes without pilots…you still need a human to handle the situations when something goes wrong.
The highlight of the conference for me was the discovery of a company called Farmland Partners that has created a niche in farmland investments…near and dear to my heart…and a business model with very consistent cash flows that could make sense for many of our clients.
The conference was also an opportunity to interact with portfolio managers from around the world. At breakfast one morning I found myself at the table with a team from Paris that manage the investments for the French government and pension funds. The next morning a gentleman for London gave us a view of America by the Europeans…most interesting given the recent elections. Other acquaintances at meal time were usually running mutual funds, giving me very interesting insights into the challenges they face and the reasons why they behave the way they do some times.
All in, it was a fascinating three days and I believe a valuable use of my time as I attempt to “peel back the onion” and understand the trends affecting the investments we manage. I look forward to sharing more anecdotes with you as we continue our schedule of annual portfolio reviews.
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”
The monthly Employment Report on Friday continues to support our views of a moderately strong economy. Other recent economic reports adding to the positive outlook include the Institute for Supply Management’s monthly reports projecting optimism from the nation’s Supply Managers, as well as the Fed’s “Beige Book”, which measure business conditions around the country. At this point, we continue to believe that the economy will continue to support healthy earnings growth by the companies we hold.
Please give us a call if any of the media pundits causes you undue stress. We will attempt to help you sort out the real news from the fake news. As always, we appreciate your business and encourage you to call if there is any way we can be of service.
Any opinions are those of Dave Crouch and are not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Past performance does not guarantee future results. This information does not purport to be a complete description of the securities, markets, or developments referred to in this material, it has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.
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