Seeking Alpha
Long only, value, growth, long-term horizon
Profile| Send Message|
( followers)  

"The best stock to buy is the one you already own."

― Peter Lynch

As mentioned in my "Gentlemen, Start Your Buy Lists (Ladies Too)" article, my focus this year has been primarily on small and mid-cap stocks. However, as also mentioned in that article, a larger portion of my portfolio is actually large-caps (~40-50%). So, for several reasons, I thought I'd comment on a few of the large-caps I hold and would still buy if they were to dip just a little lower than where they are right now, as they probably will within the coming days or weeks.

As I just alluded to, one reason I decided to sidetrack for a large-cap article is that, despite the recent D.C.-induced selloff and rebound, I still believe "there are likely to be several [more] good opportunities to start executing our buy lists between now and the end of the year." However, the primary reason I decided to write about some large-caps now is because I understand that investors all have different risk tolerances, time horizons and goals; so many investors simply don't like small-caps. I agree that small-caps should only be a small part of more conservative investors' portfolios and speculative stocks shouldn't be included at all.

A third and lesser reason that I'm sidetracking to large-caps is because small-cap articles require more in-depth research and writing in order to convey compelling theses. So, even though I have a lot more small and mid-cap ideas I want to get out ASAP, I also realized that I need to take somewhat of a break between the small-cap articles since they take much longer to write and are pretty exhausting. Since large-caps are such well-known companies with a wealth of information readily available, it's not necessary to go into great depth. So, I'll just offer brief opinions on: Blackstone (NYSE:BX), Halliburton (NYSE:HAL), Pfizer (NYSE:PFE) and Valero (NYSE:VLO).

Blackstone is one of the world's largest private equity firms and has over $210 billion in assets under management. Many investors' knowledge of PE firms is only from hearing about Bain Capital during the presidential election of 2012. I'm not here to debate whether there's truth to some PE firms being known as "corporate raiders" of sorts, but I will say that's not by any means the business model of all PE firms. Most PE firms are simply investors just like you and I, but on a much larger scale. What that means is that, just like you and I, their goal is to buy low and sell high. So, again just like you and I, PE firms don't really make their money when they're in heavy buying mode as Blackstone was a few years ago as we came out of the depths of the "great recession". The flip side of that coin is that PE firms tend to make lots of money when they start selling acquired assets. Well, as is evident by the string of recent IPOs (SeaWorld, La Quinta, Hilton Worldwide, Extended Stay, Emcure, etc.), along with various real estate sales like the Brixmor and Broadgate deals; Blackstone has been doing quite a bit of selling for a while now. For that and other reasons, I think we're likely in for a surprise when BX reports in a few days. My opinion is to consider buying BX in the ~$23-24 range and I expect it will easily hit ~$34 by this time next year (~45% return). Top that off with a ~3.5% dividend and that's extraordinary return potential in my book.

Halliburton is a true love/hate story of the investing world. I'm in the love camp since HAL has made good money for me. I only wish I had started writing articles a year ago when I started buying up HAL shares at half of current prices so that I might've been able to encourage others to make good money with HAL too. As mentioned in a July 2012 comment about the Macondo accident, "bits of news in HAL's favor will begin to trickle out, HAL probably gets a relatively small slap-on-the-wrist fine just to relieve some of the political pressure, then target prices are realized." How did I know that a year before it happened? Simple ... because I read far beyond shock-value headlines and understood what really happened. Well, a slap on the wrist was exactly the outcome as summarized in a July 2013 comment "The specific charge and fine are extremely important to understanding the level of culpability the DoJ considers HAL to have. In other words, BP - billlions, RIG - hundreds of millions, HAL - a couple hundred thousand. Speaks volumes." The reason I mention that is to make the point that HAL has been severely underestimated for a long time and, while there's been progress, the story is far from over. Seeking Alpha has many great articles specifically on HAL so I suggest reading those for more detail. My opinion is to consider buying HAL in the ~$45-46 range and I expect it to hit ~$60 by this time next year (~32% return). Top that off with the modest ~1% dividend, which I expect to grow by the way, and you have potential for outstanding returns.

Pfizer is a big-pharma powerhouse, so don't let anyone scare you away with that "patent cliff" crazy talk. Forgive me for that ... if this is the first of my articles you're reading, you're not familiar with my sometimes curt sense of humor so I'll clarify. I'm not really being dismissive of the patent expiration issue or suggesting that those who discuss it are crazy. I'm just making the point that it's not the end-all-be-all for Pfizer. Make no mistake, Pfizer has faced countless "patent cliffs" and similar seemingly insurmountable issues in its 165 years of success. It's true that, as the best-selling drug of all time, Lipitor patent expiration is not insignificant, but it's not by any means a death knell for Pfizer either. Note that, according to an AARP case study, Pfizer will do ~$3 billion in Lipitor sales in 2015 (the all-time peak was only ~$9 billion). I just love using words like "only" in the same sentence with numbers like $9 billion. Anyway, ~$3 billion sounds more like a modest patent slope than the fatal "cliff" that many have been pounding the table about for years now; and, incidentally, ever since the stock was 60% cheaper. Is PFE going to hit another Lipitor-style jackpot next week? Probably not. Will PFE continue raking in cash from existing products (including Lipitor) and new pipeline products? You bet. Perhaps read up on the numbers behind Eliquis, Xeljanz and Xalkori; not to mention the others we haven't even heard of yet. In other words, one five-dollar bill and five one-dollar bills spend just the same. My opinion is to consider buying PFE in the ~$27-28 range and I expect it to hit ~$31 by this time next year (~13% return). Top that off with the ~3.3% dividend and that's certainly respectable return potential, and especially suitable for conservative long-term investors.

Valero is the largest independent refiner in the world and, for very many reasons, I think the company is just starting a new growth spurt that will last for many years to come. For one thing, Valero has been a deal-making value-generating machine lately. First, there was the recent spinoff of the CST Brands retail unit, which is soon to be followed by an IPO of the wholly-owned subsidiary Valero Energy Partners. At the same time, I consider far more important the particularly forward-looking joint ventures like the Parkway Pipeline JV with Kinder Morgan Energy Partners (NYSE:KMP) and the Diamond Green Diesel renewable diesel fuel JV with Darling International (NYSE:DAR). Even beyond all of those value-adding deals Valero has been doing, as discussed in this Journal article, U.S. refiners are starting to export more fuel than ever before. I expect Valero in particular to continue to be one of the primary beneficiaries of that growing trend. Also, as this Bloomberg article discusses, the Environmental Protection Agency is considering scaling back ethanol requirements for refiners next year, which would be a real boon for Valero. My opinion is to consider buying VLO in the ~$34-35 range and I expect it to hit ~$44 by this time next year (~28% return). Add on the ~2.5% dividend and, again, you have strong potential for more outsized returns.

Thanks for reading. I'll try to answer any questions you might have in the comments section and I always appreciate feedback, even if it's just to let me know whether or not you found my ramblings useful.

Disclosure: I am long BX, HAL, PFE, VLO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I may purchase additional shares in BX, HAL, PFE and/or VLO over the next 72 hours.

Source: There Are Still Large-Cap Values Left, Part 1