On April 30, The Wall Street Transcript interviewed Joseph J. Costigan, Senior Vice President and Portfolio Manager at Davidson Capital Management. Key excerpts, including his most recent portfolio pick, follow:
TWST: What are the stocks that you feel are representative of the Focused Portfolio?
Mr. Costigan: Last year, we added IBM (NYSE:IBM) to the Portfolio. We look at IBM as a company that has completed the majority of the restructuring of their business. They have moved away from hardware and have become a services and consulting business. We think that was the correct strategy. We also initiated a position early last year in NIKE (NYSE:NKE). NIKE has demonstrated that their brand is relevant across all sports and we view it as one of the top brand names in existence. NIKE is of course famous for their athletic footwear, but we view the whole sporting goods market as being the opportunity for this brand. Their innovation and success in golf is only one example of what the future can hold for this brand. Imagine if the Coca-Cola brand were applicable across all foods.
Another company we've recently added to the portfolio is Haemonetics (NYSE:HAE). Haemonetics is involved in two businesses. The first business is blood collection. Haemonetics supports agencies like the Red Cross in collecting blood and blood components from donors. Their equipment and disposables allow blood collection agencies to collect two units of red blood cells from a single donor by separating the components of blood on site. We think that's valuable, particularly in an environment where the number of people who are able to donate blood is declining for various reasons. They also help surgeons recycle a patient's blood and transfuse it back into the patient. This business has existed for years in heart surgery, but we think it makes sense in the orthopedic market. Even though they are a market leader, the market is still small. Heamonetics has a $1.2 billion market cap including a little over $200 million in cash. When we back out the cash, we think the company is trading at about 18 times earnings and is a mid-teens grower.
TWST: Haemonetics sounds like a special situation in the niche area. Is that something that your research looks for?
Mr. Costigan: We love the demographics of health care, particularly in the United States. But patent expirations, class action lawsuits and government regulation have created an environment where traditional healthcare companies are under pressure. We've been looking for healthcare companies that benefit from the demographics, but are not necessarily subject to those three problems. Haemonetics is a quality company, conservatively financed and market dominant in its area. It might some day be a takeout candidate, but in the meantime, they are able to generate cash.
HAE 1-yr chart