Marcin's Interview with Barron's

One of my favorite (because he's been right more times than wrong) market commentators, Robert Marcin, was profiled by Barron's last week. Candidly, I'm not a big fan of Barron's but I did enjoy their interview with Mr. Marcin, Realmoney.com contributor + founder of the $500 million Defiance Asset Management hedge fund. The link below is worth checking out as he describes his equity management style, favorite sectors + stock recommendations in depth:

http://online.barrons.com/article/SB120916336912346003.html

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*Marcin Quotes from the interview:

"We're among the deepest-value managers out there. The average P/E of the longs in our portfolio is nine. These companies are showing average annual earnings growth of 15%. All of them have good balance sheets."

"We have coined a term called G Ice. It stands for global infrastructure, commodity and energy. It captures many different industries, including construction, machinery, energy and even technology...Many people today still don't realize that the growth companies of this decade are global infrastructure, commodity and energy companies and not necessarily firms making deodorant, soda, diapers or drugs. We're not buying yesterday's winners that are now trading for 20 times earnings. Coca-Cola (KO) is a great company but it's a 20-P/E stock that has annual earnings growth of 10%. I want to buy the reverse, a 10 P/E stock growing at 20%. For the past 20 years, people thought the only areas of secular growth were consumer products, health care and technology. They treated economically sensitive companies as deep cyclicals and didn't value them properly."

"There's concern about the U.S. economy and whether the weakness here will spread abroad. WE're BETTING IT WON'T. These companies are satisfying the explosive global demand for energy, commodities and infrastructure. Most every company that we are talking about has 15% annual growth in revenues and profits if the cycle continues, and yet they all trade for around 10 times earnings."

"For the past year, we've liked natural gas and the story is beginning to play out. Gas has rallied, but it's still very undervalued relative to oil on an energy-equivalent basis. Our favorite energy stocks are exposed to natural gas. Conoco Phillips (COP) is one of our largest holdings...(at $84/share, the stock is trading at) only about seven or eight times estimated 2008 earnings. Among the super-major energy companies, Conoco is the best U.S. natural-gas play, thanks to its acquisition of Burlington Resources. Conoco has a lot of earnings leverage to $100-plus oil and $10 per Mcf [thousand cubic feet] gas and it has the lowest valuation in the group. Conoco could deliver positive earnings surprises...If commodity prices hold these levels and Conoco continues to aggressively repurchase shares, it could make $14 next year. If the stock were to trade at nine to 10 times earnings, that could be $120 to $140 a share. If the energy complex rolls over, we have a fair margin of error given the low valuation...Nabors (NBR) is expected to earn $3.15 this year and nearly $4 next year. Those estimates could be conservative for one simple reason: Every energy exploration and production company in the U.S. has a new play, whether it be in Pennsylvania or Wyoming. The combination of drilling technology improvements and high gas prices is going to lead to a significant increase in drilling over the next two to three years. Nabors gave an interesting presentation recently in which it outlined a scenario whereby the company could potentially earn $6 a share in profits in 2010 or 11. If Nabors earns between $5 and $6 in a few years, the stock should get to $60."

"We are negative on the COAL stocks and the coal industry in general. It's a dirty fuel that has been growing less than 2% annually here in the U.S. and somewhat faster abroad. Coal has one main use on the planet now, and that's to boil water to create steam to generate electricity. There is going to be growing political pressure to reduce coal usage. We think improvements in solar technology over the next decade will dramatically reduce the growth of coal demand.
I will make a very bold statement. I've seen some work done on solar concentration, where you use sunlight with mirrors to boil water and generate electricity. If this technology is as successful as its inventors contend, in 10 or 20 years, coal will be obsolete. Coal stocks trade at very high valuations."

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*Anecdotally, I agree with Mr. Marcin's opinions on crude oil + natural gas but I'm a little bit weary about his thoughts on coal becoming an obsolete fuel in the not so distant future. In his statement above I believe Mr. Marcin is omitting a very important use of (coking) coal...COKING coal is ESSENTIAL for the manufacture of STEEL. Per my April 6th 2008 post, 'A Triple for Coking Coal Prices', BHP Billiton (BHP) recently increased the price its charging to customers for coking coal from $98/metric ton in 2007 to $300 in 2008! If that's not a sign of robust demand then I don't know what is..

Data Courtesy: Barrons.com.
Full Disclosure: I own shares of COP.