August 23, 2011 - The Wall Street Transcript has just published TWST Investing Strategies Report offering a timely review of the Asset Management sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
Jerrold K. Senser, CFA, serves as Chief Executive Officer and Chief Investment Officer of Institutional Capital LLC. He heads the portfolio management team and is the Lead Portfolio Manager for all of the firm's investment strategies. Mr. Senser also serves as a Member of the firm's executive management committee.
He graduated with a B.A. from the University of Michigan and an MBA from the University of Chicago. Before joining Institutional Capital, Mr. Senser spent seven years at Stein Roe & Farnham, Inc., as an Associate involved in economic and fixed income analysis. He began his career at Data Resources, Inc., an economic consulting firm. Mr. Senser has been featured in publications such as Barron's and The New York Times, and has been a guest speaker on CNBC and Consuelo Mack's "Wealthtrack" television show. He has been with Institutional Capital since 1986 and in the industry since 1978.
TWST: Right now, what are some of your specific holdings that you like and what is it that is attractive about them?
Mr. Senser: I mentioned health care. That sector has several good examples of what we look for in our investment process. Pfizer's (PFE) catalysts are management and restructuring. The company has a new CEO, Ian Read, who took over in December 2010. In our view, he is taking very aggressive actions, which build on the restructuring that has been underway at the company for the past couple of years.
Pfizer bought Wyeth in 2009. That acquisition gave the company a significant sales base that was less exposed to patent risk, with infant nutritional, consumer, vaccine and biotechnology products. As part of the restructuring, significant cost reductions were announced. Prior to the merger with Wyeth, the two companies combined spent about 11 billion annually on R&D. This spending came down to around 9 billion after the merger.
Earlier this year, the new CEO announced a target of only 6.5 billion to 7 billion for R&D spending in 2012. We see this as a sign that management is not pursuing low-return projects with valuable capital. Pfizer also recently announced that it would seek alternatives for its nutritional and animal health businesses, which together account for 6% to 7% of company profits, but we feel could fetch substantially more as a share of Pfizer's market value if either divested or sold. These businesses are expected to be valued at significant premiums to that of the overall company, which in our view, could help expose some of the upside we see in the stock.
Management is expected to return the majority of proceeds received to shareholders via share repurchases and dividends. Management already has taken important steps to increase the level of cash that is returned to shareholders. They've stepped up their share repurchase program this year, which is in addition to the current dividend yield of about 4%. Overall, as we look at Pfizer, we see a management team that is being more aggressive on significant restructuring actions combined with what we feel is an attractive valuation of only eight times 2012 consensus earnings.