In this section, we feature a few Company Spotlights – either new ideas recently added to our portfolios, or updates on some existing holdings.
We hope these features help you understand how our analysts and portfolio managers recommend stocks to purchase. Each quarter, we'll post several in-depth spotlights here for your review. Portfolio holdings are subject to change, and for specific information about portfolio composition as of the most recent quarter-end, please refer to the specific Fund or Product you are interested in.
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A Charmed Reputation
Established in 1837 in New York as a stationery and fancy goods purveyor, Tiffany & Co. has transformed itself into an international fine jeweler and specialty retailer. Its offerings include an extensive selection of jewelry, timepieces, sterling silver, china, crystal, fragrances and luxury accessories. From the very beginning, the firm has set itself apart by its relentless commitment to quality, an eye for detail and an incredible track record of innovation. Founder Charles Tiffany masterminded the company’s iconic blue box and launched the first national retail catalogue. The company also played an essential role in the adoption of the metric carat as a standard weight for gems. Lastly, Tiffany established a policy of nonnegotiable pricing and has only had two sales in its 171 year history.
Tiffany's Timelessness
In our view, Tiffany represents the quintessential retailer. The company boasts a number of competitive strengths, most notably its coveted brand. As just one example, a Tiffany diamond connotes an image of flawlessness, beauty and good taste. Beyond its signature items, every detail right down to the Tiffany bow creates a memorable customer experience, and as a result, consumers are willing to pay premium pricing to attain the Tiffany name. Despite concerns over a possible recession and pull-back in consumer spending, we believe the company’s customer base is more resilient than the average consumer. Additionally, an expansive geographic footprint is another strategic advantage—insulating the firm from a weakening U.S. dollar. Ironically, our declining currency has worked to Tiffany’s benefit by attracting an increase in international buyers to the company’s flagship Fifth Avenue store.
Holiday Stress
Tiffany’s share price took a beating early this year due to lighter than expected holiday sales and trimmed 2008 earnings estimates. This news, coupled with recession fears and concerns over a luxury slowdown, caused Tiffany’s stock to drop 26% in January—what we considered an exaggerated punishment. We took advantage of the price dislocation and initiated a position for each of our funds.
A Classic Ariel Holding
We view Tiffany as the crown jewel in the retail space. In fact, it is a name we have owned before, first purchasing shares in 2002 when luxury brands fell out of favor in the wake of the tech wreck. As the economy rebounded, so did Tiffany’s stock price and our discipline led us to sell in August 2003. As patient investors, we are watchful for the right time to own our favorite names again, and January afforded us this opportunity.
As of March 31, 2008, the company traded at $41.84, a compelling 29% discount to our $59 estimate of private market value.
Tiffany & Co. (NYSE: TIF)
727 Fifth Avenue
New York, NY 10022
800.843.3269
www.tiffany.com
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CB Richard Ellis Group, Inc. is a leading global provider of commercial real estate services with an extensive list of offerings, including tenant representation; property leasing and sales; commercial property and facility management; valuation; and real estate investment management. Notably, it is the largest industry player in terms of revenues. Last year alone, CB Richard Ellis was responsible for $264 billion in real estate transactions and managed nearly two billion square feet of property and corporate facilities worldwide.
Global Strength
The company benefits significantly from its respected brand name and global suite of services. CB Richard Ellis was recognized again this year in the BusinessWeek 50 as a best-in-class business. And, in the Lipsey Company’s annual survey of commercial real estate brands, CB Richard Ellis has held onto the top spot for seven consecutive years—since the award’s inception. The firm’s global footprint is another key strength. CB Richard Ellis is one of only three firms capable of managing multi-national real estate portfolios on a worldwide scale, creating an important moat around its business. Moreover, its sophisticated capabilities have attracted an impressive client list, including 88 of the Fortune 100 companies.
Current Challenges
Unfortunately, chaos in the U.S. housing and credit markets has created panic about the future of companies exposed to real estate. In many cases, investors are taking a “guilty until proven innocent” viewpoint. Undeniably, current softening in CB Richard Ellis’ sales and leasing business will impact its bottom line, yet we believe Wall Street is underestimating the company’s diversifcation efforts and long-term prospects. Strength in its international operations should offset some weakness in the U.S. market and we see a long runway for growth, particularly in the Asia Pacific region. We are also confident in the strength of the company’s outsourcing services and believe more and more companies will turn to CB Richard Ellis to oversee their large-scale real estate portfolios.
Volatility Creates Opportunity
In response to market fears, we believe the investment community has severely discounted the company’s shares. By mid-January, the stock price was slashed by more than half from its July high. As the saying goes, the early bird gets the worm—and we saw excessive punishment as an opportunity to buy a top-shelf brand at a terrific price point. We have followed the company closely for many years through our ownership of industry peer, Jones Lang LaSalle. From our due diligence, we have faith in the franchise and its experienced management team.
As of March 31, 2008, the company traded at $21.64, a 38% discount to our $35 estimate of intrinsic worth.
CB Richard Ellis Group, Inc. (NYSE: CBG)
11150 Santa Monica Boulevard, Suite 1600
Los Angeles, CA 90025
310.405.8900
www.cbre.com
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A leading diversified financial services firm, JPMorgan Chase & Co. was formed by the consolidation of multiple premier industry players, including J.P. Morgan, Chase Manhattan and Bank One. With a legacy spanning more than 200 years, today, the bank operates globally across six lines of business: investment banking; credit cards; retail banking; commercial banking; wealth management; and treasury and security services. JPMorgan is a formidable leader in many of its businesses—notably, investment banking, loan syndication and high yield debt.
Competitive and Dynamic Leadership
In our view, the bank’s long history of excellence is embodied in Chairman and CEO Jamie Dimon, a tour de force on Wall Street known for his ability to cut costs while simultaneously growing the business. Prior to his current role at JP Morgan Chase, Dimon was CEO of Bank One and the chief architect in the merger with J.P. Morgan. Additionally, he has held senior leadership positions at Citigroup and Salomon Smith Barney. As CEO of JPMorgan Chase, Dimon has done an exceptional job recruiting experienced chief lieutenants, many of whom are considered future CEO candidates in their own right.
Balance Sheet Obsession
In our view, this leadership team is an important reason JPMorgan has outperformed its peers during the ongoing credit crisis. In fact, JPMorgan Chase has emerged relatively unscathed from the sub-prime debacle. While other financial services firms experienced enormous write-downs—from $37 billion to $30 billion—JPMorgan’s losses were signifi cantly smaller at $5 billion. We believe this is a direct correlation to management’s uncompromising standards with respect to balance sheet oversight. Notably, the leadership team meets weekly and the first topic on the agenda is a review of risk in all forms. This storm may not be over and we continue to keep a watchful eye.
On Offense for Opportunity
Its fortress-like balance sheet enabled JPMorgan to acquire Bear Stearns when it faced bankruptcy this March. With excess capital, the bank was able to negotiate a strategic acquisition which includes an unprecedented $30 billion in backing from the Federal Reserve on Bear’s riskier assets. The acquisition not only provides JPMorgan with a prime broker to strengthen its position against other investment banks, but also comes with premier office space in the heart of Manhattan. In our view, not only has JPMorgan adeptly navigated the pitfalls of the credit crisis, but it is emerging an early winner. As of March 31, 2008, the company traded at $42.95, a compelling 37% discount to our private market value estimate of $68.
JP Morgan Chase & Co. (NYSE: JPM)
270 Park Avenue
New York, NY 10017
212.270.6000
www.jpmorgan.com
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