Manager sticks with time-tested criteria
Consistency is key to the way Ted Baszler says he approaches investing.
Despite moving to a new firm, his investment process has remained the same, said Baszler, a portfolio manager in the Sheboygan office of ClearTrack Financial Advisors LLC.
Baszler was previously co-manager of the Heartland Select Value Fund, which won Lipper Awards during six of the 10 years he was there.
He says all three of the companies listed below have the attributes he's always looked for: High-quality businesses; stocks that have fallen out of favor; significant insider buying; and a history of paying and raising dividends.
Royal Caribbean Cruises Ltd. (RCL, $65.98), Miami, offers cruise itineraries of two to 24 nights under brand names such as Royal Caribbean International, Celebrity Cruises and others.
Royal Caribbean is the second-largest global cruise operator in an industry where 90% of capacity is controlled by just three competitors, Baszler said.
"The oligopolistic nature of the industry has resulted in generally rational pricing and competition, which has allowed Royal Caribbean to remain profitable, even during periods of extreme stress," he said.
Royal Caribbean, and the cruise industry in general, has come under pressure because of concerns about the Zika virus, which has made its way via the mosquitoes that carry it from the southern hemisphere as far north as Florida. Health concerns, however, historically have not had a material impact on the company's long-term earnings, Baszler said.
"With much of next year already booked, and the stock trading at less than 10 times 2017 earnings, the Zika scare seems overdone," he said.
Two Royal Caribbean insiders — including Richard D. Fain, chairman and chief executive officer, who bought $2 million worth — purchased the company's shares in the open market in August, Baszler said. Royal Caribbean pays a 2.24% dividend yield, and has raised it by at least 20% annually over the last five years, he said.
The biggest risks here are the possibilities of a continued rise in the dollar or another recession, he said. These shares have a 52-week trading range of $64.21 to $103.40. They could reach as high as $110 over the next 12 to 18 months, Baszler said.
Flowers Foods Inc. (FLO, $14.60), Thomasville, Ga., produces and markets bakery products under brand names such as Natures Own, Wonder, Country Kitchen, Roman Meal and others, and markets franchised and licensed brands, such as Sunbeam, Bunny and Holsum.
Flowers is the second-largest baker of breads, buns, tortillas and snack cakes in the U.S., Baszler said. Although the bread category is mature and has had limited growth, this company has grown earnings per share at an annual rate of more than 11% over the last decade through smaller, tuck-in acquisitions, he said.
Flowers' shares have come under pressure because competitors are spending more on promotions, and the U.S. Department of Labor is investigating whether it has been improperly classifying independent contractors, and should be viewing them as employees. However, the industry standard is to distribute through independent contractors, Baszler said.
Flowers has a dividend yield of 4.26% and a history of steady increases, Baszler said. Four company directors bought 55,000 shares in August, he added. The biggest risk here is the possibility that competitors' promotions might be ongoing, he said.
These shares have a 52-week trading range of $14.35 to $27.31. They could reach into the low $20s in the next 12 to 18 months.
Franklin Street Properties Corp. (FSP, $12.30), Wakefield, Mass., is a real estate investment trust (REIT) that is focused on Class A office buildings located in the central business districts of major metropolitan areas.
Franklin has a strong management team headed by longtime top executive George J. Carter, Baszler said. This conservatively managed REIT had no debt going into the credit crisis, so was well-positioned to buy properties at distressed values, he said.
Cash flow has been flat over the past year due to a major building redevelopment project in Minneapolis, but leasing for that will begin later this year, he said. That should drive cash flow growth in 2017, he added.
Franklin has a 5.8% dividend yield and insiders are very bullish, with six insider purchases year-to-date and not a single insider sale in the last two years, a very unusual circumstance, Baszler said.
The biggest risk here is that the economy could fall back into a recession, causing hiring to slow and putting pressure on office rental rates, he said.
These shares have a 52-week range of $8.67 to $13.18. They could reach as high as $18 in the next 12 to 18 months, Baszler said.
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The Journal Sentinel focuses on one Wisconsin money manager or analyst in this weekly feature, looking at a trend that helps investment pros make their decisions.