market folly

Consuelo Mack's show Wealthtrack had David Winters of the Wintergreen Fund on this past weekend.  Their interview touched on what stocks he's seeing value in these days.  Winters is a value-oriented investor and he runs a somewhat concentrated book with his top 5 holdings representing 30% of the portfolio.  


Winters' Focus on the Emerging Market Consumer  

One of the main themes in Winters' portfolio is the emerging market consumer.  This is by no means a new theme, but Winters argues you can buy stakes in some great companies with exposure to a rising consumer at good prices still.  

In particular, he's focused on luxury brands as he's seen these aspirational consumers crave these brands in his many trips to Asia (he's been 20 times).   Richemont (VTX:CFR) is the owner of Cartier and is one name he likes.  He says it's the most aspirational jewelry brand and he notes that the Wynn Macau has two stores there since they were selling so much.   

Winters also likes Wynn Macau (HK:1128) as a beneficiary in the Asian gambling hub since there's only 6 operators there.  He notes there's no social stigma in Asia associated with gambling.  He also likes Steve Wynn as an operator  They're the high-end provider of gaming in Macau.  He likes that you get paid 5% (dividend) to wait while the company builds out its property in Cotai.  Winters likes the conservative balance sheet and the fact that there's so much demand.  

Jardine Matheson (SGX:J36) is another name he likes and has been involved with for a long time.  It has 3 principal businesses: small convenience stores, a dairy farm, and it controls Astra, the biggest company in Indonesia, and they also own Hong Kong land, some of the most valuable assets in the world. 

One of the companies Winters has been newly buying is Cielo (CIOXY), Like his thesis on Mastercard (MA), his play on Cielo is the secular shift from cash to plastic.  Cielo is a payment processor that has 50% market share and trades at 13x earnings.  While short-term Brazil might face headwinds, he likes the opportunity long-term as 190 million people can start paying via credit/debit cards. 

Given Winters' emerging market consumer focus, Consuelo Mack prudently highlighted a term from a Bain & Co report: HENRYS: High Earnings, Not Rich Yet consumers.    This is a sweet spot Winters is targeting.  


Winters Loves Companies With Pricing Power  

The Wintergreen Fund manager says, "In my life and in everybody's life I know, everything costs more."  For this reason, he loves businesses with pricing power. 

For instance, he loves the watch and jewelry business.  For men, he notes, the only jewelry they wear (aside from a wedding ring), is a watch.  Swatch (VTX:UHR) has low, medium, and high-end watches and it's one of his major holdings.  He likes the management team and says the company is shareholder friendly. 

He also likes Nestle (NSRGY), especially for their pet food business as humans will spend a lot of money on their pets.  

Pricing power is a valuable asset for any business and we've outlined Warren Buffett's focus on pricing power in the past.


Interest Rates Rising = Inevitable

He thinks interest rates will go a lot higher over the years, saying "it's inevitable." 

In a rising rate environment, he likes companies with the trifecta: good management, a cheap price, and improving economics.  As long as the company can grow earnings and cashflows, they can outpace.  Winters says this is a stockpicker's market and notes the economy in the US is rebounding and some companies trade at the wrong prices. 

He also made sure to point out the asset allocation of many investors these days: safety.  "Most of the public is in cash and bonds, and they'll get annihilated."  

Winters ended with this bit of investing wisdom: "Headlines are often an opportunity, because people today focus on the negative, and we're very focused on where can we make money out of this?"


Embedded below is the video of Consuelo Mack's Wealthtrack interview with David Winters of the Wintergreen Fund:



For more Wealthtrack interviews, we've also posted up Consuelo Mack's talk with Bruce Berkowitz.