TIP SHEET: Lord Abbett's Hudson Likes
Large Cyclicals
By KOPIN TAN
NEW YORK -- At a time when investing aggressively in Internet and
technology growth stocks is all the rage, the Lord Abbett Affiliated Fund is
sticking to its age-old knitting by focusing on more traditional large-cap
stocks in basic industries.
The fund, which traces its roots to 1934, puts the emphasis on long-term
growth of capital and income without excessive fluctuations in market value.
It steers toward large, seasoned players, from which the fund expects
above-average performance in both earnings and price appreciation.
"We take the universe of large-cap stocks, which we define as companies
with capitalizations above $3 billion, and we evaluate them using a
quantitative and qualitative model," says W. Thomas Hudson Jr., portfolio
manager and a partner at the firm with 32 years of financial investing
experience.
In evaluating investments, Hudson looks at the companies' fundamental traits
and anticipated changes that might affect the stocks, as well as the economic
and interest-rate sensitivities of these companies. The fund's holdings include
stocks from Texas Instruments (TXN) and Qualcomm Inc. (QCOM) to
Exxon Mobil Corp. (XOM), Bell Atlantic Corp. (BEL) and American Home
Products Corp. (AHP).
Currently, Hudson says he favors traditional cyclical stocks in basic
industries such as paper, chemicals and metals. After being beaten down in
recent years, many of these stocks are seeing valuation increases.
The global financial crisis, during which these large cyclicals have
significantly underperformed the market, has forced the companies to turn
their attention to consolidation, cost controls and a global strategy. "We've
been through a pretty severe economic downturn outside the U.S., and many
of these traditional cyclicals have become more globally oriented than they
have ever been," Hudson says. Now, the stocks are well-positioned in their
respective fields to take advantage of the economic upswing, which should
drive both earnings and growth.
One stock Hudson favors is Alcoa Inc. (AA), the Pittsburgh aluminum
producer with a market capitalization of more than $28.5 billion.
Already the dominant player in its market, the company has kept up an
aggressive acquisition strategy that continues to boost its global market
share. Most recently, Alcoa has agreed to buy rival Reynolds Metals Co.
(RLM), the world's third-largest aluminum company, in a stock swap in
which Reynolds shareholders will receive 1.06 Alcoa shares for each
Reynolds share.
"Also, management has stressed and taken steps in cost controls, and it has
the lowest cost position in the market," Hudson says. A tight aluminum
market and rising prices also put the company in an advantageous spot.
Another stock Hudson likes for similar reasons is Dow Chemical Co.
(DOW). The Midland, Mich., manufacturer of chemicals and plastic
materials has a current market capitalization exceeding $28 billion. The
company's recently undertaken consolidation has left it the dominant player
in its market, with its closest competitor lagging far behind in terms of market
share and heft. In addition, the company last August agreed to buy Union
Carbide Corp. (UK) in a stock deal currently valued at about $9.04 billion,
plus the assumption of $2.3 billion in debt.
Another stock Hudson favors is International Paper Co. (IP), North
America's largest paper and forest products company. The Purchase, N.Y.,
company's acquisition last year of Union Camp Corp. has significantly
increased its market share in different paper grades across the board,
Hudson says.
Also, the company is well-positioned with a wide spectrum of products,
including printing and writing paper, pulp, tissue, paperboard and packaging
and wood products. Earlier this month, buoyed by rising prices, the company
beat Wall Street's fourth-quarter expectations on broad gains in its major
businesses - particularly in packaging and papermaking - possibly marking
the beginning of an industry-wide recovery.
-Kopin Tan, Dow Jones Newswires; 201-938-2202
kopin.tan@dowjones.com |
