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Delphi Management President Scott Black on concerns over how the European debt crisis will impact the markets and what investors should consider for t...
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Actually news out of Europe once again driving today's market action if all the headlines have your head spinning one -- manager says forget the day -- day gyrations and focus on good old stock picking Scott Black as president of Delphi management -- good to see is Scott.
Thanks for having me it's all right so so we know that you watch all of this that.
Very very closely as well as what you and I talked about the past and certainly with David about how.
Now we've got a debt problem here in the United States but talk about good old fashioned stock picking give us a how to's on how you do that before we get the names you like.
The key thing is to find companies with sustainable earning power is that even as we look into 2012.
Basically companies have high returns on equity.
It's only the -- piece of low price to break up value and you don't want to chase 4050 multiples in growth stories that have no margin of safety.
But obviously you have to factor in the macroeconomic.
Environment -- in Europe and the United States should make -- calculations going forward.
By the way how do you think if if in fact also many countries are downgraded.
How's that gonna affect rates and specifically the companies that have a lot of business in Europe.
Well actually if the Euro sinks a little better will help the people who basically yet exported to Europe because again you know change and the translation effect -- I -- -- the Euro strength is here -- get a benefit.
I made a mistake I apologize I'm but I'm concerned about is that in the short term if you put in austerity measures.
You're gonna have prepared decline in macroeconomic.
Activity it's a drag on -- -- gonna make it more -- but how the United States to sell its -- over there.
And -- austerity is probably necessary.
But in the short term it's not a obviously a good good proponents similar to the problem the United States if you don't extend.
The payroll tax cuts of 2% in the extension of unemployment benefits and some of the -- you got to drag 350 billion.
On -- fifteen trillion dollar economy so the 2% which equals the real growth in GDP in the United States at this point.
So it's a delicate balance when you go from austerity.
To -- traction here exactly except -- -- it's a concern for a lot of people but with all the we know right now what are you buying where are you investing.
Well one that's really dirt cheap and I got great production profiles as Apache the stock went out at 96 dollars we think the discretionary cash -- be about 26 follows next year -- point seven times cash flow.
It's selling at about one point three times stated book with a 16% return on equity and they're growing from the drill bit between five and 10%.
The actual production growth this year is higher because they plot -- and -- exploration and they just bought some properties from -- -- But it's a very -- company they generate free cash and a three point seven times cash flow it's a giveaway.
Another home we like which for the viewing audience has a dividend is BM.
Bio medical realty based in San Diego it specializes.
Is -- REIT.
In pharmaceutical.
Biotech kind of facilities -- you're having Cambridge mass San Diego Palo Alto a sector has a four and a half percent they've been Yale.
They got over twelve million square feet it's growing on -- net operating income basis about 6% year over year with the occupancy about 91%.
It's in the sweet spot in the right area written real estate and the implicit cap right right now is about seven point 65%.
If you're looking at that shopping center is our Boston -- these type of thing the implicit cap rates on -- for trophy properties just 4% so I think you get a very good deal you get paid while you wait you got some growth as well.
Now -- I'm noticing a little biased here towards properties that deal with Boston is that just -- it's not -- -- about my reading some negative us.
It's based in San Diego I -- -- has a lot of properties in Boston nobody mr.
dozen accidents debt and that's right but -- -- drill for oil up here got sick and true however.
All right -- -- -- an Apache is cheap but it's got to restrict information very specific thank you so much thanks.
