Every year, I attend the Raymond James Institutional Investors Conference in Orlando, Florida. The conference includes presentations by senior management teams of more than 200 companies across all industries, and I had the pleasure of meeting with over 20 companies during the last few days. This gave me the opportunity to check in on a number of portfolio holdings – and I am excited to have found a half-dozen potential new ideas.
Here are some of the highlights from my time at the conference.
Macro outlook still fine
Weather has been a disruption. But in meeting with a number of retailers including Home Depot, Tractor Supply and Red Robin Gourmet Burgers, I found the consumer outlook to be fine. Although, bad weather has disrupted normal consumption patterns in the hardest hit geographies, the unaffected regions still saw good growth. Most companies are cautious on their expectations for growth but no significant weaknesses were cited.
Harsh winter weather has also impacted transportation firms, albeit, with a silver lining. Idle capacity of the trucking fleet industry is running low and weather disruptions have seen significant price increases. This is beneficial to portfolio holdings TransForce and Swift Transportation and another potential investment that I met with at the conference.
A few other themes alive and well
Moving crude by rail continues to be a strong theme. While demand for tank cars to ship crude oil by rail is peaking, new safety regulations as well as incremental demand expected from petrochemical producers and refined products, will likely drive up the need for tank cars in the second half of the year.
Margin fears? It may be the opposite. A consistent theme I heard from companies across various industries was the potential for high incremental margins, if demand comes back. Macro commentators have made an issue out of today’s higher-than-historic operating margins. However, if the economy was to pick up steam, the combination of cost-cutting and rationalization in a number of industries, offers significant growth potential for earnings.
CGI Group has been vindicated
At the conference, I was able to get a good update from the company. While there was a lot of media attention on CGI’s role in U.S. health exchanges, the reality is setting in. Lack of structure was to blame in many cases and the time offered for testing was woefully inadequate. As a sign of confidence, CGI Federal’s contract was kept on for March with an option for extending to April. The integration of Logica has gone as well or better-than-expected. With the CGI model in place, 2014 will be an important year for European employees to prove its value. CGI continues to be a core Cambridge holding, with major position sizes across most funds.
Overall, the conference was very informative. There were no major macro red flags raised which is comforting, and I came away with some work to do on the six new ideas that were uncovered.