Yellowstone Partners Blog

Sometimes work is tough. This isn’t one of those times. Each year we have the opportunity to attend the Raymond James Instiutional Investor Conference in Orlando, Florida. Each year, a number of company CEOs and CFOs provide information to anxious fund managers, analysts, and other interested parties.

This morning, we’ve already listened to presentations from a number of companies, in some cases confirming ideas and tailwinds we had already discovered, in other cases, introducing us to new ideas and opportunities. In a market that has finally begun to return to the core of investment valuatuion – corporate earnings, this is truly the meat of asset selection.

To pass along just a couple little bits, this morning, Allegiant Travel Co, (ALGT), a company that has been on our watchlist (and in a few satellite portfolio strategies), has announced that they are purchasing a number of 757 aircraft to begin offering service to Hawaii from the West Coast. While this is a departure from the model they have developed, it remains in keeping with their overall strategy and focus, and provides another avenue for significant revenue growth.

In a small breakout session with Cinemark Holdings (CNK), which we recently added to the Yellowstone All-Cap Global Strategy, there were some interesting details which materialized, which we anticipate will have a positive impact on profitability, and, in the long run, earnings. Cinemark anticipates that they will have close to 1,000 screens with 3D capability by the end of the year. Additionally, CNK has opted for equipping some key theatres with what they refer to as the “XD” experience, a larger, more sound-intense presenation, comparable to IMAX, but without the need to share revenue.

These are just a few early stories from the conference, and we anticipate that there will be many more.

As always, please remember that these statements should not be interpreted as a soliciation to buy or sell any security. Investing in securities entails risk which may not be suitable for all clients. Investments, while offering the potential for gain, may also lead to loss and no performance guarantee can or will be made.

CNK is owned in the Yellowstone Partners company 401(k), which is managed in the All-Cap Global Strategy. Neither CNK, nor ALGT is owned in personal accounts held by individuals at the firm.

Greetings from the Raymond James Investment Manager Conference in St. Petersburg, Florida. We recently listened to a very compelling presentation by Jeff Saut, Chief Investment Strategist at Raymond James Financial.

He brought out some very interesting investment ideas, some of which we were already following, and some of which provide interesting new possibilities.

First among the interesting new ideas was the effect of the recent El Nino weather pattern on the ecosystem of the Humboldt Current and the consequent decrease in a significant source of protein for both human and animal consumption.

Apparently, there is a constant upwelling of cooler water from the Antarctic coast, along the western border of South America, which creates a unique environment where fish can thrive in water with colder temperatures and higher salinity – this is known as the Humboldt Current. Since fish are abundant in this ecosystem, so also, are fishermen, and it’s estimated that as much as 25% of the global fish production is drawn from this area of the world.

The kicker, then, comes in how the El Nino weather pattern is anticipated to affect the Humboldt current. As it happens, the easterly flowing countercurrents push southward into the Humboldt current, forcing much of the abundant fish deeper underwater and thus out-of-reach for the fishing operations.

The consequence of this process will potenially be a severe drawdown in the available protein sources for a growing worldwide population. Following the law of supply and demand, there is opportunity for a derivative play on other protein sources, to include livestock, fisheries, and even soybean producers.

These kinds of investment “tailwinds” provide a tangible story and figures to monitor for confirmation on an investment idea. Stay tuned for more details on what Jeff Saut had to say at the conference.

We recently attended a conference where we heard from Victor Canto of La Jolla Economics. The title of his speech was “Around the World in 90 Days.” His discussion centered on investment opportunities in emerging economies.

In its most simple sense, what he offered was that in the next few years, there will be a great settling of the realization of value in the emerging world, and that countries which have thrived historically by producing goods to export to more mature economies, will thrive in the present as they convert to domestic production.

The following article by Fareed Zakaria echoes those sentiments.

http://www.realclearmarkets.com/articles/2009/06/boom_times_are_back_outside_th.html

At this point it also seems prudent to offer a brief discussion on the merits of overseas investment. As a general rule, American investors are inherently somewhat biased towards domestic investment. There is an unspoken idea that investing overseas is either unsafe or unpatriotic.

The truth is that overseas investment is neither unsafe nor unpatriotic. Any more, companies are increasingly more international in their scope by necessity. The following list details the domestic vs. international revenue for the 5 largest companies in the Dow Jones Industrial Index.

Domestic companies are just as international as international companies. Even as these companies are willing to go overseas in search of profits, so also should investors be willing to go overseas in search of return. Given the state of the mature global economies and the relative stability in many emerging market economies, it seems that we need to check our premises and consider the opportunities that are being presented around the world.

The following article is an interesting evaluation of GE’s plans the the advanced battery arena. Of particular interest is GE’s stake in 123 Systems, Inc, a lithium battery manufacturer.

We have been following lithium trends since late 2008 and continue to believe that there is significant opportunity as demand for lithium shifts to larger and larger applications and the scope of applications broadens.

GE sees $1 billion potential in advanced batteries
By Scott Malone Scott Malone

NISKAYUNA, New York (Reuters) – General Electric Co (GE.N) plans to invest $100 million in a factory to build high-tech batteries for heavy equipment, which it believes could be a $1 billion business over the next decade.

The largest U.S. conglomerate plans to seek federal stimulus money to fund construction of the factory, near Albany, New York. Initially the factory will make batteries for GE’s forthcoming hybrid railroad locomotive.

“We’ve always viewed the battery space would have to be something that GE is basic in, that we have competitive technology in and that could be a big growth business for us over time,” said Jeff Immelt, chief executive of the world’s largest maker of jet engines and electricity producing turbines.

“We’ve invested about $150 million so far in this innovation, this technology,” Immelt said.

This is the first GE project to seek funding from the Obama administration’s two-year, $787 billion economic stimulus program, of which alternative energy is a cornerstone.

Immelt said he hoped GE would seek federal funds for other ventures related to clean energy and healthcare information technology, though he noted that the Fairfield, Connecticut-based company will continue to invest in these areas regardless of government money.

The company’s other investments on the battery front include a $55 million stake in A123 Systems Inc, which Detroit automakers General Motors Corp (GM.N) and Chrysler have chosen to supply batteries for their next-generation electric vehicles.

The move is part of GE’s “Ecomagination” green business push, which it launched in 2005. Last year that venture generated $17 billion of revenue, ranging from sales of products such as electricity-producing wind turbines and high-efficiency jet engines to compact-fluorescent lightbulbs and highly efficient refrigerators.

Immelt said that GE expects to generate $20 billion in Ecomagination revenue this year and hit $25 billion in 2010. He added that he expects battery revenue to hit $500 million by 2015.

“The economy clearly gives us headwind, but we still see a fair amount of interest globally for these types of products,” Immelt told Reuters in an interview.

A123 is focused on lithium-ion based batteries, while GE’s new factory will produce batteries based on a sodium-metal halide technology. GE believes that lithium-ion batteries are better-suited for short bursts of intense power, such as are required to start a vehicle moving, with sodium-metal halide a better option when large amounts of power are needed over a long period of time.

“Hybrid locomotives, and the battery technology on board, could be an important part of how we ship goods by rail in the future,” said Matthew Rose, CEO of No. 2 U.S. railroad Burlington Northern Santa Fe Corp (BNI.N), in a statement.

GE announced the move at its main research center in Niskayuna, New York, about 160 miles north of New York City. It expects the plant to open by 2011 and employ about 350 people.

(Reporting by Scott Malone; Editing by Brian Moss and Matthew Lewis)