10 Questions With Eaton Vance Large-Cap Value Skipper Michael Mach
We look at how effective management has been in positioning the company to grow long term, how strong their balance sheet is, how strong the company's franchise is. Those are the items that enable us to differentiate one company from another. Celestica is strong in all of these areas.
We track management very closely.
On a management basis, who stands out to you?
Three companies that we have very high regard for are General Dynamics (GD), Washington Mutual (WM) and TJX (TJX). Those management teams have really done a solid job of building shareholder value, positioning the company for future growth. (General Dynamics CEO Nicholas Chabraja made TheStreet.com's Good CEO Portfolio.)Take TJX. We like market leaders because we think they have more competitive stability than a new entrant or mid-tier type of company. TJX is the largest company in the off-price brand-name merchandise category -- five times larger than their next biggest competitor. If you look at strength of franchise, one key thing to examine is return on equity. Return on equity is a really good measure for gauging management controls. There are three levels that management can really control. One is sales margin -- how much profit do you get on a dollar of sales. Number two is assets turns -- how much assets are required to generate a dollar of sales. And number three is financial leverage -- is the company appropriately levered for their business. If you look at those three measures and return on equity, a company like TJX stands out. Its return on equity last year was over 40%, which compares with about 15% from the S&P and about 20% at Wal-Mart (WMT). CEO Ted English has done a great job of building a strong franchise at TJ's with a great corporate culture and a motivated workforce. The three I mentioned are big-name companies -- 85% of the companies we own are big-cap companies. But we also own a few smaller-cap companies -- about 5% of the fund. Valspar (VAL) is a paint company based in Minneapolis. The management team there has done a great job for 30 years building shareholder value. Rich Rompala, the CEO, has done a tremendous job and he's just a solid, standup guy. If you go to their headquarters, you see their focus on shareholder value. This is a very humble corporate headquarters with fans instead of air conditioning. With all the criticism of corporate managements -- and much of that criticism is deserved -- if you go out and visit a company like Valspar you meet with Mr. Rompala and CFO Paul Reyelts, these are guys who put their pants on one leg at a time and walk to work figuring out how to do a good job, and they do it. If you drive 120 miles east of Minneapolis from Valspar's headquarters to a little town called Oshkosh, Wis., there's a little company called Oshkosh Truck (OSK). And it's the same thing here. Bob Bohn, Chairman and CEO, and Charlie Szews, the CFO -- these guys have done a great job of identifying opportunities, building shareholder value and providing great returns. Over the last year ended Sept. 30, Oshkosh -- which makes up about half-percent of the portfolio -- has provided a 56% stock-price appreciation.
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