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Stocks
Stock picks for the long haul: Siemens AG, Standard Chartered Bank
Jill Fraser - January 7, 2008
Fund manager stock picks: Siemens AG, Standard Chartered Bank
Current share price: Siemens (SIEGn.DE - Frankfurt) EUR106.11 ($177.62); Standard Chartered Bank (STAN.L - London) 1,842.00 pence (approx $40)
Fund manager: Chris Herrera, Nicholas-Applegate Capital Management
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Chris Herrera, Nicholas-Applegate Capital Management | In this section, CompareShares picks fund managers' brains for the stocks to watch in the year ahead. Jill Fraser reports
A $336 million fine, the disappearance of $2.2 billion into dubious un-audited channels and a broadening corruption scandal hanging over German engineering and electronics giant, Siemens AG does not deter Chris Herrera, head of Global Select at Nicholas-Applegate Capital Management from nominating the troubled conglomerate as a favourite stock.
Herrera says that his choice of the $145 billion company, currently trading at EUR106.11 ($177.62) aligns with Nicholas-Applegate’s three principal tenets of positive change, sustainability and timeliness.
Siemens brought a new CEO on board in July, instituted a EUR10 billion ($16.75 billion) stock buyback program in December and is the top to third player in all the markets in which it does business. All of which, says Herrera, have been significant catalysts in getting the stock moving well again.
International investment research firm, UBS states that Siemens turned a corner in 2007, beating expectations in three quarters out of four.
Referring to 2008 as "a year of transition" for Siemens UBS says it is confident that "a comprehensive, ambitious new restructuring plan" and the EUR10 billion buyback "can prompt further upgrades to consensus earnings". UBS has therefore raised its price target for 2008 to EUR135 ($225.51).
Headquartered in Berlin and Munich, Siemens is one of the world’s largest electrical engineering and electronics companies.
Founded 160 years ago, the company is a conglomerate of six major business divisions: Automation and Control, Power, Transportation, Medical, Information and Communication, and Lighting with the majority of its business focused on providing products and services to customers based on Siemens’ expertise in electrical engineering.
In 1848, the company built the first long-distance telegraph line in Europe; 500 km from Berlin to Frankfurt and Main. Presently undergoing radical change Siemens worldwide employs approximately 480,000 people in 190 countries.
New CEO, Peter Loescher’s first order of business has been to institute a restructuring of the divisional structure of the company, which previously was driven by regional heads and consequently became bloated, complicated and the source of excessive overheads.
Loescher has consolidated the company into three main divisions, energy, industry and health care. "There is now a much cleaner reporting structure," says Herrara, "and we think that’s going to lead to an acceleration of the margin development of the company".
UBS sums up its forecast for 2008 for Siemens with "aim for the moon and you may hit a star".
Herrera’s second pick is the UK’s Standard Chartered Bank, which trades at 1,844.00 pence.
While Standard Chartered, a $59 billion market cap company, is based in the UK its appeal to Herrera is that most of its operations are in Asia. "Asia has lots of growth potential and the credit penetration and credit to GDP levels for most of these countries is fairly low and rising and Standard Chartered has the best diversified Asian retail franchise in the world," he says.
Herrera predicts that the company is heading towards generating 15% plus earnings growth.
The other reason Herrera likes Standard Chartered is that an investment organization, Temasek Holdings, which has been given a mandate to invest the Singapore Government’s money, has been building up a stake in the bank. Recently Temasek Holdings has started to increase its share and Herrera anticipates that Standard Chartered will not remain a public company for long.
"I think long term Standard Chartered is a great long-term take out play because there is a scarcity of assets in these markets and it’s very difficult to replicate this exposure," Herrera says. "We have a scarce asset and a potential buyer, which has a lot of resources and is building up a position. That makes me feel comfortable about supporting the stock."
In its December report Merrill Lynch described Standard Chartered as "riding the crest of a wave". The report noted the company’s strong earnings growth and position as a relative safe haven provided by the continuing Asian and Middle East growth, stating that it provided "an upbeat story with the promise of more to come".
More articles from this edition of CompareShares:
Stock picks: Fund Manager Stock Picks - Siemens and Standard Chartered Bank
Stocks: 2008 sector & stock outlook
Stocks: 2008 sector & stock outlook part 2 - sector and stock picks
Investing: Gangbuster returns from Aussie microcaps
Superannuation: Borrowing in a SMSF
Commodities: Still bullish on global commodities story
SMSFs: Be wary of promoters - instalment warrants in SMSFs
Markets: Wall St skids amid recession fears
Rates: Major banks may follow NAB rate rise
Whatever your views, you can discuss this article - or any of Jill's articles - on our message board Your 2 Cents.
Jill Fraser has 25 years' experience in the media as a radio producer on 2UE and journalist for News Ltd, Australian Consolidated Press and Key Media.
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