Experience has taught Joe A. Gilbert, a portfolio manager at Integrity Asset Management, to be a pragmatic optimist. As a consumer staples, insurance, and transportation specialist, Gilbert understands what we buy, what we use to protect ourselves, and how we transport goods and people. The 14-year veteran learned to be a cool appraiser of opportunities for the $3.1 billion investment advisory firm located in Rocky River, Ohio, during the vibrant stock market of the late ’90s and through the roller coaster ride the market’s been on since 2001. Integrity’s clients, mostly corporate, public, endowments, and foundations, include Bechtel, Prudential Retirement, and the Sisters of St. Francis.
In 2012, Gilbert expects to see positive moves in Europe and in U.S. employment and the housing market. “I’m looking for modest, single-digit appreciation in the stock market after a flat-to-down 2011. Interest rates are still low and earnings are continuing to grow—giving stocks a more attractive valuation,” he says. Gilbert says Europe’s recovery is uncertain, but policymakers are making progress. He sees the recent strong U.S. growth continuing to increase employment and predicts that the housing market will touch bottom this year.
All this, he says, can assist market stabilization. A manager of Integrity’s Munder Veracity Small-Cap Value A fund (VSCVX), Gilbert says, “Stocks offer a better risk/reward vis-à-vis bonds—in particular, the small- and mid-cap stocks that are more exposed to domestic growth.” He offers black enterprise three of his top company picks.
GENESEE & WYOMING Inc. (GWR) is a shortline and regional freight railroad company that has been acquiring railroads in Australia and North America. GWI has grown its earnings by making purchases that boost its network and lower operating costs. The Greenwich, Connecticut-based business derives 33% of its $829 million in operating revenues from Australia, where GWI transports raw materials from the continent’s interior to ships headed to China. Although China’s growth has slowed, Gilbert says demand for material provides a tailwind for GWI earnings.
STOCK PRICE $57.31 • P/E: 16.12
DANA HOLDING CORP. (DAN) is a $7.2 billion global leader in supplying axles, driveshaft, and heat-exchange and thermal bypass technologies. Gilbert says the company is benefiting from increased demand for big trucks such as Chevrolet Kodiaks, Ford F-350s, and tractor trailers. The weak economy of recent years had stifled demand, but now the mix of accelerated depreciation tax changes and greater economic activity has lifted the company’s production schedule to meet orders. Gilbert notes that Dana’s CEO has paid down debt. If consumers buy more SUVs, as they’re projected to, Dana’s earnings may increase 15%, says Gilbert.
STOCK PRICE $15.17 • P/E: 6.61
RYLAND GROUP (RYL) is a leading $797 million market capitalization homebuilding company. The NAHB/Wells Fargo Housing Market Index has risen to its highest level since June 2007, and housing inventories are down from 10 months of sales to a more normal six. Gilbert says this shows that more consumers prefer a 4%, 30-year mortgage over rental housing. He acknowledges that housing is regional but says that, on the aggregate, home prices have reached a plateau. Ryland projects orders growing about 15% and regaining profitability. In 2011, Ryland’s net loss was $29.9 million. To halt declines, the company has left underperforming markets and is now focusing on communities in the mid-Atlantic and in Southern California, where it’s headquartered. Gilbert says these moves may allow margins to double this year.
STOCK PRICE $16.88 • P/E: 15.08