Discipline Boosts Mosaic In Long Run -
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Published on: 12/24/2003
Last Visited: 12/24/2003
"By sticking to our discipline, we produced three very strong years," said lead manager Richard Eisinger.
This year going into Wednesday the fund was up 26.93% vs.26.42% for the S&P 500.But it trailed the 35.12% gain posted by its average mid-cap blend peer tracked by Morningstar Inc.
"We'll take a gain of around 26%, especially considering how it held up in lean times," Eisinger said.
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"We own the nuts and bolts in tech and most other sectors," said Eisinger."We invest mainly in businesses with fairly predictable cash flow."
So this year's big winners in semiconductors, biotech and telecom aren't big Mosaic holdings.
"It's tough to see how tech's going to do in the future," said Eisinger.
Mosaic also largely avoids home builders, another big gainer in 2003.
"We feel we can get exposure to that area indirectly by investing in companies that gain from a good housing market," said Eisinger.
One is Mohawk Industries, a maker of carpet and ceramic tiles.The fund started buying it at 38 in October 2001.It was around the bottom of its historical P-E ratio range, Eisinger says.He felt it was worth more based on discounted cash flow.It's now trading around 70.
"We demand growth," said Eisinger."But we look for certain criteria before buying."
Mosaic seeks companies that are leaders in their industries.It also focuses on solid balance sheets.And Eisinger must feel that management is allocating capital wisely.
"Once we have those elements, we need an attractive valuation to take the next step and start purchasing shares," he said.
Most investors are shifting to cyclical stocks such as energy and commodities, he says.Mosaic doesn't have much exposure in those areas.
"But eventually the market should move to firms that we're investing in - the more predictable cash-flow generators," said Eisinger.
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Eisinger says cash flow analysis showed it was trading at a big discount to what its price should be based on his projection of future earnings.Analysts foresee EPS of $2.21 in 2003 vs. $1.62 last year, says First Call.It's trading around 33 now.
Eisinger likes the global business insurance broker's strong competitive position, solid cash flow and management.
Other key buys in 2003 are providing better returns.
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"If you can prevent an illness before it happens with relatively inexpensive tests first, health care providers can come out ahead," said Eisinger.
Good deals remain, he says.A longer-term holding, Tiffany & Co., is a solid franchise.The diamond and jewelry retailer was added to the fund in September 2002 at 21 a share.It's now trading above 43.
"You don't see many retailers that are successful worldwide with a brand name over a century old," said Eisinger.
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"The company had issues in terms of losing focus in 2000," said Eisinger."But they've refocused on their core products that produced higher profit margins."
Still, Eisinger says its growth prospects have slowed."It's a good company that we'd consider investing in again," said Eisinger.
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