Meryl Witmer Baron’s Roundtable Half Year Interview full piece here

Witmer: When the Roundtable met on Jan. 11, the S&P 500 was at 1923. It has risen about 9% since then, but my feeling hasn’t changed. Back then, I thought fair value was 5% to 7% higher. The stocks we know well are pretty fairly valued. In February, when stocks gapped down, there were some great opportunities to buy. Today, there aren’t tons of bargains. I expect the market to be flat between now and year end.

That should make for a dull year.

We have a good amount of cash because when stocks reach our sell targets, we sell. But I like Wyndham Worldwide [WYN]. I recommended it at the 2014 Roundtable. Wyndham has done everything we thought it would do. It increased its after-tax free cash flow to the level we expected. Management shrank the market capitalization by buying in shares right around the level we expected. The stock went from $70 to $90. Now, it is back at $67. Wyndham has 113 million shares outstanding, compared with 132 million the last time I recommended it. The market cap is $7.6 billion.

What explains the stock’s round trip?

Wyndham is a lodging company. The market is overly concerned about the impact on Wyndham’s business of Airbnb and the hotel cycle. Wyndham operates in three business segments—hotels, vacation exchange, and time-share. It is the world’s largest hotel franchiser, with more than 7,800 properties, mostly in the economy and mid-scale segment. This segment has consistently generated 25% operating profit margins and grown by 7% to 10% a year through a combination of new franchisees and modest price increases.

At the higher end of the market there has been a lot of building. But Wyndham is somewhat insulated from those head winds, relative to companies that serve the luxury market. The economy and mid-scale markets aren’t seeing the same increase in supply.

Full article here

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