Video and excerpts below
Let’s get Meryl Witmer’s take on the world.
Meryl Witmer: Like Oscar, I am more of a stockpicker than an economist. But I would note that a lot of large capital-spending projects, planned and ongoing, that were predicated on using natural-gas liquids from fracking might be put on hold. They would have been stimulative to the economy. Even in Europe, there were a lot of energy-related projects in the works, and they are likely to get put on hold. There was a lot of job growth from the energy industry. To the extent that capital spending is reined in, the U.S. economy probably will be weaker than people think.
Fastenal: Why Being Cheap Works As a Business Strategy
Meryl, how does the market look to you?
Witmer: It isn’t easy to find a lot of undervalued stocks. Usually, when we have trouble finding cheap stocks, the market doesn’t go up much. This market is pretty fully valued.
Witmer: My surprise is something on my wish list. Even environmentalists now agree that ethanol isn’t good for the environment. The government could reduce the amount required to be added to gasoline. If that happens, it might help the oil price, but corn prices could be hurt, leading to lower prices for farmland.
Witmer: Gildan Activewear [GIL] manufactures basic family apparel, such as T-shirts, underwear, fleece, and socks. Its market capitalization today is $6.7 billion, and it has $100 million of net debt. At a current $55, the stock offers long-term investors an attractive entry point. Gildan has two segments. Print-wear is two-thirds of revenue and has mid-20% operating margins. It is growing by mid-single digits. Gildan supplies distributors who then sell the products to screenprinters, who imprint them with logos.
What is the second segment?
Witmer: It is branded apparel, which Gildan sells under its proprietary Gildan and Gold Toe labels, and under licensed labels such as Mossy Oak, a camouflage brand, and Under Armour. This business is growing by 20% to 30% a year. Because it is in investment mode, operating profit margins are only in the high single digits now. We see the branded business reaching margins north of 20% as it grows and captures the benefits of its investment in cost reduction, lower cotton costs, and the leveraging of SG&A [selling, general, and administrative] expenses. Gildan’s key competitive differentiator is its low-cost, vertically integrated manufacturing. By continually investing in manufacturing facilities, it has been able to increase capacity and reduce costs while also improving quality. Its North Carolina ring-spun cotton facilities, which opened last year, will be the largest globally.
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