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The Meridian Funds are a favorite place to find good ideas.
I’m lucky. In my earliest days as an investor, I learned all about mutual funds. I got to know the best fund managers, which wasn’t always determined by their performance. The ones I loved are the ones that knew how to tell good stories about good companies that they believed in.
The slate of managers is pretty impressive, and comes from different backgrounds and different fund families themselves. They take a rigorous approach in each of their four funds, and are pretty diligent about not varying too far from each fund’s intent.
The funds have picked up three new positions, all of which I really love and I want to share them with you.
Position No. 1: Brunswick Corp.
Brunswick Corporation (NYSE:BC) is an oddball conglomerate that offers a strange mix of products and services, although one can say they are all recreation-related. Its Marine Engine segment offers propulsion systems, and marine engines and parts for recreational boating. Brunswick serves builders and end-users, but has also landed lucrative government contracts.
All those engines and parts have another purpose, because the company uses them in its own boats and yachts, which stretches across ten different brands. Then things get weird. It has a fitness segment, that makes all the cardio fitness equipment you see in your local gym, like treadmills and stair climbers. Oh, and it provides these not only for gyms, but schools, universities, hotels, professional sports teams, and (once again), military and governmental agencies.
Finally, you may recognize the familiar Brunswick logo in the bowling world. It runs 88 bowling alleys as well as all the related accessories for the segment.
It is in good shape financially, with only $453 million in debt and most of it offset by some $425 million in cash. It isn’t a free cash flow monster, only generating low to mid eight figures annually. Yet I think Meridian sees the possibility of taking this 12% annual EPS growth engine, and helping guide it to more robust cash flow.
Position No. 2: Genesee & Wyoming Inc.
Meridian also picked up Genesee & Wyoming Inc. (NYSE:GWR). This is why I rely on mutual funds for great ideas, because I’d never heard of this company and I was looking for a rail company that wasn’t outrageously priced. Even better, it’s a regional freight and short line railroad, that transports all kinds of industrial goods and debris. It control 111 railroads across 13,000 miles, but is diversified across the US, Australia, Canada, and the Netherlands.
The company had stalled somewhat, but in FY13, its revenue and operating income doubled. It has reversed its negative free cash flow situation into a $170 million positive FCF situation in FY13. And wouldn’t you know it, one of my favorite mutual fund gurus – Ron Baron – owns almost 8% of the shares, also.
Position No. 3: First Niagara Financial Group
First Niagara Financial Group (NASDAQ:FNFG) is a nice mid-sized regional bank that is trading well below what I think it should, and apparently Meridian agrees. This 420-branch bank has served the mid-Atlantic region since 1870. With a price-to-book ratio of about 0.6, it trades well below most other regionals, and its dividend payout ratio is only 36%, leaving plenty of margin for error. This came as the result of a 50% dividend cut after 2011, but I think Meridian sees the possibility to raise the dividend again.
I also like the fact that there have been nine insider purchases this year, all at roughly the same or higher prices than First Niagara’s current price.
Keep an eye on mutual funds, particularly names you have heard of. They may suggest a value other investors are missing out on.
Lawrence Meyers does not own any security mentioned.
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