Chilton's Best Idea: `Long' W.R. Grace

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Nov. 21 (Bloomberg) -- Chilton Investments CEO and CIO Richard Chilton discusses his investment ideas with Stephanie Ruhle on Bloomberg Television's "In The Loop." (Source: Bloomberg)


I'm joined by robert chilton.

Almost $10 billion in assets under management.

He knows a thing or two about investing.

You just got off your -- off the stage.

What was your best idea?

This is a company that we have owned for about 18 months now.

It was unfortunately brought in because they sold the division -- a division that had asbestos and put them in bankruptcy.

It is coming out of bankruptcy and is very cash flow generous.

I think they will be turning a lot of cash flow to the shareholders.

They haven't been able to do it for 10 years.

What do you think people should be trading?

With the quality of businesses, this company could trade at 18 times forward earnings, which would put it at about 100 $75 a few years from now.

The fact that they are coming out of bankruptcy, clearly, it is a long, difficult road ahead.

All of the pain has already happened.

Now they have nothing but success, being able to return cash to shareholders.

For 10 years, they have not been able to do that.

They are fully funded and will be able to pay their claimants.

They will come out with a very healthy balance.

They are two times levered.

And they will have about nine dollars a share in free cash flow mixture.

That has got to go somewhere.

I think they will be returning it to shareholders.

Where is the rationale that this is the right time to get in?

Our cost is about $45. we look at companies investments on the long-term time horizon.

We look at companies that we can be 20% compounded for three to five years.

That is terrific.

We look at this company and say, it will make its full value when the street recognizes what we see as the quality of the business and the cash aspects of it, and then we will sell it.

But we think that will not be until about $175 to $200. as a result, we are in it for the long term.

But let's talk about the street and broader markets.

Earnings season was pretty good.

Then you look at how the sec has performed.

You can basically buy anything and move on in a big way.

What is your take on the equity market right now?

I think the market still has more legs to go over the next 18 months to two years.

I do think that we are very stretched, though.

But if you look at the total stocks, we are still in good territory, about 125%. that is a good indicator where we are.

In 2000, we write about 200%. in 2008, about 70%. the market has gone up, but has not gone crazy.

I would pull back a little bit because things have been a little frothy, but i would buy that pullback.

How much do you think it will pull back e about five are sent or six percent.

I think we are in a time of lower inflation and the economy is getting better.

I think that multiples could expand in the next couple of years.

Do you think there are certain sectors that are getting to frothy?

Some were saying that there are doubles in tech.

When you look at some of these tech names and these ipos, some are scratching their heads.

I scratch my head, too.

There are a lot of companies that when you have a lot of liquidity, excess liquidity goes into risk assets.

And those are hard to value.

What do you mean you cannot value?

Their concept sucks.

You look at companies like tulsa -- tesla and others that are public and private, those dreams 10 to come down over time if they are not sustainable.

I think there has been a lot of frost in those names.

-- frosting is in those names.

Also, those names make me think of apple, -- those dreams make me think of apple, facebook.

Look at google.

How do you separate the men from the boys?

You don't want to fall into the late 1990s internet track, but technology and innovation is a great way to make money.

It is a great way to make money, but the model has to work.

When you look at something like google, you reason why it has done so well and has.

It is largely because we did not anticipate the new sources of revenue that were going to be coming in.

When it went public, no one even knew about android.

No one knew about the monetization potential of youtube.

No one really knew about google maps.

As a result, new sources of opportunities.

Valuation is hard for me to get my arms around on twitter, but there are very few platforms on social media that will be here eight years from now.

I don't think we have any clue as to what the revenue potential will be from twitter five years from now.

Was it difficult for you to resist buying the deal?

We bought the deal.

We got our free kiss.

No one can resist the free kiss.

We got our free kiss and that was great.

When kisses are free, they always taste better.

As a result, it was terrific.

But that is not a company that we can get our arms around.

It has a lot of dreaming to do.

For those who want to take the risk, like google, it could happen.

But that is not our game.

How about those who'd -- what do you think about europe right now?

I love europe right now.

Investing or vacationing?

I love europe investing right now.

A lot of good quality businesses were thrown out like the baby with the bathwater.

There are a lot of good businesses in europe and europe is getting better.

It is a tale of two areas, southern europe which is not, and northern europe which is.

I am a buyer of europe for 2014. and even companies in struggling countries?

Even companies in places like poland.

You have to look at the quality of the model, but opportunity exists.

You also like china, which surprises me somewhat because we hear from many others who are afraid to be in the region.

They are afraid of any information they can get out of china.

I go to china twice year for probably 15 years and i know china really well.

We pulled the plug on china last spring.

Which was the right call.

I don't love china.

I'm starting to get interested in maybe some of these reforms.

Leading to a market place that has nothing -- and has done nothing for five years.

In the middle of 2009, the stock was $49 and it is 40 -- it was $41 and it is $40 today.

It has done nothing for five years.

We think that maybe we should take a look at it.

This text has been automatically generated. It may not be 100% accurate.


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