InvestMNt conference draws pitches, cautionary tales

Investors cannot make money on the presidential election, a leading market strategist told a group of Twin Cities money managers and analysts Wednesday.

Every four years, some investors and prognosticators try to draw connections between elections and market behavior — and a few wind up making some wild assertions in the process. That's a fool's game, John Tousley, senior market strategist at Goldman Sachs, showed during a presentation at the CFA Society of Minnesota's InvestMNt conference.

The conference attracted top executives from about 80 companies, chiefly based in Minnesota and the Upper Midwest, who talked about their performance and goals with analysts, fund managers and other investment professionals. So many companies came that, for the first time in its five-year history, the conference stretched over two days at the University of St. Thomas Opus School of Business. Among the newcomers were Target Corp., Delta Air Lines Inc. and Winnebago Industries Inc.

In one of the featured speeches, Tousley used the stock market's performance from 1946 to now to show that, in most cases, investments perform better during the administrations of Democratic presidents. But he added that, by simply changing the starting date of his data, he could show just the opposite.

"You cannot as an investor arbitrage a political view in your portfolio," Tousley said. "The data won't support you. If there was math that would do it, I would absolutely show it to you."

He said that the only thing that is statistically significant between markets and elections is that, no matter who wins, the market goes up. "We call it a glad-it's-over bounce because you go from peak uncertainty to clarity," Tousley said. "Don't go for the headlines about who is best for the markets. Express your political passion with a vote, not a trade."

In a review of global economic conditions, Tousley said the U.K.'s vote to exit the European Union has sharply raised the probability that the country will go into recession in the next year. The U.S., economic data suggests, has a mere 8 percent probability of entering recession in the next year, he said.

Some highlights from other presentations at the conference:

A day after Best Buy Co. experienced its biggest one-day stock gain in 15 years, the chief financial officer for Target, Cathy Smith, gave props to its neighbor and competitor. Just last week, Target reported lower-than-expected sales during the same May-to-July period where Best Buy excelled. Among Target's problem categories was electronics.

"We're sitting here saying, 'Gosh, our electronics assortment is not where it needs to be. We're not seeing the innovation in the categories.'" Smith said. "And then Best Buy — I'll give this one to them. They had a good quarter."

She noted in passing that the two chains have different assortments. "But it doesn't matter," she said. "We still have some work to do."

Best Buy, for example, has a big appliance business which has helped it weather a seasonal lull in smartphones. Smith said Target will begin to sell more products in some emerging niches of electronics, such as virtual reality. At the same time, it may reduce the space for electronics in stores as consumers are tending to buy more of those products online.

The St. Paul-based company is about 90 percent through a permitting process that has taken about a decade. It is still waiting for a land exchange to be completed, two federal agency decisions and two major state permits. The company will submit the paperwork on the most important of the state permits, the permit to mine, in the next month or two, he said.

All of the financing is tied to the issuances of those permits, but he and other executives have been talking to major banks in the U.S. and Europe for months about it. Those bankers have indicated that, based on the mine's expected cash flow, PolyMet will be able to raise $400 million to $450 million in debt financing. For the rest, Cherry said, it will look to a mezzanine round or perhaps issue more stock.

If all the permits come in as expected over the next nine months to a year, Cherry said, construction would take two years and mining would likely begin in 2019. By then, some forecasts say, copper prices should have moved well off the near-historic lows seen in the past year. So far this year, copper hasn't regained the upward momentum of other commodities. "If you look at the various forecasts, there are a lot showing a structural deficit for copper beginning in 2019 or 2020," Cherry said.

Clearfield Inc., the Brooklyn Park-based supplier of optical fiber that has specialized in helping small communities build state-of-the-art broadband systems, is making bids to work with much bigger firms.

The microcap company has seen another burst in revenue growth this year after a couple of years of relatively flat performance. Clearfield has no debt and more than $40 million in the bank, enough to satisfy some of the nation's biggest builders of broadband networks that it can take on bigger orders.

Some of Minnesota's biggest industrial names see opportunities to buy companies in the short-term future, executives said.

Richard Olson, who will become chief executive of Toro Co. in the fall, told investors he sees acquisitions as a component of future growth. The Bloomington-based firm in 2014 purchased Boss, a maker of snowplows. Olson said Toro's interest is mostly in private companies but added the timing has to be right for sellers. Toro is less likely to get into a bidding war for assets and prefers relationship development with sellers to auction bidding, he said.

Christian Rothe, chief financial officer for Graco Inc., said his company expects about one-third of future growth to come through acquisitions. The Minneapolis-based maker of fluid handling equipment favors small transactions to fill out their product catalog.

Tod Carpenter, chief executive of Bloomington-based Donaldson Co., said growth of the filter company will be based on expanding geographies, product growth and acquisitions.

Evan Ramstad • 612-673-4241