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Three Buys From the Baker Ellis Portfolio: Alexander & Baldwin Inc (ALEX), Baxter International Inc. (BAX), Google Inc (GOOG)

Baker Ellis Asset Management LLC, the fee-based investment advisory firm, invests mainly in Exchange Traded Funds and in the consumer goods sector. Both make up about ~43.5% of the funds’ total portfolio. In the last quarter ending December 2012, Baker Ellis’s performance was better than S&P 500 as the fund gave a return of ~1.36%, compared to S&P’s return of ~0.38%. Looking at its current holdings, I have chosen three stocks from their portfolio that provide an exciting investing opportunity. They are Alexander & Baldwin Inc (NYSE: ALEX), Baxter International Inc. (NYSE: BAX) and Google Inc (NASDAQ: GOOG). All these stocks have their long term growth intact and will give returns to the income investors on a constant basis. Let’s discuss each of them in detail.

Alexander & Baldwin Holdings Inc (NYSE:MATX)Alexander & Baldwin Inc (NYSE: ALEX)

With the recovery in the US housing market, the Hawaii residential market is gaining strength. The average price for homes on Oahu has recovered significantly and is nearly back to the pre-recession level. This has helped Alexander in the sale of its properties. Recently, the company announced that it had pre-sold nearly 80% of its 341 units in the Kewalo Development project under 259 contracts, which has helped the company bring down the ~$120 million in construction financing. The project is a joint venture of Alexander with BSC Waihonua and Armstrong Homes at Waihonua, Kewalo. It is estimated that the units are selling at an average rate of ~$725 per square foot, and will be delivered in early 2015. I believe that the project will continue to see a positive trend and the remaining units will be cleared soon enough. Additionally, Alexander’s One Ala Moana Tower, an ultra-luxury tower, was a success. All the units of the project were sold within 24 hours from the commencement of bids in December, 2012, with an average rate of ~$1200/sf.

Apart from this, Alexander is also diversifying its portfolio; it recently entered into an agreement with the local utility on Kauai to put in a six megawatt solar farm.  The total cost of the project is estimated to be ~$23.5 million and the company will sell the power generated for the next 20 years. Because of the tax credits and tax savings incentives, ~70% of the project’s costs should be recovered by the end of 2013. This project will add ~$1 million of operating profit to the agribusiness segment of the company and ~$2 million in its operating cash flow.

Baxter International Inc. (NYSE: BAX

Recently, Baxter International declared befitting results for 4Q 2012. The quarterly sales was up ~4% year-over-year (y/y) and adjusted EPS was up ~8% y/y. Analyzing the 2013 guidance declared by the company, I feel that the main focus of the year will be on the R&D milestones. Most prominent of them being Phase III 18 month IVIg Alzheimer’s data, which it will declare by 2Q 2013. The company expects more than a 20% success rate in the futility analysis, which began in January 2012. The probability for achieving statistical significance in the tests includes either one or both of its primary endpoints. Along with that, it has many products in the pipeline waiting for regulatory approval such as HyQ, for which the approval from the European Union is pending. The decision will come by the end of 1H13, and Baxter has also confirmed a meeting with the FDA in 2Q13. The outcome of the meeting will determine the future regulatory path of the product.

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