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Six New Buys from Steven Romick: ORCL, AIG, BK, Y, XRX, VOLV.B
Posted by: Holly LaFon (IP Logged)
Date: July 20, 2012 05:14PM
Steven Romick manages the $9 billion Crescent Fund for FPA Capital. His primary objective with his portfolio is to avoid permanent impairment of capital, rather than simply try to match the market. He believes this can be best done by understanding the downside risk of each stock. A motto at his fund, as he tells CNBC, is, “Good things happen to cheap stocks.”
Romick found six new stocks in the second quarter: Oracle Corp. (ORCL), AIG (AIG), Bank of New York Mellon (BK), Alleghany Corp. (Y), Xerox Corp. (XRX) and Volvo (VOLV.B).
Oracle Corp. (ORCL)
Romick bought 4.46 million shares of Oracle (ORCL) at an average price of $28 per share. Oracle is one of the largest software and information management suppliers in the world.
In the last five years, Oracle’s stock price has increased 46%, while its revenue and EBITDA have grown at an average annual rate of 16.6% and 18.2%, respectively. It has produced consistent free cash flow, reaching more than $10 billion in the last three years and has more than $37 billion in cash on its balance sheet, with about $19 billion in debt.
In the first quarter, Oracle announced several all-time highs, including new software license sales, total software revenue, total revenue of $11 billion and EPS of $0.82, operating margins of 46% and operating cash flow of $13.7 billion.
Romick bought 3.64 million shares of AIG at an average price of $31. AIG is the insurance corporation that would have collapse during the financial crisis if not for a massive capital infusion from the government.
In the last year, AIG’s stock has increased almost 10%. Its revenue has declined annually since 2009, and net income has increased, reaching a record $16 billion in 2011, up from a net loss of $10.4 billion. AIG has also seen its cash decline each year since 2008, from a high of $117.7 billion to $52.2 billion. Free cash flow dwindled to $35 billion in 2011.
AIG currently trades for $31.05, lower than its book value per share of $55.01.
Bank of New York Mellon (BK)
Romick bought 4,425,000 shares at an average price of $22 in the first quarter.
In the last five years, BNY Mellon’s stock has tumbled almost 54%. Since the 2009’s financial crisis, its revenue has been increasing, though while it regained positive territory in earnings, they declined slightly from 2010 to 2011. In 2011, the bank replenished its cash holdings to $143.1 billion, higher than pre-crisis levels.
In the second quarter, BNY Mellon’s total revenue was $3.6 billion, down 1% year over year, and net income was $466 million, including a $212 million after-tax litigation charge, compared to $619 million last year. The bank’s assets under management were $1.3 trillion, a 1% decrease caused by lower equity market values and partially offset by new inflows of $26 billion (outflows were $14 billion).
Alleghany Corp. (Y)
Romick bought 282,000 shares of Alleghany Corp. at an average price of $333 in the first quarter. Alleghany is an insurance company with a variety of subsidiaries.
Alleghany’s stock declined almost 11% over the last five years, while its revenue and EBITDA declined at an annual rate of 4.8% and 5.2%, respectively. Its book value increased at a rate of 3.9% in the same period. Alleghany has also built back up its cash position since it fell to $1.4 billion in 2009, to $3.4 billion at the end of the first quarter of 2012.
In the first quarter, Alleghany’s net earnings were $560 million, compared to $71.3 million, which includes the results of its new purchase of Transatlantic, which added a leading global reinsurance underwriting platform to the company.
Xerox Corp. (XRX)
Romick bought 11,995,000 shares of Xerox Corp. at an average price of about $8 per share. Xerox is a global document company.
Xerox’s stock has declined almost 66% in the last five years. In the same period, its revenue has been increasing annually, as has net income. Free cash flow has been positive over the last decade. Xerox has a strong balance sheet with $6.7 billion in cash and $12.6 billion in long-term liabilities and debt.
Economic conditions in Europe have beset the company this year. On Friday it announced lower financial results and that it would cut its full-year profit target. Revenue declined 1 percent year over year to $5.5 billion, and earnings declined 13% from $8 million to $7 million. Revenue in its services business, where half of its revenue comes from, was up 7 percent. Accelerating growth in this segment is a priority for the company.
Xerox lowered its 2012 GAAP earnings per share expectations to $0.92 to $0.97, from its previous estimate of $0.97 to $1.03. Xerox’s P/E ratio has fallen to 6.7.
Romick also bought 914,886 shares of Volvo (VOLV.B). To see more of his new buys and sells, visit his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Steven Romick.
Guru Discussed: Steven Romick: Current Portfolio, Stock Picks
Stocks Discussed: ORCL, AIG, BK, Y, XRX, VOLV.B,