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Richard Pzena Buys Oracle, Google, Baker Highes, PartnerRe, DeVry
Posted by: guruhl (IP Logged)
Date: August 10, 2012 10:11PM
Richard Pzena founded New York-based Pzena Investment Management in 1996 and now has $13.2 billion in assets under management. In the second quarter, Pzena wrote in his commentary that the combination of problematic macro events was creating a number of significant valuation discounts on companies with long-term sustainable earnings power.
In the second quarter the firm made 22 new buys, the largest of which are: Oracle Corp. (ORCL), Google Inc. (GOOG), Baker Hughes (BHI), Partnerre Ltd. (PRE) and DeVry (DV).
Pzena bought 11,154,144 shares of Oracle Corp. (ORCL) at an average price of $28 in the second quarter of 2012. The new buy is 3.9% of his portfolio, and the stock has increased 13% since he purchased.
Oracle makes hardware and software for the cloud and data centers, with 100 of the Fortune 100 as their clients. The company was flourishing in its fiscal fourth quarter, with all-time highs in its new software license sales, total software revenue, total revenue, EPS, operating margins and operating cash flow. Several of its product groups also grew 100% year over year. In fiscal year 2013, it is relying on its engineered systems and the oracle cloud to drive growth.
Oracle’s balance sheet contains approximately $37 billion in cash, with $19 billion in long-term liabilities and debt. The company has also been generating higher annual free cash flow for a solid decade.
Pzena bought 314,389 shares of Google Inc. (GOOG) at an average price of $599 in the second quarter. At one point in the second quarter, Google dropped to as low as about $560 per share, and has since increased to $641 per share.
In May, the company purchased Motorola Mobility Holdings, on May 22, 2012 for $40 per share in cash, or $12.5 billion and their financial results from the acquisition date were added to Google’s second-quarter reporting. The company reported $12.2 billion in revenues for that quarter, a 35% increase year over year. GAAP net income was $2.8 billion, compared to $2.5 billion in the second quarter of 2011.
The company also introduced its Android-based Nexus 7 tablet in the second quarter, and hopes to build more devices through its Motorola acquisition. The Nexus 7 sold out at several retailers in the weeks after it was released.
In the last month, Google is reported to be interested in buying a stake in Twitter and wind power.
Pzena bought 3,010,139 shares of Baker Hughes (BHI) for an average price of $41 in the second quarter. The stock has increased almost 19% since he purchased. For the year ended June 30, 2012, Baker Hughes’ stock had declined 46%.
Baker Hughes supplies oilfield services worldwide. The company’s revenues have been increasing and it has produced steady profit over the last ten years, but cash flows ceased recently. In 2010 the company lost $635 million and in 2011, it lost $954 million. Its P/E ratio also declined to an almost three-year low during Pzena’s second-quarter entry point.
The company is cautiously optimistic about its market outlook for the remainder of the year. U.S. activity should remain stable if commodity prices remain stable, and it expects continued growth in its Gulf of Mexico and international markets.
Pzena bought 1,370,423 shares of Partnerre Ltd. (PRE), a leading global reinsurer, at an average price of $71 in the second quarter. The company’s stock price has increased almost 30% over the last year.
The first quarter of 2011, the insurance industry experienced a record loss quarter due to an unusually high number of catastrophes. As a result, Partnerre hd an operating loss of $642 million and a net loss of $520 million. By the end of the year, the company had maintained its strong financial position with $7.3 billion.
For the second half of 2012, the company reported net income of $536 million, or $7.76 per share, compared to a net loss of $682.8 million, or $10.32 per share. The increase was driven by strong underwriting results. The company’s investing portfolio also returned modest gain, resulting in an 8% increase in book value per share year to date.
PartnerRe ended the second quarter with $7.5 billion in total capital, a 3% increase from year-end 2011. The company’s dividend was $2.35 per share in 2011, after a decade of annual increases.
Pzena bought 805,269 shares of DeVry (DV) at an average price of $30 in the second quarter. The stock has dropped 36% from that price and 50% year to date, to trade for about $19 on Friday.
DeVry is a for-profit education company with the second-largest market cap in the industry. Almost all of the stocks in this industry have suffered stock price declines over the last year. Value investor Jeff Auxier of Auxier Asset Management told GuruFocus in an interview he was bullish for the long-term prospects of the industry but that it was facing setbacks: “But the whole group’s been hammered. The fear is of losing accreditation, and that’s a political, that’s a government taking. The government is trying to socialize more and more industries, and that’s one of them, unfortunately. That’s been a regulatory risk,” he said.
DeVry has been increasing its earnings and revenue each consecutive year since 2005, having record years for both in 2011. Its P/E on Friday is 6.34, a near all-time low. In the company’s third quarter and first nine months of 2012, reported revenue deceleration as enrollment declined.
See the rest of Richard Pzena’s portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Richard Pzena.
Guru Discussed: Richard Pzena: Current Portfolio, Stock Picks
Stocks Discussed: GOOG, ORCL, BHI, PRE, DV,