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Magic Formula Guru Joel Greenblatt’s Q3 Portfolio Updates: Top New Buys Are Herbalife, Goodyear Tire and Marvell Technology
Posted by: Dianne Tordillo (IP Logged)
Date: November 16, 2012 11:12AM

Joel Greenblatt, founder of Gotham Asset Management LLC, has reported his third quarter portfolio updates, which totaled 668 transactions:

Adds to Current Shares 217
New Buys 170
Reductions to Current Shares 159
Sold Out 122

Greenblatt serves as managing principal at Gotham, and co-chief investment officer with Robert Goldstein, managing long-only and long/short equity portfolios.

Currently, Greenblatt’s stock lineup contains a total of 770 companies, a total value of almost $1.5 billion, with a quarter-over-quarter turnover rate of 31%. (See his top holdings)

His portfolio’s sector weightings is as follows:

Industrials 28.20%
Technology 16%
Consumer Services 15.50%
Consumer Goods 13.50%
Health Care 12.10%
Basic Materials 6.20%
Oil & Gas 3.50%
Financials 2.20%
Telecom 1.60%
Utilities 0.40%

The transaction that made the largest impact to his portfolio among his 668 updates was his 84.3% stake reduction in exchange-traded fund, SPDR S&P 500 (SPY).

Below are three of Greenblatt’s biggest new buys for the third quarter.

Herbalife Ltd. (HLF)

Greenblatt’s new holding of global nutrition company, Herbalife Ltd. (HLF) amounts to 145,369 shares at an average price of $50.25. This is actually the fourth time the company appears in his portfolio in the last five years, having completely sold out previous shares of Herbalife in three separate occasions.

Founded in 1980, Herbalife has a market cap of $5.17 billion, producing nutrition, weight-management and personal care products that are distributed in more than 80 countries, according to its website.

Despite one Severe Warning sign on GuruFocus, which reveals a declining operating margin, Herbalife is decorated with six Good Signs showing a stable financial health, a high dividend yield and a P/E ratio close to a three-year low.

Its revenue data for the past 10 years shows positive expansion, growing at a rate of 16.1%, and even higher in the past 12 months at a growth rate of 23.4%. Additionally, its free cash flow has been able to sustain long-term debt in most recent years. Its earnings per share appears to be expanding as well, very much reflected in the most recent third quarter report the company released in October.


In net sales, the company felt a 14% increase at $1 billion compared to the same time last year, which was driven by a surge in product volume at Herbalife. Its earnings per diluted share for the quarter was $1.04, which was a 20% increase compared to the prior year’s $0.87 per diluted share.

"Our business momentum has continued through the third quarter with double digit volume growth from all six of our geographical regions," said Michael O. Johnson, the company's chairman and CEO in a press release. "Our 2013 guidance for double-digit volume and EPS growth illustrates our belief in continued growth driven by the ongoing global expansion of daily consumption and our city by city approach to deepen our penetration in existing markets."

Herbalife is trading at $45.01 per share, close to its one-year low. Its P/E (ttm) ratio is at 11.9, P/B ratio is 13.9 and P/S ratio is at 1.5.

View more of Herbalife’s financial data in 10-Year Financials.

Goodyear Tire & Rubber Co. (GT)

Greenblatt’s new holding of large tire company, Goodyear Tire & Rubber Co. (GT) totaled 451,982 shares purchased at an average price of 11.56 per share. Greenblatt originally first acquired Goodyear in the first quarter with 12,900 shares, but sold out of the stock in the next quarter.

Goodyear has a market cap of $2.82 billion.

Both its Financial Strength and Profitability and Growth ranks fall at 6 out of 10 on GuruFocus, only ranking 1 star in Business Predictability.

This low predictability is apparent in its financial data – its revenue per share growth has yet to reach stability; its revenue has been in decline in the past 12 months, at a rate of 2.7%; its operating margin has been expanding lately, which is one of its three Good Signs on GuruFocus, even though it, too, has been intermittent in the past five years.


Goodyear stock is down almost 2% in today’s morning trading, at $10.97 per share. It has a P/E (ttm) ratio of 14.1, a P/B ratio of 2.8 and a P/S ratio of 0.1.

Marvell Technology Group Ltd. (MRVL)

Greenblatt’s newest holding of Marvell Technology Group Ltd. (MRVL) amounts to 493,972. He first acquired the stock in the fourth quarter of 2010, buying only 37,489 shares, and then increasing it in the following three consecutive quarters.

Greenblatt reduced Marvell for the first time in the fourth quarter of 2011, around the same time that led to the stock’s price decline in this year’s first quarter, when he completely sold out of his Marvell shares.

Currently trading at $7.08 per share, Marvell has no Severe Warning Signs, and in fact three Good Signs, revealing a price, P/B ratio and P/S ratio close to their three year low. Its only Medium Warning sign reveals a slow down in per share revenue growth.

Marvell ranks in the bottom half of Business Predictability.

Its EBITDA growth has been in decline in the past 12 months, at a rate of 39.9%, and its free cash flow does not trail too far back, declining at a rate of 33.5% in the past 12 months. In contrast, Marvell’s revenue is experiencing a positive trend line, despite its slower growth rate in more recent months, but growth nonetheless, at 1.1%.


To view more of Marvell’s financial standings, visit 10-Year financials.

View the rest of Joel Greenblatt’s portfolio updates here, along with his undervalued stocks, top growth companies and high yield stock. Also read more about Joel Greenblatt at GuruFocus article archives.



Guru Discussed: Joel Greenblatt: Current Portfolio, Stock Picks
Stocks Discussed: HLF, GT, MRVL, SPY,
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