Zeke really deserves the title of Guru as he is a master value investor and is also the founder and general partner of a hedge fund called the Centaur Value Fund. Since 2002, he has trounced the S&P 500 Index by a large margin. The greatest thing about being a premium member with GuruFocus is that you can actually see what Zeke is investing in and can actually download those picks into an excel spreadsheet.
Most of my research is based on the owner earnings formula that Warren Buffett presented to the world in his 1986 Chairman’s Letter to shareholders (BRK.A)(BRK.B).
So as a premium member, it is always helpful to me to always know what the master is up to. A few months back I bought Universal Corp. (UVV) for my clients and here is why.
For those new to my system, I recommend that you read this article as an introduction before proceeding.
Universal Corporation is one of the world's leading tobacco merchants. Incorporated in 1918, Universal has headquarters in Richmond, Va., in the United States. Universal buys and sells flue-cured and burley tobacco, tea, sunflower seeds and other agricultural products. It also holds a 49% interest in Socotab LLC, a large dealer in oriental leaf tobaccos. The company does not manufacture cigarettes or other consumer tobacco products, although its largest customer is Altria Group (MO).
So as you can see, the company operates in a very conservative industry and in rough times like these, that is just fine by me. The thing that impressed me most about the company is that it is an amazing generator of owner earnings, as the table below clearly shows:
The stock is currently selling for $42.97, but as you can see, it has generated $80.05 in cumulative owner earnings (COE) since 1973. So it is trading at almost half its COE and for 2011, Value Line estimates that the company will generate $5.80 a share in owner earnings. $42.97 divided by $5.80 gives us a price to owner earnings of 7.40. I like to buy at 15 times P/OE so again we are almost trading at half of what I look for in my analysis. The table above demonstrates that superior OE generation for UVV is not a new thing as they have never had a negative OE year in 38 straight years. Here is a chart that illustrates that for you:
We have Universal Corp. as a steal from both a P/OE and COE point of view, so let’s see what my Statistical Indicator Analysis (SIA) shows us.
It seems from the chart above that investor sentiment is ranking this a hold for now, but since we require our three ratios to work together in order to generate a final decision, here are Universal Corp.’s COE, OE and SIA working together.
Finally, as you can see Universal Corp. is still a “Steal It” stock according to my system, and it also doesn't hurt that it pays a great dividend of 4.35% while we are waiting for someone to come in and buy this company out. There are not too many players in this field, so you could say that Universal Corp. is sort of a Buffett-style toll bridge. In closing, here is the CapFlow chart on Universal Corp. so you can see with your own eyes that management is doing a terrific job as far as controlling costs goes. Management is also buying back 5% of the shares outstanding (on average) each and every year, which is something that I love to see.
Always remember that these are the results of our research based on the methodology that I have outlined above and in other articles previously published. This research is provided as an educational tool and should not be considered investment advice, but just the results of our research. There are many ways to analyze a stock and you should never blindly follow anyone's work without doing your own due diligence or by seeking the help of an investment advisor, if you so need one. As Registered Investment Advisors, we see it as our responsibility to advise the following: We take our research seriously, we do our best to get it right, and we "eat our own cooking," but we could be wrong. Please note, investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Strategies mentioned may not be suitable for everyone. We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter "Mycroft" Psaras, and should not be construed as personalized investment advice. Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for you. Before acting on any information mentioned, it is recommended to seek advice from a qualified tax or investment adviser to determine whether it is suitable for your specific situation.
About the author:
From his work on free cash flow in the investment process, Mycroft has now decided to bring his theories to the field of money management as well as work as an independent consultant for Hedge Funds, Pension Funds and ...More Institutions in general. His dream is to someday soon open a mutual fund where he can help as many people as he can benefit from what he has learned over the years.