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Zeke Ashton Q1 Top Five Picks: CSTR, WDC, DELL, TTT, CLMS

May 12, 2011 | About:
Holly LaFon

Holly LaFon

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Zeke Ashton is the managing partner of Centaur Capital Partners. He also manages investments for the Centaur Value Fund and the Tilson Divident Fund. In 2010, the Tilson Dividend Fund returned 20.64% versus the S&P 500’s 15.1%. In 2009, the fund returned 43.98% versus the S&P 500’s 26.5%. He invests according to a philosophy based on value principles. He chooses stocks based on the business’ true value, cash flow generation, management quality, and the competitive advantages of the underlying businesses when such stocks are available at compelling prices. His top five largest holdings for the quarter ended March 31, 2011, are: Coinstar Inc. (CSTR), Western Digital Corp. (WDC), Dell Inc. (DELL), Terra Nova Royalty Corp. (TTT) and Calamos Asset Management Inc. (CLMS).

Coinstar Inc. (CSTR)

Coinstar Inc. operates a national network of self-service coin-counting machines in the United States. Coinstar Inc. has a market cap of $1.69 billion; its shares were traded at around $53.18 with a P/E ratio of 24.3 and P/S ratio of 1.2. Coinstar Inc. had an annual average earnings growth of 17% over the past 10 years. GuruFocus rated Coinstar Inc. the business predictability rank of 4-star.

Zeke Ashton bought 130,000 shares of Coinstar in the first quarter of 2011 at $45.3 per share. Coinstar’s stock price increased 121.24% over the last year, and declined 4.2% year to date.

Coinstar had strong earnings results in the first quarter of 2011. Net income was $8.5 million, compared to $6.4 million the year prior. Net cash flows from operating activities from continuing operations was $60.0 million, compared to $59.5 million the year prior. Coinstar had $38.5 million in capital expenditures compared with $31.5 million the year prior, used to purchase more kiosks and invest in corporate infrastructure. Free cash flow declined to $21.5 million, compared with $28.0 million the year prior.

First-quarter Revenue grew 31.2% over the first quarter 2010, due primarily to increased redbox and Coin revenue.

Coinstar plans to begin offering top video games in 21,000 Redbox kiosks for $2 per day beginning June 17, 2011.

Western Digital Corp. (WDC)

Western Digital Corp. designs, develops, manufactures and markets a broad line of hard drives featuring leading-edge technology. Western Digital Corp. has a market cap of $8.91 billion; its shares were traded at around $38.44 with a P/E ratio of 10.4 and P/S ratio of 0.9. Western Digital Corp. had an annual average earnings growth of 40.2% over the past 5 years.

Ashton bought 125,000 shares in the first quarter of 2011 at $33.89 per share. Western Digital’s stock is up 93.4% over the last five years and 13.4% year to date.

Western Digital reported revenue of $2.25 billion in the quarter ended April 1, 2011, declined from $2.64 billion in the year ago quarter. It shipped 50 million hard drive units, compared to 51 million in the year-ago quarter.

"The March quarter in the hard drive industry was impacted by two significant developments-the delayed supply of industry CPUs to PC makers and the tragic events in Japan," said John Coyne, president and chief executive officer. "While demand for hard drives in the quarter got off to a slow start, it later picked up as availability of CPUs improved and as fears took hold of component shortages related to the events in Japan.

Dell Inc. (DELL)

Dell Inc. is a premier provider of products and services required for customers worldwide to build their information-technology and Internet infrastructures. Dell Inc. has a market cap of $31.9 billion; its shares were traded at around $16.73 with a P/E ratio of 10.4 and P/S ratio of 0.5. Dell Inc. had an annual average earnings growth of 4.2% over the past 10 years.

Ashton bought 300,000 shares of Dell in the first quarter of 2011 at an average price of $14.45 per share. Dell stock is down 30.6% over the last five years, but increased 22.95% year to date.

Dell generated net income of $2.6 billion for the fiscal year ended Jan. 28, 2011, increased from $1.4 billion in the fiscal year ended January 29, 2010. Its gross profit margin on products also grew to 29% for the year ended Jan. 28, 2011, from 14% the previous year.

Dell is the third largest holding in guru Mason Hawkin’s portfolio as of March 31, 2011. In a recent GuruFocus interview, he commented that the stock is cheap because people misperceive what it does. He said that he did not see the company’s return on assets improving but believes the returns it is making are higher than most companies. He also said that people are shying away from the stock because they erroneously believe computers are becoming less profitable.

“The other interesting thing is that you actually just called it ‘Dell Computers,’ which highlights why it is cheap. People still view it as desktop and notebooks, even though those are dying a slow death. Those represent probably a fourth of corporate value and a third of earnings,” he said.

Terra Nova Royalty Corp. (TTT)

KHD Humboldt Wedag International Ltd. owns companies that operate internationally in the engineering services industry, and specializes in the cement, coal and mineral engineering services industries. Terra Nova Royalty Corp. has a market cap of $474.9 million; its shares were traded at around $7.8 with a P/E ratio of 6 and P/S ratio of 5.6. The dividend yield of Terra Nova Royalty Corp. stocks is 2.6%.

Ashton bought 469,839 of his fourth largest holding, Terra Nova Royalty Corp., in the fourth quarter of 2010 at an average price of $8.07 per share. He did not buy any more share in the first quarter of 2010. Terra Noval Royalty has had relatively poor stock performance. Over the last year it declined 38.4% and has fallen 0.64% year to date.

In 2010, Terra Nova’s net sales jumped to $84.5 million from $14.7 million for 2009. Its net income declined to $30.3 million from $36.7 million in 2009. Long-term debt increased from zero to $48,604. The company has fluctuating revenue due in part to the fact that revenue is earned when they complete a transaction, and they cannot predict when that will occur. They also buy significantly undervalued assets and hold them for an indeterminate amount of time, and earn a profit when they sell. The majority of their revenue is generated from commodities and thus tied to the performance of commodities as well.

Calamos Asset Management Inc. (CLMS)

Calamos Asset Management Inc. provides investment advisory services through its subsidiaries to institutions and individuals, principally in the United States. Calamos Asset Management Inc. has a market cap of $311.3 million; its shares were traded at around $15.47 with a P/E ratio of 16 and P/S ratio of 0.9. The dividend yield of Calamos Asset Management Inc. stocks is 2.4%.

Ashton bought 301,000 shares of Calamos Asset Management in the fourth quarter of 2010 at an average price of $12.5 per share. In the first quarter of 2011, he sold 62,200 shares at an average price of $15.94 per share. Calamos’ stock is down 55.8% over the last five years, and up 10.5% year to date.

In 2010, Calamos had net income of $19.9 million, compared with $12.42 million in 2009. Its free cash flow also increased from $138 million in 2009 to $142 million 2010.

Calamos’ assets under management as of March 31, 2011, totaled $38.0 billion, an increase from $32.3 billion for the first quarter of 2010. For the first quarter of 2010, the company’s investment portfolio returned 3.4%.


Rating: 2.3/5 (12 votes)

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