The stated objective of the Large-Cap Value fund is “to provide investors with long-term capital appreciation.” To execute this vision, NWQ utilizes an investment philosophy that fundamentally relies upon three factors:
1. Attractive valuation
In order to assess the value of a business, NWQ places a greater emphasis upon the balance sheet and cash flow statement over the income statement. Furthermore, when analyzing companies with multiple business segments such as GE, NWQ values each segment individually to yield an overall value for the firm. Qualitative and quantitative factors such as P/S, P/E, P /B ratios and free cash flow analysis are also utilized.
2. Downside Protection
In order to maximize upon the risk/reward concept, the firm continuously monitors investments, especially those experiencing significant decline in prices, for changes in fundamentals. Existing investments are eliminated or reduced when they no longer meet all 3 of the fundamental factors.
3. Potential Catalyst
NWQ seeks undervalued companies that have the potential to increase its value through changes such as new management, industry mergers, corporate restructuring, or through a complete change in a business’s fundamentals. NWQ feels that investing upon news, negative or positive, is a poor strategy in itself, but investing in companies with the aforementioned catalysts yields far more successes in the long term.
As with most value strategies, short term fluctuations in prices are, as a whole, disregarded for the long-term horizon. Additional due diligence is conducted via complex cash flow models, industry publications, analysis of all SEC filings, and meetings with management, competitors, and suppliers when desired. As mentioned earlier, a negative catalyst, or change in fundamentals can cause NWQ to reduce or outright eliminate positions immediately.
Nuveen Investments, as a whole, was ranked #2 by Barrons in 2010 and #10 in 2011 in the category of best family of funds. In terms of performance, the fund utilized as the focal point of comparison will be the NWQ Large-Cap due to its aforementioned profile. In 2009 and 2010, the fund returned 27.67% and 16.47% respectively. When compared against the S&P 500 benchmark returns of 26.5% and 15.1% for the same period, the fund outperformed each year by a margin slightly larger then 1%. In 2007 and 2008 however, the fund returned losses of .45% and 38.35%, which both underperformed the benchmark for the same period.
Looking forward, the firm had a mix outlook on future conditions. They acknowledged that ongoing weakness in housing values has been placing “pressure on homeowners and mortgage lenders”. In addition, they note that while earnings have improved dramatically across the board, overall employment has not paralleled this trend. NWQ also notes that fiscal conditions with municipal and state entities has deteriorated, which further fuels cloudy investor sentiments. Furthermore, they note that the nation’s debt is continuously growing at an unprecedented rate, and as such, will play a large part in the future economic condition. However, they stated that there are glimmers of hope, with numerous governments across the world promoting growth and recovery. In addition, many nations, they noted, are taking active steps to reduce their budget deficits. As such, they are planning to “remain alert to potential risks in a recovery still facing many headwinds.”
As demonstrated in the following charts and tables, the firm is well diversified in terms of the sectors they invest into. NWQ’S largest holdings currently lie in financials and oil & gas at 23.30% and 16.80% respectively. Their smallest holdings are in telecommunications at a mere .10%. The greatest addition in holdings per sector was in the consumer goods sector at 2.10%, while the largest reduction was in technology at 5.40%. In terms of the top five holdings, they comprise 22.08% of the overall portfolio. Only CA Inc and AngloGold saw any significant changes in holdings as the other holdings saw changes amounting to less then 1% respectively.
CA Inc. (NASDAQ:CA)
CA Inc is an IT software company specializing in the management of people, information, processes, systems and databases. CA trades at $23.18 with a market capitalization of $11.76 billion. The estimated cost of each share of CA in the portfolio is $23.60, yielding a potential capital loss of 1.78%. From Q4 of 2010 to Q1 of 2011, the position of CA increased by 6.50% in the firm’s aggregate portfolio. CA is currently the largest holding of the firm, comprising 5.05% of all equities held.
CA has a P/E ratio of 14.50, a P/B ratio of 2.09, and a P/S ratio of 2.68. CA reported revenues of $4.42 billion, and a net income of $823 million, yielding a margin of 18.58%. Earnings were $1.60 per share with a minor dividend yield of .86%. Over the last 5 years, CA has grown its revenues and earnings annually by 5% and 52.6% respectively.
Fitch Ratings declared CA’s outlook to be stable with all senior notes remaining at BBB+. In other news, CA acquired Interactive TKO, an applications developer, for $330 million. This acquisition is expected to help CA and their clients utilize cloud-based applications more efficiently.
GuruFocus rated CA Inc. with the business predictability rank of 1 star.
Pfizer is an international pharmaceutical company operating through two segments: Biopharmaceutical and Diversified. Pfizer closed at $20.16 with a market capitalization of $159.29 billion. NWQ acquired each share of Pfizer at an estimated price of $16.98, yielding a potential capital gain of 22.3%. The position of PFE increased slightly by .35%, and is the 2nd largest holding of the firm, at 4.46% of all equities held.
Pfizer has a P/E ratio of 19.21, a P/B ratio of 1.85, and a P/S ratio of 2.36. Earnings were reported at $1.05 per share with a dividend yield of 3.97%. Revenues approximated $67 billion, with a net profit margin of 12.24%. Historically, Pfizer has grown its revenues and free cash flow over the last 10 years by 4.1% and 6.3% annually.
Pfizer has announced plans to attempt to sell their Animal Health and Nutrition lines to focus on core operations. Analysts estimate that these operations are worth up to $22 billion. In other developments, Pfizer has recently entered into the initial phases of due diligence in an attempt to acquire Icagen, a fellow biopharmaceutical company.
GuruFocus rated PFE with the business predictability rank of 1 star.
Apache Corp (NYSE:APA)
The Apache Corporation is an oil & gas company with operations spanning the US, Canada, Egypt, Australia, the UK, Argentina and Chile. APA currently trades at $125.13, with a market capitalization of $47.98 billion. The estimated cost of APA in the portfolio is $70.53, yielding a capital gain of 75%. The position of APA increased by a mere .56% quarter to quarter, and is the 3rd largest holding of the firm’s aggregate portfolio, at 4.42% of all equities held.
APA has a P/E ratio of 13.48, a P/B ratio of 2.09, and a P/S ratio of 4.01. Earnings totaled $9.28 per share for the year, with a small dividend yield at .48%. Revenues topped $12 billion, with a net income of $3 billion, yielding a net margin of approximately 25%. On an annualized basis, over the last 5 years, APA has grown its revenues and free cash flow by 6.1% and 6% respectively.
The Apache Corporation, along with rival energy giants such as Chevron Corporation, was recently awarded a contract for offshore exploration in Australia. In terms of legal news, at the moment, W&T, a Houston oil & gas producer, is suing APA over discrepancies in hydrocarbon processing for $9.8 million in damages.
GuruFocus rated APA with the business predictability rank of 2.5 stars.
Viacom is a television and entertainment provider operating under flagship brands such as MTV, BET, Paramount, Vantage, and Nickelodeon. VIA.B currently trades at $52.15, with a market capitalization of $30.51 billion. VIA.B was acquired at an estimate cost of $38.93, yielding a potential capital gain of 33.9%. Quarter to quarter, Viacom’s position was reduced by .62%.
VIA.B has a P/E ratio of 16.45 and a P/B ratio of 3.43. Revenues were reported at $38 billion, with a net income at $4.3 billion, an 11% margin. Furthermore, earnings totaled in at $3.17 per share, with a dividend yield of 1.92%. Historically, Viacom’s growth has been largely positive, with revenues and earnings growing by 35.2% and 21.3% annually over the last 5 years.
Viacom announced that they are launching their own in-house animation division, with its first production slated for 2014. Each film will have an allotted budget up to $100 million. In other news, Viacom is suing Cablevision System due to Cablevision’s streaming of programming in mediums such as the iPad.
AngloGold Ashanti (NYSE:AU)
AngloGold is a mining company with 20 operational facilities in 10 countries internationally. Their revenue stream originates from sales of gold, uranium, silver and sulfuric acid. AU currently trades at $42.36, with a market capitalization of $32.31 billion. Shares of AU were acquired at an estimated price of $39, yielding a potential capital gain of 8.6%. AU’s position in the portfolio increased by 28.07% quarter to quarter.
AngloGold has a P/E ratio of 106.91, a P/B ratio of $4.10, and a P/S ratio of 3.04. Earnings for the year were $.40 per share, with a dividend yield of .48%. Revenues totaled $5.33 billion, with a net income of $129 million, yielding a profit margin of 2.42%. In terms of growth, AngloGold has grown its revenues and free cash flow by 7.9% and 6% annually over the last 5 years.
AngloGold recently took an 11.5% stake in Stratex International, in order to fund their gold explorations in Ethiopia. At the moment, AngloGold’s African operations are in risk of being disrupted, as it is the intent of the 140,000 numbered South Africa National Union of Mineworkers to strike over wage disputes.
GuruFocus rated AU with the business predictability rank of 1 star.
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