The fund’s value strategy focuses on company restructuring and/or industry consolidations; a long-term, multi-cap investments that give companies time to execute business plans and improve fundamentals; and diversification across industries and restructuring themes with about 60-70 holdings. The “restructuring” in the fund’s name refers to the aspiration to invest in stocks that may benefit from fundamental corporate change, including but not limited to mergers and acquisitions. Williams makes large commitments to particular sectors that he feels are under-valued. This can lead the fund’s performance to deviate significantly from the overall stock market.
Williams’ four new buys from the second quarter are: Cliffs Natural Resources (CLF), Cisco (CSCO), Molycorp (MCP) and Hasbro Inc. (HAS).
Cliffs Natural Resources (CLF)
Cliffs Natural Resources is an international mining and natural resources company and is the largest producer of iron ore pellets in North America. It owns ten iron ore mines in North America and Australia, and six coal mines in Alabama and West Virginia and a 45% economic interest in a coal mine in Australia. It is engaged in several new projects, including a biomass production plant in Michigan and Ring of Fire chromite properties in Ontario, Canada.
The company has significant growth possibilities. Its international expansion just began in recent years and is a priority. They are also one of the fastest growing companies in the S&P 500. Fortune just added them to their 500 list at #477 in 2011, an almost 275-place jump from their 2010 ranking of #750.
Tons of iron ore sold in 2010 reached 26 million, compared to 16.4 million in 2009, helped in large part by the acquisition of Wabush Mines which generated an additional 4 million tons of coal, while Cliffs paid only $100 million in the transaction. Overall it spent $1 billion on acquisitions in 2010.
Cliffs’ free cash flow in 2010 was $1.1 billion, up from $15 million the previous year. Its cash more than tripled, from $503 million in 2009 to $1.6 billion in 2010. Total liabilities and debt are almost $4 billion.
Cliffs Natural Resources Inc has a market cap of $14.14 billion; its shares were traded at around $97.77 with a P/E ratio of 9.7 and P/S ratio of 3. The dividend yield of Cliffs Natural Resources Inc stocks is 0.6%. Cliffs Natural Resources Inc had an annual average earnings growth of 6.8% over the past five years.
David Williams bought 850,000 shares of CLF in the second quarter 2011 at an average price of $89.93 per share. The stock is up 30% year to date.
Cisco Systems Inc. is the worldwide leader in networking for the Internet. Once the largest company in the world and traded around $80 in its 2000 heyday, Cisco’s stock has not performed well recently due in large part to investor skepticism about tech stocks in general and Cisco’s ability to remain competitive.
Nevertheless, Cisco’s balance sheet is quite strong. It generated free cash of $9.2 billion in 2010, up from $8.9 billion in 2009, and it had revenue of $40 billion, a 10-year record.
Cisco is taking a number of cost-cutting measures in efforts to restructure and streamline its operations. The company plans to lay off about 6,500 employees before the first week of August, in order to save a planned $1 billion. The layoffs will cost about $1.3 billion in severance and other charges. The company is also selling a Juarez set-top box factory.
Williams’ portfolio is 18.2% information technology, and at 3% Cisco will be his third largest IT holding. He bought 2,600,000 shares in the second quarter 2011 at an average price of $16.48. The stock is down 22% year to date.
Cisco Systems Inc. has a market cap of $84.9 billion; its shares were traded at around $15.435 with a P/E ratio of 10.8 and P/S ratio of 2.1. The dividend yield of Cisco Systems Inc. stocks is 1.6%. Cisco Systems Inc. had an annual average earnings growth of 23% over the past 10 years.
Molycorp Inc. produces rare earth oxide (REO) in the Western hemisphere, critical to enabling and furthering many green energy technologies, high tech applications and national defense systems. The company seeks to be the domestic competitor with China, which currently supplies almost 100% of the world’s demand for rare earths. Executives wager that the Chinese government will begin restricting rare earth exports to the rest of the world and will begin importing in the next few years.
Last month, Molycorp acquired the $781 million necessary to expand and modernize its flagship rare earth facility in California, after a sale of convertible senior notes.
When Phase 1 of Project Phoenix is completed, which is expected to occur next year, Molycorp's manufacturing assets will comprise the world's first fully integrated rare earth manufacturing supply chain, producing high-purity rare earth oxides, metals, alloys and neodymium-iron-boron (NdFeB) permanent magnets, widely used in transportation, high tech, clean energy, defense, and other industries.
The company increased revenue 21% sequentially, generating $26.3 million in the first quarter 2011, and 770% year over year. It generated cash flow from operations of $5.2 million.
Williams bought 400,000 shares of MCP in the second quarter 2011 at an average price of $62.62 per share. The stock has risen 10.5% year to date.
Molycorp has a market cap of $4.29 billion; its shares were traded at around $51.18 with and P/S ratio of 122.1.
Hasbro Inc. (HAS)
Hasbro Inc. is a worldwide leader in children's and family leisure time and entertainment products and services, including the design, manufacture and marketing of games and toys ranging from traditional to high-tech.
Hasbro’s revenue increased 23% to $908.5 million in the second quarter 2011, due mainly to Transformers sales from the movie released June 29, which grossed $700 million so far. Sales from its boys’ toys division sales increased 96%, while its girls’ toys division sales were down 11%. Falling demand in its puzzles and games led to 12% lower revenue and forced the company to discount items to reduce inventory.
“Our overall run-rate of costs is higher than a year ago in support of our long-term growth initiatives, such as television, licensing and emerging market expansion and as we enter the higher revenue quarters for Hasbro, we anticipate generating incremental leverage from these investments,” COO David Hargreaves said on a conference call.
Williams bought 345,403 million HAS shares for an average price of $45.62 per share. Hasbro’s stock is down 16.5% year to date.
Hasbro Inc. has a market cap of $5.37 billion; its shares were traded at around $39.4 with a P/E ratio of 15.2 and P/S ratio of 1.3. The dividend yield of Hasbro Inc. stocks is 3%. Hasbro Inc. had an annual average earnings growth of 6.9% over the past 10 years.