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Brian Rogers' Top Q2 Moves: Buys Northern Trust, Adds Staples and HP, Sells Out Bed Bath & Beyond and Dell

July 28, 2011 | About:
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Brian Rogers is the portfolio manager of T. Rowe Price Equity Income Fund. The fund targets common stocks in established firms that are expected to pay above-average dividends and are undervalued by the market. In this way, Rogers hopes to achieve substantial dividend income and develop long-term capital appreciation. The fund manages over $21 billion in assets and holds positions mostly in large companies. According to his second quarter portfolio update, Rogers' biggest moves included acquiring a new position in Northern Trust (NTRS), adding Staples (SPLS) and Hewlett-Packard (HPQ) and selling out Bed Bath & Beyond (BBBY) and Dell (DELL).

Northern Trust Corp. (NTRS)

Rogers purchased 3,500,000 shares of Northern Trust at an average price of $48.67, impacting his portfolio by 0.74%.The price of the stock has since fallen by 8%. Northern Trust Corp. is a multi-bank holding company with worldwide locations and is a provider of treasury management, master trust, custody, retirement, risk and performance, international and investment management services for corporations, large institutions and individuals. Northern Trust has earned distinction as a leading provider of personal fiduciary, asset management, personal and private banking and master trust/custody, global custody and treasury management services.

According to Northern Trust's second quarter earnings report for the period ended June 30, total revenue decreased 2% year-over-year from $964.2 million to $944.8 million, but this was a 5% increase quarter-over-quarter. Net income decreased by 24% year-over-year from $199.6 million to $152 million, but this was again an increase over last quarter by 1%. Reduced levels of foreign exchange trading income and a decline in securities lending revenue account for the some of the declines in revenue, offset partially by higher fees from custody and fund administration services and increases in servicing fees from personal financial services due to strong new business and improved markets.

The company saw a double-digit growth in client assets, though according to Chairman and CEO Frederick H. Waddell, "Persistently low interest rates and a sluggish economy continued to impact our results." Assets under custody increased by 24% year-over-year and by 1% quarter-over-quarter. Assets under management increased by 13% year-over-year and by 3% quarter-over-quarter. Non-performing loans to total loans and leases decreased from 1.17% last quarter and 1.21% last year to 1.15% for the current quarter. Return on average common equity was 8.8% for the quarter, compared to 12.2% last year and 8.9% last quarter. Northern trust also completed its acquisition of the fund administration business of Bank of Ireland and announced an agreement to acquire Omnium LLC, a leading hedge fund administrator, during the quarter.

Northern Trust has a market cap of $10.8 billion. It trades with a P/E ratio of 17.8, right in line with its five-year historical average. Its P/S ratio is 3.0, also in line with its five-year historical average. Its P/B ratio is 1.6, reaching a ten-year historical low. Book value per share has been increasing almost every quarter since 2000, now sitting at $28.61.

Staples Inc. (SPLS)

Rogers first bought into Staples in the first quarter of 2011, purchasing 1.5 million shares at an average price of $21.60. In the second quarter of 2011, Rogers added another 8.25 million shares at an average price of $18.13, impacting his portfolio by 0.6% and giving him a total of 9,750,000 shares in the company. The price of the stock has since fallen by 12%.

Staples Inc., together with its subsidiaries, operates as an office products company. The company sells various office supplies and services, business machines and related products, computers and related products and office furniture.

According to their quarterly report for the period ending April 30, Staples saw an increase in sales by 2% year-over-year, from $6.06 billion to $6.17 billion. This was a result of slight growth in their North American Delivery business and an increase in sales for new stores opened in the last twelve months, partially offset by a decrease in store sales in International and North American retail businesses. Revenues have grown every year for the past nine years. Net income increased by 5% year-over-year, from $188.8 million to $198.2 million. Free cash flow was a gain of $148 million, an improvement over last quarter's $144 million.

Staples has a market cap of $11.4 billion. It trades with a P/E ratio of 12.5, very near its 10-year historical low. Its P/S ratio is 0.5, below its 10-year historical average. Its P/B ratio is 1.6, reaching a new historical low. Book value per share has been trending upwards for the past 10 years, currently at a high of $10.16.

Hewlett-Packard Company (HPQ)

Rogers first bought Hewlett-Packard in the fourth quarter of 2010, adding nearly 4 million shares for an average price of $42.37. In the next quarter, he added another 288,300 shares for an average price of $44.63. As price dropped in the second quarter of 2011, Rogers added another 3 million shares for an average price of $38.06, impacting his portfolio by 0.5% and giving him a total of 7,276,800 shares in the company. The price of the stock has since dropped by 3%.

Hewlett Packard is one of the leading global providers of computing and imaging solutions and services for business and home. The company is focused on capitalizing on the opportunities of the Internet and the proliferation of electronic services. Its major businesses include Imaging and Printing Systems, Computing Systems and Information Technology Services.

According to their latest quarterly statements for the period ended April 30, revenues increased year-over-year by $800 million to $31.6 billion but are down from last quarter's $32.3 billion. Net income also increased year-over-year by 4.7% to $2.3 billion but are down from last quarter's $2.6 billion. Earnings per share dropped from $1.19 to $1.06. HP generated $2.9 billion in free cash flow, continuing its trend of positive free cash flow and this quarter represents the most it's produced in the past eight quarters.

Software sales revenue grew 17% year-over-year, driven by growth in licenses and services. Financial services revenue also grew 17% year-over-year, led by double-digit growth in lease volume and strong returns on their portfolio. Enterprise servers, storage and networking revenue grew 15% year-over-year due to HP's focus converged infrastructure products performing well in the data center. Recent sales numbers rank Hewlett-Packard as the leading PC vendor with a 18.1% market share. However, PC and laptop numbers have taken a hit lately as a result of tablet sales.

HP has a market cap of $76.3 billion. The stock trades with a P/E ratio of 7.4, very near its 10-year historical low and its P/S ratio of 0.6. is also near its historical low. Quarterly shares per share have been growing over the past 8 years, now at a near-high of $14.62 per share. Its P/B ratio is 1.9, roughly in line with its ten-year historical average. Book value per share has been growing steadily over the past eight years, currently sitting at a high of $19.31. Return on equity improved to 22.1%, compared to 20.1% last year.

On 06/13/2011, HP announced organizational changes that will more closely align its corporate structure with its strategy to lead in global connectivity. The changes will "increase transparency, sharpen the executive team's focus on customer-facing businesses and position HP for the opportunities it sees in the market."

Bed Bath &Beyond Inc. (BBBY)

Rogers bought and sold his holdings in Bed Bath & Beyond exceptionally well when compared against the stock's movement in prices. He first acquired a position in the company in the first quarter of 2007, purchasing 3.25 million stocks for an average price of $40.85. As the price of BBBY fell over the next eight quarters, Rogers continued to add to his holdings, amassing as many as 5,970,000 total shares for prices under $30 at the end of the third quarter of 2008. He held until the company began to recover in prices, selling roughly 2.8 million shares between 2009 and early 2011 for prices as high as $48. Most recently, he sold out his remaining 3,160,300 shares of the company for an average price of $54.49, earning him a 33.4% return on his initial investment. The price of the stock has since increased by 6%.

Bed Bath & Beyond Inc., together with its subsidiaries, operates a chain of retail stores. It sells a range of domestic merchandise, such as bed linens and related items, bath items and kitchen textiles; and home furnishings, including kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and certain juvenile products. The company also offers giftware, household products, health and beauty care items and infant and toddler merchandise.

According to their fiscal first quarter earnings report for the period ended May 28, Bed Bath & Beyond saw revenues increase by 9.7% year-over-year to $2.1 billion. Annual revenue has increased every year since 2002. Comparable store sales increased by 7.0%, compared with an increase of 8.4% last year. Selling, general and administrative expenses represented 26.9% of net sales for the quarter, improving over last year's 28.6% of net sales, as a result of decreases in payroll and occupancy expenses as well as a relative decrease in advertising expenses. Net income increased by 31.3%, from $137.5 million to $180.6 million. Free cash flow increased from $133 million last year to $225 million this year. The company also repurchased approximately $245 million of its common stock representing 4.8 million shares.

Bed Bath &Beyond has a market cap of $14.4 billion. The stock trades with a P/E of 17.6, below its ten-year historical average. Its P/S ratio of 1.7 is in line with its historical average. Its P/B ratio of 3.7 is below its historical average and book value per share has been steadily trending upwards, now at a high of $15.80. Return on equity is at 18.4%, up from last year's 14.5%.

Dell Inc. (DELL)

Compared to his holdings with Bed Bath & Beyond, Rogers' position in Dell has not been as successful. He first bought 8.25 million shares of the company in the first quarter of 2007 at an average price of $23.96. He added another 200,000 shares in the fourth quarter of 2007 when prices increased to $26.87. However, prices dropped by more than 25% the next quarter and Rogers began a series of reductions in his position. Dell's stock price fell to under $10 in 2009 and Rogers began to cut his losses, selling more than a million shares when prices rebounded to $14.37. He added 979,000 shares in the first quarter of 2011 for an average of $14.45, but he sold all 7,150,100 shares in the company this past quarter for an average price of $15.69, a 34.5% loss on his initial investment.

Dell Inc. is a premier provider of products and services required for customers worldwide to build their information-technology and Internet infrastructures. Dell, through its direct business model, designs, manufactures and customizes products and services to customer requirements and offers an extensive selection of software and peripherals.

According to its quarterly report for the period ending April 30, Dell earned a revenue of $15.02 billion, up 1% from last year's $14.87 billion though down 4.3% from last quarter's $15.69 billion. However, earnings increased by 114% year-on-year, up from $441 million last year and $927 last quarter to $945 million this quarter on the strength of its commercial enterprise business. Earnings per share were at a record high of $0.50. Free cash flow was at $340 million, up from last year's $192 million though down from last quarter's $1.32 billion.

Revenues for Dell's commercial business improved 3% to $12 billion with record profitability. Servers and networking revenue increased 11%. Small and medium business had record profit in the quarter with revenue up 7% to $3.8 billion, a two-year high caused by strong demand across all products and services. Large enterprise had record operating income of $504 million, 11.3% of the $4.5 billion of revenue.

Dell has a market cap of $31 billion. It trades with a P/E ratio of 8.9, very near its historical low. its P/S ratio of .5 is way below its historical average. Quarterly sales per share are recovering after a slump in 2009, now at $7.88. Its P/B ratio of 3.7 sets a new low for the company and book value per share has been steadily increasing for the past twelve quarters, now at a high of $4.39. Return on equity is at 45.2% for the quarter, down from last quarter's 47.7% but up from last year's 30%.

On 7/20/2011, Dell announced that it has signed a definitive agreement to acquire Force10 Networks Inc., a leader in high-performance datacenter networking. It provides "high-performance solutions designed to deliver new economics by virtualizing and automating conventional datacenter and cloud networks." Forc10 technology also "complements and accelerates Dell’s datacenter solutions portfolio, enabling it to offer customers a broader range of enterprise offerings." This follows Dell's strategy of delivering an open and integrated approach to datacenter solutions as part of its Virtual Era.

This is part of GuruFocus Real Time Picks report, which reports the stock trades of Gurus within the last few days. For more information, go to Real Time Picks.

Rating: 3.3/5 (6 votes)

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