At Capital Management, Arnie Schneider occupies the positions of president, chief investment officer and principal. In this regard, Schneider uses independent analysis to identify undervalued securities with potential for positive change. The strategy is based on a fundamentals approach to valuing securities. A proprietary ranking system establishes ambitious hurdles for new holdings.
Arnold Schneider´s top buys from the last quarter are the following:
SunTrust Banks Inc. (STI): Schneider found value in STI in the $18-20 range
SunTrust Banks Inc. is a commercial banking organization. The company provides a wide range of services to meet the financial needs of its growing customer base in Alabama, Florida, Georgia, Maryland, Tennessee, Virginia and the District of Columbia. Its primary businesses include traditional deposit and credit services as well as trust and investment services.
Although the economy has been tumbling and the sector has exercised important pressure, the quarterly results have been sound and benefited from the sharp decline in provision for credit losses, a slight improvement in revenue and better credit quality.
Earnings per share were $0.39 and the projected population growth for its markets is 10% from 2008 to 2013.
As one of the largest players in its hometown of Atlanta, SunTrust stands to gain market from the numerous banks that are failing in that struggling market.
Regions Financial Corporation (RF): Schneider found value in RF in the range $3.5-4.5
RF is a regional bank holding company and has banking-related subsidiaries engaged in mortgage banking, credit life insurance, leasing, and securities brokerage activities with offices in various Southeastern states. Through its subsidiaries, Regions offers a broad range of banking and banking-related services.
In terms of last quarter results, 2011 earnings came in at $0.04 per share. Regions earned $101 million or $0.08 per diluted share. Adjusted pretax pre-provision income rose to $540 million, up 19% year-over-year demonstrating ongoing improvement in its core business performance.
Regions is well-positioned in a growing footprint. Regions could be attractive to customers seeking convenience. It is considered healthy enough for regulators to approve the purchase of a $1 billion credit card portfolio.
Peabody Energy Corporation (BTU): Schneider kept adding BTU when the stock broke the $40s level
Peabody Energy is the world's largest private-sector coal company. Peabody has mining operations in the Powder River Basin and the U.S. Southwest and Midwest, as well as Australia and Venezuela. Peabody also markets, brokers, and trades coal and develops electricity-generation projects.
The company is financially healthy. In the last quarter, it delivered revenues of $2.04 billion and EBITDA rose 10% at U.S. Mining operations. This consolidated EBITDA for the quarter totaled $504 million and included $9 million of transaction costs related to the MacArthur track acquisition.
Peabody has a unique presence in Australia and is benefiting from high Asian prices versus soft U.S. prices. With vast undeveloped coal reserves in different regions of the U.S., Peabody can pick and choose where to break ground, thus being able to be opportunistic and generate attractive returns on capital. Peabody's presence in the PRB is on track to deliver higher margins and return on capital in the long run.
Recent EPA regulations have been positives for PRB coals, with less sulfur content.
Arch Coal Inc (ACI): Schneider found value in ACI at current prices
Arch Coal is the nation's second-largest coal producer. This St. Louis based company provides coal for 6% of U.S. electricity generation. Arch owns and operates mining facilities in the Appalachian region in West Virginia, Virginia, and Kentucky; the Powder River Basin in Wyoming; and the Western Bituminous Region in Colorado and Utah.
In the third quarter of 2011, Arch reported adjusted earnings per share of $0.08 and record $211 million in EBITDA. Quarterly revenues reached $1.2 billion and EBITDA grew year-over-year even with lower PRB shipment and a long-wall outage in Appalachia.
Arch is now in a good position to expand metallurgical production for the next several years. Should prices remain strong, Arch will benefit greatly.
First Horizon National Corp(FHN): Schneider initiated a NEW position in FHN in the low $6 range
FHN is the parent company of First Tennessee Bank, a prominent regional bank with about 200 branches around Tennessee. The regional bank is responsible for nearly 40% of its revenue, but mortgage banking and capital markets also make sizable contributions of roughly 15% and 35%, respectively.
First Horizon concentrates on offering a variety of banking products mainly in its home state, where it has the second-largest deposit franchise with a 13% of deposit market share.
During the third quarter, regional bank pretax income was up 26% from the linked quarter, and capital markets revenues increased 26%. Balance sheet trends were favorable with period end loans up 1%, average core deposits up 2%, and consolidated net interest margin was up.
This solid position and the healthy balance sheet should enable the company to grow.
The company's regional bank and capital markets segments provide a healthy mix of fee and interest income, helping the bank diversify away any heavy reliance on interest income only.