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Top 5 Conviction Picks from Richard Pzena

January 04, 2012 | About:
Mara Kohn

Mara Kohn

4 followers
Richard Pzena is founder and co-chief investment officer of Pzena Investment Management LLC. Pzena started his firm in 1995.

Pzena's strategy is to discover the cheapest to the most expensive companies through a ranking he prepares based on the price of shares and long-term earnings power. Based on his strategy, he tries to purchase shares at good companies, but which are selling at a low price.

Nevertheless he is conscious that it is not easy to find this type of opportunity without finding the problem of why the company's shares have dropped.

Here are some of his conviction picks:

Hewlett-Packard Co. (HPQ):

Hewlett-Packard manufactures and sells information technology products and services to businesses and consumers worldwide. Sales are presented by software, financing and other corporate investments. But, the acquisition of EDS will also contribute to them.

In 2011 it grew revenue 1%, non-GAAP EPS 7% and free cash flow 8%. And it generated $12.6 billion of cash flow from operations.

Services for HP are a complementary segment to the other technology offerings.

HP has a presence in most of the countries across the globe. This together with a well-run logistics has set a platform to assimilate and distribute new technologies.

Staples Inc. (SPLS): Staples is the world's leading office products company, with $24 billion in sales and over 2,000 stores in 25 countries.

The size of Staples and the products it offers have turned it into a low-cost vendor that is extremely competitive in the industry. Apart from operating in North America, Staples also earns from the operations it carries out in other areas. Its international position allows it to take advantage of international growth opportunities.

Abbott Laboratories (ABT):

Abbott manufactures and markets pharmaceuticals, medical devices, blood glucose monitoring kits, and nutritional health-care products, prescription drugs, coronary and carotid stents, and nutritional liquids for infants and adults.

With the acquisition of Advanced Medical Optics, Abbott also trades eye-care products.

Abbott’s stent Xience has an advantage in the drug-eluting stent market, according to clinical data.

Now the company has launched aggressive cost-reduction plans to boost bottom-line growth. Abbott has also acquired Piramal's drug unit to extend its exposure to growth in the Indian market.

The company has decided to divide into two. This will surely increase transparency of each unit and investors will have the chance to clearly see the value of the different unit operations.

Exxon Mobil Corporation (XOM):

Exxon is an integrated oil and gas company that explores for, produces, and refines oil around the world. 2010 has been a very important year in terms of production of oil and natural gas. Exxon is the largest refiner. It holds several refineries and it is one of the world's largest manufacturers of commodity and specialty chemicals.

Exxon is rated AAA. This rating involves a financially healthy balance sheet. In addition, Exxon holds a strong cash position and always has access to cheap debt, thus facilitating acquisitions.

Exxon's superior capital allocation and operational performance should drive high returns on capital.

In terms of management, it is constantly focus on building wealth for shareholders. Actually, in the past five years or more, Exxon has paid out dividends and repurchased stock.

Northrop Grumman Corp. (NOC):

Northrop Grumman is one of the five most important defense contractors to the U.S. government. It is made up of four segments: aerospace systems, electronic systems, information systems and technical services. As of year-end 2010, it generated nearly $35 billion in sales.

Northrop is able to generate millions in annual operating cash flow and expects to cut its budget. Unmanned aerial vehicles represent 9% of 2011 sales but management expects them to boost it even more. C4ISR, cybersecurity, unmanned and manned aircraft, and logistics and services helps provide cross-selling opportunities to its largest customer, the U.S. government.

Rating: 2.1/5 (7 votes)

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