Stocks That Hotchkis & Wiley Keeps Buying
The main features of the company are the following:
• It is a boutique asset-management firm specializing in long-only value investing;
• It holds an active, team-based investment approach driven by fundamental research and bottom-up security selection;
• It is privately held, with the majority of employees owning an equity stake in the firm;
• Clients include public plans, corporations, foundations, endowments, unions, sovereign wealth funds, sub-advisory relationships, financial intermediaries, and individuals;
• It offers strategies in separate accounts and mutual funds.
Hotchkis and Wiley are value investors who uphold important investment parameters such as a company's tangible assets, sustainable cash flow, and potential for improving business performance.
Their investment approach is based on the conviction that a security's market price does not always accurately reflect the company's value. They see an opportunity every time an investor's sentiment, emotions, or short-term trends cause the price of a security to deviate from its intrinsic worth. Following this approach, they believe true investment risk is the potential for permanent loss rather than short-term price volatility or deviation from a benchmark.
The company's portfolio is diversified and comprises the best risk-adjusted securities rather than hundreds of securities that would dilute our advantage. Each security selected has been thoroughly researched, peer-reviewed by team members, and compared to other opportunities.
The highest weighting in the company's portfolios is given to the most attractive securities, which are sold as they approach Hotchkis and Wiley's estimate of fair value or when their risk profiles exceed their acceptable limits.
Hotchkis and Wiley's commitment is to deliver long-term value to their clients. They are multi-year horizon minded. Their research is based on enduring economic principles and their process discipline helps them be true to their style over market cycles. Their results show that taking a long view ultimately delivers a better investment outcome.
Bob Dochterman, Hotchkis and Wiley´s Managing Director talked about the developments made by the company at an interview published in U.S. Today: "We established Hotchkis and Wiley All Cap Value Fund in response to requests from the institutional community for an alpha-seeking product that concentrates on our best ideas." "This is a natural extension of our highly disciplined, value oriented investment process. We believe this fund might be suitable for investors who already have a well-diversified asset allocation plan in place, but are looking to add a value fund managed with a consistent process, offering higher return potential with, in all likelihood, greater volatility than our diversified funds. This strategy has been available to institutional clients since November 2002, and has grown to $170 million in assets."
Its main stocks include:
Hewlett-Packard Co. (HPQ): Hewlett-Packard provides a variety of services and products ranging from software to IT consultancy to their clients. HPQ currently trades at $35.30, with a market capitalization of $73.22 billion. In 2011 it grew revenue 1%, non-GAAP EPS 7% and free cash flow 8%. Moreover, it generated $12.6 billion of cash flow from operations. HP's global reach and well-run logistics provide an efficient platform to assimilate and distribute new technologies. HP is effectively targeting technologies to acquire in storage and networking that will help it build an all-in-one portfolio for enterprise data centers. The EDS acquisition instantly positioned HP to be a contender in enterprise services.
JPMorgan Chase & Co. (JPM): J.P. Morgan Chase & Co. is a leading global financial services firm. The firm is a leader in investment banking, asset management, private banking, private equity, custody and transaction services and retail and middle market financial services.
JP Morgan is in sound financial health. The firm posted a Tier 1 common capital ratio of 9.9% as of September 30, 2011. Its allowance for loan losses totaled 4.09% of retained loans as of the same date. In addition, JP Morgan Chase achieved a reasonable level of profitability in recent quarters, despite a number of headwinds. JP Morgan Chase did a remarkable job limiting its losses during the financial crisis.
The bank's performance under current leadership should give investors confidence in the firm's risk management practices, despite the complexity of the business.
Citigroup Inc. (C): Citigroup is a global financial services company doing business in more than 160 countries and jurisdictions. It serves commercial and consumer clients through its regional consumer banking segment and provides investment banking, treasury, and securities services through its institutional clients group.
Citigroup is now in good financial health, with a tangible common equity ratio of 7.5% and an allowance for loan losses sufficient to cover more than 5% of its loan book. The company is also now consistently profitable.
PACCAR Inc. (PCAR): PACCAR designs and manufactures light-, medium-, and heavy-duty trucks and aftermarket parts under the Kenworth, Peterbilt, and DAF nameplates. The company is present across the globe, and operates in North America and Europe. The firm generates more than $10 billion in annual sales.
PACCAR's brands are highly regarded by both freight companies and truck drivers. The company is able to charge premium prices for its trucks and achieve industry-leading operating margins.
Magna International Class A (MGA): The company is one of the largest, most diversified auto parts suppliers in the world. It was founded in 1957 in Toronto.
In 2010, revenues were $24.1 billion, nearly half of which came from the Detroit Three while one third came from Germany's automakers. In 2011, total debt to total capital was 1.6%. Cash and marketable securities in the coffers totaled $1.7 billion and a $2.0 billion revolving credit facility had $1.9 billion available, giving Magna an impressive total liquidity of $3.6 billion.
This shows that MGA has a clean balance sheet.
As automakers consolidate purchases with fewer suppliers, large suppliers such as Magna are in the best position to gain share because they can offer a wide range of parts.