Gannett Co. Inc. (GCI)
Buffett has owned Gannett stock since at least June 2000. He bought 217,526 shares at about $60 per share, and sold 180,200 shares in the third quarter of 2003 when the stock reached about $78 per share. He trimmed another 9,000 shares in the first quarter of 2004 when the price was at about $88 per share. He didn’t touch the stock again all through the arch-shaped movement of its stock price, until he began whittling down the holding in 2009. He sold 1,245,400 shares in the third quarter of 2009 at about $12.50 per share, and another 461,969 in the fourth quarter of 2009 at about $15 per share. He now owns 1,740,231 shares and it trades for $14.75 per share on Tuesday, after increasing 10% since the start of the year.
Gannett’s revenue has been slipping since 2006, though it has solid free cash flow, at $799 million in 2009 and $704 million in 2010 and had a 10.8% net margin in 2010, up from 6.3% the previous year. Its operating margin also increased to 22.3% in 2010 from 17.2% in 2009.
Though its P/E is low at 6.49, it is not low historically —it declined to 0.94 at one point in 2009. Its P/S and P/B also appear low, but are medium on a historical basis, at 0.64 and 1.32, respectively. By comparison, competitor McClatchy Company (MNI) has a P/E of 7.52, and New York Times Co. (NYT) has a P/E of 12.43.
From 2000 to 2010, total circulation for Gannett’s U.S. weekday papers declined almost 32%. However, Buffett may remain invested in part due to its 2.2% dividend yield. The company has managed to keep paying that while reducing its debt level from about $3.6 billion in the third quarter of 2010 to $2.9 billion in the third quarter of 2011. As of the third quarter, Gannet has $196 million on its balance sheet.
ConocoPhillips, the international integrated energy company, has the second-lowest P/E ratio in Buffett’s portfolio, at 8.72. The holding is 3.1% of his portfolio. He made his most sizable purchase in the second quarter of 2008 with 42,179,300 shares at about $88 per share, and added another 24,267,800 shares in the third quarter at about $80 per share. Unfortunately, the stock suddenly dove to $48 per share the next month, in October. He has called it one of his biggest mistakes which cost Berkshire billions.
Buffett has since sold off considerable portions of his holding, most recently selling 700 shares in the third quarter of 2011 at about $69 per share, leaving him with 29,100,937 shares. In the last five years the stock price has risen almost 11% and trades for $70.80 on Tuesday.
ConocoPhillips’ P/E of 8.72 is not necessarily cheap on a historical basis, though it was higher in 2008 when Buffett bought so much of it, at about 13. In 2009 it fell as low as 3.93. Its P/S of 0.47 and P/B of 1.46 have also been lower at previous times.
The company’s sudden drop in revenues in 2009 likely account for its stock price travails during that time. The company’s top line went from $246 billion in 2008, to $152.8 billion in 2009. It has begun to recover, however, reporting revenue of $198.7 billion in 2010 and $242 billion in the trailing 12 months. It recapitalized its balance sheet as well, which went from having $542 million in cash in 2009 to $11.5 billion in 2010.
The company also continued paying and even raising its dividend straight through the recession. It increased from $1.91 per share in 2009 to $2.15 in 2010, and stands at $2.53 for the trailing 12 months.
Buffett addressed his major sale ConocoPhillips (along with two others) in his 2009 shareholder letter, saying, “Charlie and I believe that all of these stocks will likely trade higher in the future. We made some sales early in 2009 to raise cash for our Dow and Swiss Re purchases and late in the year made other sales in anticipation of our BNSF purchase.”
General Dynamics Corp. (GD)
General Dynamics, a major defense contractor and civil aviation company, comprises a mere 0.3% of Buffett’s portfolio, and is likely a purchase by Berkshire’s new portfolio manager, Todd Combs. He bought 3,064,422 shares in the third quarter at about $64 per share. On Tuesday, the stock is trading at $71.45 per share.
General Dynamics has grown its revenue at an annual rate of 12.6% over 10 years, and its cash flow at 15%. It grew revenues each year straight through the recession, and reached peak earnings of $2.6 billion in 2010. Cash on its balance sheet stands at $10.7 billion, and long-term liabilities and debts equal about $9.3 billion. It also has a dividend yield of 2.7%.
The company has a relatively low P/E of 9.85, though it fell as low as 6.85 in 2009. Its P/S is 0.77 and P/B is 1.88. In the third quarter, when Combs bought it, the P/S was about 1.58, quite close to its historical low of 1.5.
Whether the federal government will make deep budget cuts in the Department of Defense budget, which would materially affect General Dynamics’ business, is still up in the air. Defense Secretary Leon E. Panetta should make his budget proposal this week, in which he proposes hundreds of billions of dollars in cuts, according to the New York Times. Pentagon officials are finalizing their proposed cuts, which will include nuclear arsenal, warships and combat aircraft, the paper reports.
However, the company also has its thriving Gulfstream business jet business to help offset declines elsewhere. From the company’s third-quarter 10-Q: “In the third quarter and first nine months of 2011, tactical communication products revenues decreased, particularly on ruggedized computing products, including the Common Hardware/Software III (CHS-3) program, driven by a slowed customer acquisition cycle and the delayed passage of the 2011 U.S. defense budget. Revenues were also down on several ship construction programs, most significantly on the DDG-1000 and DDG-51 destroyer programs due to award delays and on the commercial product-carrier program, which was completed in 2010. Offsetting these decreases in the third quarter were higher Gulfstream aircraft manufacturing and outfitting revenues, largely the result of additional green aircraft deliveries.”
See more of Warren Buffett’s Low-P/E holdings here.