Top Buys in the Last Quarter from Ronald Muhlenkamp
The business is committed to making money for its customers within the bond and stock markets. Generally, the company prefers stocks to bonds because they prefer to own than to lend. Its strategy is based on finding good companies with sound balance sheet, lots of cash and doing useful things.
Here are some of the fund´s top buys:
EXELON CORP (EXC): Exelon Corporation is a utility holding company whose subsidiaries primarily produce, purchase, transmit, distribute and sell electricity to its customers. Its customers include residential, commercial, industrial and wholesale customers. In addition, it is engaged in the distribution and sale of natural gas.
EXC runs low cost power plants. This low cost is translated into big profits. Moreover, it benefits from the rise in coal prices and better industrial demand.
Now, the company is closing a deal to merge with Constellation to create the cleanest power generation fleet. After the merger, Exelon will keep its name and will settle in Chicago. This deal is expected to close in 2012.
The merger will allow for the concentration of nuclear power generation and bring economies of scale.
As regards its segments, the Generation segment is very strong given its large, low-cost, low emission nuclear fleet.
Exelon continues to concentrate on organic growth. Actually, it is planning to invest in its Illinois-based nuclear power plants. This $4.6 billion investment will enhance the plants and enable the company produce more carbon-free power.
Alliance Data Systems Corporation (ADS): Alliance Data Systems Corporation is a leading provider of transaction services, credit services and marketing services to retail companies in North America. It is made up of three segments, namely, Epsilon, LoyaltyOne and its private label credit card business.
Despite the last recession, Alliance has been able to see its earnings grow. This was boosted by the outlay of $2billion to buy back stock.
In future time, ADS expects to improve its balance sheet thanks to $800-$900 million in free cash flow generation on over $3 billion in annual sales.
Gilead Sciences Inc. (GILD): Gilead Sciences Inc. is an independent biopharmaceutical company that seeks to provide accelerated solutions for patients and the people who care for them. GILD particularly focuses on developing and marketing drugs to treat patients with infectious diseases, including viral infections, fungal infections and bacterial infections, and a specialized focus on cancer.
One of its famous drugs is Atripla, which includes Truvada and Bristol-Myers' Sustiva. It is the first drug that has been approved by the FAO to treat HIV.
Now, the idea of the company is to extend the HIV franchise by incorporating a new combination pill, Complera. This drug has been developed jointly with Tibotec Pharmaceuticals.
Gilead's strategy of creating fixed dose combinations of existing HIV/AIDS drugs has been an enormous success.
The company has carried out some test studies to compare the combination of some of its drugs.
Apache Corporation (APA): Apache Corporation is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. Apache's portfolio includes a mix of oil and gas, offshore and onshore, domestic and international, and near-term and longer-dated assets.
Apache is characterized for being a patient and deliberate company. Indeed, it has only made very few deals: Australia in 1993, Egypt in 1996, the North Sea in 2003, Gulf of Mexico deep water in 2010. All of them have been profitable for APA.
APA follows a price discipline and its balance sheet is rather conservative. This enables the firm to have a leg up on the market.
Last but not least, the company is undergoing expansion initiatives. It has acquired properties in Egypt, Canada, the Gulf Shelf and Permian regions.
In terms of last quarter results, the stock has been trading at $100, the market cap is $37 billion and the P/E ratio is 10.2. Moreover, revenue and EPS growth stand at 6.7% and 0.3% respectively. Operating margin is 45.3%, and net profit margin is 25.8%. Fortunately, the company does not need to worry about debt. Actually, debt/equity ratio is 0.3.
In terms of future expectations, the company forecasts that it will continue growing, especially in Australia and Egypt thanks to a steady asset building. Cash flow will surely grow given start-ups in these countries.
AT&T INC (T): AT&T Inc. is a premier communications holding company. Its subsidiaries and affiliates, AT&T operating companies, are the providers of AT&T services in the United States and around the world. Among its offerings, anyone can find IP-based business communications services, the nation's fastest 3G network and the best wireless coverage worldwide, and the nation's leading high speed Internet access and voice services.
Its customer base is made up of residential and business customers.
In terms of business segments, the directory publishing sector is the most profitable as it generates high free cash flows.
Financially speaking, earnings per share for the quarter were $0.61. According to Brooks McCorkle, senior vice president, investor relations, “Cash flow was superb. Cash from operating activities for the quarter totaled $10.4 billion and free cash flow was $5.1 billion, which brings us to $12.4 billion through the year.”
The dividend was just increased 2.3 percent to 44 cents per quarter, for an annual yield of over six percent.