Wallace R. Weitz & Company is the company set up by the CFA charterholder Wally Weitz. He manages Partners III Opportunity Fund and co-manages Value Fund, Partners Value Fund and Hickory Fund.
Weitz began investing when he was only 12 and started to invest his profits in several entrepreneurial ventures. While in school, he discovered "Security Analysis" by Benjamin Graham and converted to value investing. Actually, he focused on it after graduating from Carleton College in 1970 when he spent three years in New York during security analysis. In 1973, he joined Chiles, Heider & Co. Inc., where he spent a decade working as analyst and portfolio manager. In 1983 he started his company and now heads a group of eight investment professionals. His approach on value investment evolved during the years. He combines price sensitivity and “margin of safety” with a conviction that qualitative factors can be more important than statistical measurements, such as historical book value and reported earnings.
Apart from investing, Weitz also works with charitable and educational foundations and is a member of the board of trustees of Carleton College and of the executive committee of Building Bright Futures.
Here are some of his low-P/E stocks:
Cumulus Media (CMLS, Financial): CMLS is one of the largest terrestrial radio operators in the U.S. in terms of revenue and in terms of number of stations owned. The company operates 314 stations in 59 markets, primarily in small to midsize cities. It also operates stations in Atlanta and San Francisco among other large cities through its private-equity partnerships. Local and regional advertising accounts for 90% of revenue.
Lately Cumulus Media closed a deal with Clear Channel (CCMO.PK) to include CMLS stations on iHeartRadio web and mobile applications. The purpose of this deal is to get stronger by uniting rather than competing against each other and challenges from the iPod to Internet radio.
Financially speaking, Cumulus Media's quarter results have been good. The company has a market cap of $388.67 million and trades at $3. Furthermore, its price to earnings ratio is 1.91. Earnings were reported at $132.30 million and net income was $59.54 million. It has quarterly revenue growth of 96.1% and a return on equity of 248.27%.
Cumulus also has a strong balance sheet with $50.55 million in cash and it is outperforming its peers with a revenue growth of 96.1% and a return on equity of 248.27%. Undoubtedly, these elements were considered by Wallace Weitz when he made his decision to invest.
Hewlett Packard (HPQ, Financial): HP is engaged in manufacturing and trading electronic devices such as printers, computers, among others. Its operations are organized into seven business segments: The Personal Systems Group, Services, the Imaging and Printing Group, Enterprise Servers, Storage and Networking, HP Software, HP Financial Services and Corporate Investments. Netbooks, desktops, and printing supplies represented more than 10% of the company´s revenues in the last three years. In 2010 and 2011, the infrastructure technology outsourcing services accounted for more than 10% of revenue too.
In the last years, HP has suffered greatly. Its shares fell from $50 to $25. For 2012, analysts think that EPS will fall 16%. Nevertheless, the company still has revenues of over $120 billion and is the 11th company on the Fortune 500 ranking.
Why did Wallace Weitz consider HP? There are several reasons. First of all, its valuation. HPQ is trading at the bottom line of its five-year valuation range according to P/E, P/S and P/B. HPQ’s current P/S ratio is 0.4 and it has averaged 0.9 over the past five years with a low of 0.4 and a high of 1.3. HPQ’s current P/E ratio is 7.6 and it has averaged 13.4 over the past five years with a low of 7.6 and a high of 19.3. HPQ’s current P/B ratio is 1.3 and it has averaged 2.5 over the past five years with a low of 1.3 and a high of 3.5.
Second is its price target. Analysts estimate the price at $31. This is a 20% increase vis-Ă -vis today's price.
Third is its forward valuations. HP is trading for 6.2 times fiscal year 2012. Cisco (CSO) for instance, is trading for 10.1 times, Microsoft (MSFT) is trading for 9.4x and Intel (INTC) for 9.8 times fiscal year 2012 EPS. Another reason is its cash flow. HPQ has a strong cash flow that enables it to support earnings. The average cash flow for the last three years stood at $9.2 billion or $4.43 per share.
Most importantly, Hewlett Packard is shareholder friendly. It has spent almost $26 billion repurchasing shares.
ITT Educational Services Inc. (ESI, Financial): ITT is a for-profit postsecondary education provider serving more than 88,000 students at ITT Technical Institute and Daniel Webster College. ESI offers diplomas to master's degree programs. Most of them are focused on associate's and bachelor's degrees and include business, criminal justice, drafting and design, electronics, information technology and health sciences.
Now the DOE has issued certain regulations on for-profit organizations that will come into effect in 2012. They mean that “the good old days” will be over soon. New rules state that at least 35% of former students are repaying their loans, the estimated annual loan repayment does not exceed 30% of a student's income and annual loan repayment does not exceed 12% of annual income.
Wallace Weitz invested in ESI because he saw that shareholders enjoyed a 13.2% change in the price of stocks in the last year. Now, these shares trade at a price-to-book ratio of 13.4, a price-to-earnings multiple of 5.7 and a price-to-sales multiple of 1.1. Over the past decade shareholders profited from a 93.3% average annual return on equity.
Mosaic (MOS, Financial): Mosaic is a leading producer of primary crop nutrients phosphate and potash. Assets include mines in Florida, New Mexico and Michigan. In fiscal 2011, the company accounted for about 13% of global phosphate production and 12% of global potash production. Now Mosaic is planning to increase its potash production by 5 million metric tons to meet the increasing demand for fertilizers.
Although forecasts are not good, it is considered that the demand of fertilizers will remain strong next fiscal year, particularly if prices weaken. The demand for fertilizers given lower prices will be pushed closer to spring application. In 2012, the company also expects a strong planted acreage.
The company has made its best endeavors to reduce its financial leverage. And it has succeeded. Indeed, cash exceeds long-term debt and fiscal 2011 EBITDA covered interest expense. Apparently, Mosaic has the ability to meet future debt obligations.
Weitz saw that Mosaic is a good pick because the company trades at 10-11 forward P/E and 2.1 P/B compared to averages of 10.1 and 3.6 for its peers in the fertilizer group, while earnings are projected to increase from $4.38 in 2011 to $5.48 in 2013 at an annual growth rate of 11.9%
DELL (DELL, Financial): Dell is a company engaged in providing and selling servers, networking and storage products, printers, displays among many other products. It has four business segments: enterprise solutions and services, software and peripherals, client products and financial services.
Dell's stock has been stagnant in the last two years, trading around $15 with peaks of $18. Although the stock is not compelling, the company still has strong growth opportunities and there are reasons to buy it. The first reason is Dell's valuation. Dell is trading at the bottom of its five-year valuation range based on P/E, P/S and P/B. Dell’s current P/E ratio is 7.7 and it has averaged 14.8 over the past five years with a high of 22.8 and a low of 7.6. Dell’s current P/S ratio is 0.4 and it has averaged 0.6 over the past five years with a high of 1.2 and a low of 0.3. Dell’s P/B ratio is 3.1 and it has averaged 7.0 over the past five years with a high of 17.6 and a low of 3.1.
In addition, analysts have set stock price at $17.50. This involves a 17% increase based on current price. Most importantly, Dell is trading 7.4x FY13 EPS. This figure is lower than competitors' valuations. For instance Cisco is trading 10.1x and Microsoft is trading 9.4x. However, analysts are confident that Dell will reach a ratio of 9.5.
Dell also has a strong commitment to shareholders. It has aggressively used cash to repurchase shares. Finally, Dell is trading in the middle of its range.
Weitz began investing when he was only 12 and started to invest his profits in several entrepreneurial ventures. While in school, he discovered "Security Analysis" by Benjamin Graham and converted to value investing. Actually, he focused on it after graduating from Carleton College in 1970 when he spent three years in New York during security analysis. In 1973, he joined Chiles, Heider & Co. Inc., where he spent a decade working as analyst and portfolio manager. In 1983 he started his company and now heads a group of eight investment professionals. His approach on value investment evolved during the years. He combines price sensitivity and “margin of safety” with a conviction that qualitative factors can be more important than statistical measurements, such as historical book value and reported earnings.
Apart from investing, Weitz also works with charitable and educational foundations and is a member of the board of trustees of Carleton College and of the executive committee of Building Bright Futures.
Here are some of his low-P/E stocks:
Cumulus Media (CMLS, Financial): CMLS is one of the largest terrestrial radio operators in the U.S. in terms of revenue and in terms of number of stations owned. The company operates 314 stations in 59 markets, primarily in small to midsize cities. It also operates stations in Atlanta and San Francisco among other large cities through its private-equity partnerships. Local and regional advertising accounts for 90% of revenue.
Lately Cumulus Media closed a deal with Clear Channel (CCMO.PK) to include CMLS stations on iHeartRadio web and mobile applications. The purpose of this deal is to get stronger by uniting rather than competing against each other and challenges from the iPod to Internet radio.
Financially speaking, Cumulus Media's quarter results have been good. The company has a market cap of $388.67 million and trades at $3. Furthermore, its price to earnings ratio is 1.91. Earnings were reported at $132.30 million and net income was $59.54 million. It has quarterly revenue growth of 96.1% and a return on equity of 248.27%.
Cumulus also has a strong balance sheet with $50.55 million in cash and it is outperforming its peers with a revenue growth of 96.1% and a return on equity of 248.27%. Undoubtedly, these elements were considered by Wallace Weitz when he made his decision to invest.
Hewlett Packard (HPQ, Financial): HP is engaged in manufacturing and trading electronic devices such as printers, computers, among others. Its operations are organized into seven business segments: The Personal Systems Group, Services, the Imaging and Printing Group, Enterprise Servers, Storage and Networking, HP Software, HP Financial Services and Corporate Investments. Netbooks, desktops, and printing supplies represented more than 10% of the company´s revenues in the last three years. In 2010 and 2011, the infrastructure technology outsourcing services accounted for more than 10% of revenue too.
In the last years, HP has suffered greatly. Its shares fell from $50 to $25. For 2012, analysts think that EPS will fall 16%. Nevertheless, the company still has revenues of over $120 billion and is the 11th company on the Fortune 500 ranking.
Why did Wallace Weitz consider HP? There are several reasons. First of all, its valuation. HPQ is trading at the bottom line of its five-year valuation range according to P/E, P/S and P/B. HPQ’s current P/S ratio is 0.4 and it has averaged 0.9 over the past five years with a low of 0.4 and a high of 1.3. HPQ’s current P/E ratio is 7.6 and it has averaged 13.4 over the past five years with a low of 7.6 and a high of 19.3. HPQ’s current P/B ratio is 1.3 and it has averaged 2.5 over the past five years with a low of 1.3 and a high of 3.5.
Second is its price target. Analysts estimate the price at $31. This is a 20% increase vis-Ă -vis today's price.
Third is its forward valuations. HP is trading for 6.2 times fiscal year 2012. Cisco (CSO) for instance, is trading for 10.1 times, Microsoft (MSFT) is trading for 9.4x and Intel (INTC) for 9.8 times fiscal year 2012 EPS. Another reason is its cash flow. HPQ has a strong cash flow that enables it to support earnings. The average cash flow for the last three years stood at $9.2 billion or $4.43 per share.
Most importantly, Hewlett Packard is shareholder friendly. It has spent almost $26 billion repurchasing shares.
ITT Educational Services Inc. (ESI, Financial): ITT is a for-profit postsecondary education provider serving more than 88,000 students at ITT Technical Institute and Daniel Webster College. ESI offers diplomas to master's degree programs. Most of them are focused on associate's and bachelor's degrees and include business, criminal justice, drafting and design, electronics, information technology and health sciences.
Now the DOE has issued certain regulations on for-profit organizations that will come into effect in 2012. They mean that “the good old days” will be over soon. New rules state that at least 35% of former students are repaying their loans, the estimated annual loan repayment does not exceed 30% of a student's income and annual loan repayment does not exceed 12% of annual income.
Wallace Weitz invested in ESI because he saw that shareholders enjoyed a 13.2% change in the price of stocks in the last year. Now, these shares trade at a price-to-book ratio of 13.4, a price-to-earnings multiple of 5.7 and a price-to-sales multiple of 1.1. Over the past decade shareholders profited from a 93.3% average annual return on equity.
Mosaic (MOS, Financial): Mosaic is a leading producer of primary crop nutrients phosphate and potash. Assets include mines in Florida, New Mexico and Michigan. In fiscal 2011, the company accounted for about 13% of global phosphate production and 12% of global potash production. Now Mosaic is planning to increase its potash production by 5 million metric tons to meet the increasing demand for fertilizers.
Although forecasts are not good, it is considered that the demand of fertilizers will remain strong next fiscal year, particularly if prices weaken. The demand for fertilizers given lower prices will be pushed closer to spring application. In 2012, the company also expects a strong planted acreage.
The company has made its best endeavors to reduce its financial leverage. And it has succeeded. Indeed, cash exceeds long-term debt and fiscal 2011 EBITDA covered interest expense. Apparently, Mosaic has the ability to meet future debt obligations.
Weitz saw that Mosaic is a good pick because the company trades at 10-11 forward P/E and 2.1 P/B compared to averages of 10.1 and 3.6 for its peers in the fertilizer group, while earnings are projected to increase from $4.38 in 2011 to $5.48 in 2013 at an annual growth rate of 11.9%
DELL (DELL, Financial): Dell is a company engaged in providing and selling servers, networking and storage products, printers, displays among many other products. It has four business segments: enterprise solutions and services, software and peripherals, client products and financial services.
Dell's stock has been stagnant in the last two years, trading around $15 with peaks of $18. Although the stock is not compelling, the company still has strong growth opportunities and there are reasons to buy it. The first reason is Dell's valuation. Dell is trading at the bottom of its five-year valuation range based on P/E, P/S and P/B. Dell’s current P/E ratio is 7.7 and it has averaged 14.8 over the past five years with a high of 22.8 and a low of 7.6. Dell’s current P/S ratio is 0.4 and it has averaged 0.6 over the past five years with a high of 1.2 and a low of 0.3. Dell’s P/B ratio is 3.1 and it has averaged 7.0 over the past five years with a high of 17.6 and a low of 3.1.
In addition, analysts have set stock price at $17.50. This involves a 17% increase based on current price. Most importantly, Dell is trading 7.4x FY13 EPS. This figure is lower than competitors' valuations. For instance Cisco is trading 10.1x and Microsoft is trading 9.4x. However, analysts are confident that Dell will reach a ratio of 9.5.
Dell also has a strong commitment to shareholders. It has aggressively used cash to repurchase shares. Finally, Dell is trading in the middle of its range.
