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Low PE Stocks from RS Investment Management

Mara Kohn

Mara Kohn

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RS Investment Management Co. LLC is a privately owned investment manager handling separate client-focused equity and fixed income portfolios and mutual funds for its clients.

Some of the firm’s operations deal with pension and profit sharing plans, investment companies, pooled investment vehicles, endowments, foundations, high net worth individuals, corporations, and banks. The firm invests in public equity and fixed income markets across the globe. It invests in growth and value stocks for small-cap, mid-cap and large-cap companies. To create its portfolio, the firm carries out fundamental analysis. It conducts in-house research.

Matthew H. Scanlan is Chief Executive Officer of RS Investments and serves as President and Trustee of the RS Investment Trust and RS Variable Products Trust. He held several positions in many firms as manager, CEO and Senior Portfolio Manager with over 30 years of experience in the field. He worked for Renaissance Institutional Management, Barclays Global Investors´ institutional markets, endowments and foundations.

RS Investments has managed wealth creation strategies for clients for over 25 years”

The firm was founded upon three principles. These continue to be the main driving force for today’s results: Distinct and specialized teams, research-driven investment strategies and clear alignment of interests. As regards the first factor, the firm considers that results can be obtained through style-dedicated investment teams. This approach enables clients’ access to investment excellence across Value, Core Growth, Growth, International, Natural Resources, and Fixed Income investment styles. The second principle is related to the firm´s strategies. Through fundamental research the firm aims at developing a view of the risk and return of each investment it makes on behalf of clients. Finally, the firm believes in shoulder-to-shoulder investing with clients.

RS Investments has a clear goal. It aims at earning permanent allocation within its client’s portfolio. We take our investor seriously. We commit to the creation of serious and long-lasting wealth. This is the result of our approach.

Here are some of his low PE stocks:

Alcatel-Lucent (ALU): Products, solutions, and transformation services that help service providers, enterprises, governments, and strategic industries to deliver voice, data, and video communication services to end-users worldwide are ALU’s main activity. It is also involved in the development of software and interactions over the phone, Web and mobile devices for individual customers.

There is a growing tendency for ALU to invest time and money into mobile networks that are nowadays highly demanding. ALU is aiming at making alliances with Emerging-Market Communication Companies so as to expand its services. For example, it has established a relationship with Chungwa Telecom in order to upgrade its network and thus generate more income. In Spain, it is working with Telefonica to see if its 4G LTE network will be profitable in the country. The introduction of 4G in emerging markets will be profitable for ALU.

Jointly with 4G, Alcatel is developing and carrying out research into Light Radio. The issue in this case is that cell towers are no longer used for phone signal. People now also send pictures, videos, and music. That is why Alcatel is planning to introduce Light Radio for its use in urban areas. This device might be able to help wireless carriers to keep pace with customers.

Alcatel-Lucent is able to achieve long-term growth due to its important portfolio, its services business, the enterprise and its presence in approximately 130 countries.

HCA Holdings Inc (HCA): U.S. hospital admissions, 164 hospitals and 106 outpatient centers, and a broad range of health services account for some of HCA’s main operations, to name a few. 38% of HCA's patient revenue comes from Outpatient services. And although it is the largest private hospital owner and operator in the United States (mainly in Florida and Texas) it also operates in England. It covers a wide range of patients: 65-and-older population which is settled in Southern U.S. This may represent important income growth for the firm.

HCA has more advantages than competitors given the fact that it is the largest hospital. The consolidation of IT infrastructure and back-office services allows the firm to keep costs low. Most importantly, HCA ranks high on core CMS quality measure.

Warner Chilcott PLC A (WCRX): Warner Chilcott's main operations comprise products for women's health, gastroenterology, dermatology, and urology. Some of the firm's top drugs are Actonel and Atelvia, Loestrin 24 and Lo Loestrin, Asacol and Asacol HD. The 2009 acquisition of Procter & Gamble's pharmaceutical unit allowed the company to expand.

The company has proven to have a rising revenue year-over-year of $2.97 billion for 2010 vs. $1.44 billion for 2009. The company's earnings before income and taxes are rising with an EBIT year-over-year of $591.90 million for 2010 vs. $290.25 million for 2009.

Some of WCRX’s advantages are its low tax rate with a strong profit potential and the focus on the newly launched oral contraceptive Lo Loestrin which is estimated to foster increasing shares.

Vale S.A. (VALE): Vale is one of the largest commodity producers in the world based out of Brazil. It possesses massive and efficient iron ore operations expected to generate sufficient income. Brazil represents a good opportunity for the firm to grow and paves the way for the company to have a better country risk profile outnumbering any other miner’s opportunities in less-developed nations.

There are several reasons why RS Investment Management decided to invest in VALE.

  1. The stock yields at 3% and the dividend yield has climbed to 16% in the last five years.
  2. The stock is selling at the bottom of its five year valuation range based on P/B, P/E, P/S and P/CF.
  3. VALE is putting in a technical base at current price levels.
  4. Despite volatile earnings, there is an increasing demand in emerging markets
  5. S&P has rated the firm with a “buy” and a target price of $34


The extraction of iron ore, pellets, copper and thermal coal helped increase gross operating revenue by a 15.5% year over year in Q3 2011. Besides, many other events may increase the firm's numbers, such as rapid consumption growth in the United States, recovery and urbanization in Japan and China and volume growth of bulk material, fuelled by larger shipments worldwide, among others.

Vale is shareholder friendly. Vale approved the payment of the second installment of dividend amounting to US$2 billion. Moreover, the company announced a respective payment to holders of mandatory convertible notes of $1.66 and $1.92 per note as additional interest on its mandatory convertible notes series VALE-2012 and VALE.P-2012.

MetLife Inc (MET): MetLife offers life insurance, annuities, and individual automobile and homeowners insurance, as well as group insurance, reinsurance, and retirement and savings products and services to corporations and institutions. MetLife is a leading insurance provider in several foreign markets, including Latin America, East Asia, and Europe.

Its business mix and its strong brand in the U. S. are one of the firm’s main strategies. MetLife intends to re-align its portfolio so as to fulfill the demands of the market and it is willing to make profit from its operations in every business line.

Although the United States is its main field of action, the firm is willing to make profits from expanding international operations– especially from the BRICs.

Metlife has recently welcomed a new CEO, Steven Kandarian, and has undergone an important restructuring. Besides, three business units have been established to deal with geographic differences after the Alico acquisition in 2010, namely: America, EMEA (Europe, Middle East and Africa), and Asia. Alico acquisition had several advantages: MetLife’s investment portfolio has substantially increased by about 25%, which expands its global investment market reach and also accelerates its long-term global growth strategy.

The international segment has reported earnings of $1.65 billion against $478 million in the prior year. The deal with ALICO is expected to increase earnings per share to $0.40, $0.45. Moreover, the acquisition will also have a positive effect on ROE by 100 basis points. S&P has rated the company with A+. Most importantly, MetLife is expecting to reduce expenses. Indeed, it has saved $700 million in pretax expenses.

RS Investment Management felt attracted to MetLife because the company holds a strong capital position and ample liquidity. The company also tries to eliminate some of its debt. Most importantly, MetLife approved $1.5 billion in dividends and after a decline in 2007, its investments gains improved to $17.6 million in 2010 from $14.8 million in 2009, $16.3 million in 2008. Derivative gains improved to $4.2 billion and ROE grew 10%. Book value per share grew 9.5% to $48.69 at the end of Q3 2011.

$6 billion to $7 billion in capital for dividends and some other actions are expected for Metlife this year. Analysts agree that MetLife is estimated to substantially grow regarding dividends and stocks. MetLife also expects premiums, fees, and revenue to go from 31 to 33 percent. Revenue climbed from $46.3 to $46.8 billion in 2011 and in 2012 it is expected to climb 5% more.

Rating: 4.3/5 (3 votes)

Comments

Dr. Paul Price
Dr. Paul Price premium member - 2 years ago
Love those low P/E ... SOCKS.

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Thanks for correcting this.

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