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Stocks that are cheaper than Robert Olstein bought

February 18, 2012 | About:
Mara Kohn

Mara Kohn

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Robert A. Olstein is Chairman and Chief Investment Officer of Olstein Capital Management and is Head Portfolio Manager of the Olstein All Cap Value Fund and Co-Portfolio Manager of the Olstein Strategic Opportunities Fund. He is a well recognized research analyst and money manager.

Olstein has held many positions in several firms which involved the managing of assets and individual and institutional accounts. He worked at Smith Barney. The financial community has long been following Olstein for his approaches when doing business.

Robert Olstein has one main strategy. It consists of looking behind numbers in order to properly select stocks. He searches for a detailed look behind the numbers of a company's financial statement to assess the company's financial strength and assess potential downside risk. He believes that in order to meet the Fund´s objectives, he needs to apply a “defense first” approach aimed at minimizing investment errors as opposed to finding companies without regard to downside risk.

Mr. Olstein picks up a company when it generates more cash flow than necessary, avoids aggressive accounting practices and reports a strong balance sheet.

Here are some of his cheapest stocks:

Whirlpool Corporation (WHR): Within the market of washers, dryers, refrigerators, freezers, dishwashers, ranges and the like, Whirlpool happens to be positioned as the number one almost all over the world. It is considered the leader in home-appliances manufacturing in the world. It operates in North America, Latin America, India and Europe to name a few.

The firm has the intention to continue expanding. This strategy is supported by its well-equipped system and its interest in setting up efficient facilities that would eventually produce revenue and cost optimization. WHR took up a multi-year project in Michigan to improve its productivity, operations and energy efficiency and also plans to set up a one million square foot manufacturing facility in Cleveland, Tennessee. The total investment for this project has been set at $120 million.

After the economic shock, WHR is increasing again not only in the U.S. but also in Europe and it is willing to take advantage of the growing opportunities in emerging economies such as Brazil and Asia. A rise in shipment units of about 5% 10% and 6% 8% in Brazil and Asia respectively are expected to happen, as a consequence of this overseas ongoing expansion strategy.

Robert Olstein must have invested in Whirlpool because it focuses on research and development to upgrade existing products and introduce new ones. Its technology centers are located in Beijing, Shanghai, Shunde, and Shenzhen. In 2010, the company launched energy efficient frost-free refrigerators, top load washing machines and laundry pairs.

Freeport-McMoRan Copper & Gold B (FCX): Freeport-McMoRan mainly operates in the mining market. Its main produce is copper and molybdenum. It significantly operates in Indonesia and in North and South America. Freeport is also developing the potential world-class Tenke copper and cobalt deposit in the Democratic Republic of Congo.

Why did Robert Olstein invest in it? There are many reasons. First of all trailing valuation metrics suggest that the company may be undervalued. Freeport´s current P/S ratio is 1.7 and it has averaged 2.1 over the past 5 year period with a high of 3.6 and a low of 0.5. The company’s current P/B ratio is 2.1 and it has averaged 2.9 over the past 5 years with a low of 1.4 and a high of 4.4. Freeport’s current P/E ratio is 6.9. That is towards the lower end of the 5-year valuation range. Freeport had a low P/E of 5.3 and high P/E of 15.1. Secondly, the consensus price target is set at $53. This involves a 34% climb for current´s stock price. Freeport is currently trading at 8.4 times FY12 EPS, while other competitors are trading at 6.5 times. Most importantly, Freeport is shareholder friendly. It has been using free cash flow to repay debt and pay dividends.

This year Freeport also surpassed earnings estimates by a wide margin. The earnings beat was as high as 32 cents and the lowest earnings beat was 8 cents.

Last but not least, the company’s estimated reserves include 102.0 billion pounds of copper, 40.0 million ounces of gold, 2.48 billion pounds of molybdenum, 266.6 million ounces of silver and 0.7 billion pounds of cobalt. Its portfolio includes a large number of assets. The outstanding asset is the Grasberg mining complex, the world's largest recoverable copper reserve and the largest gold reserve.

As regards stocks, they were trading at $57 each, then it fell to about $30 and it is now trading in the range of $40.

Thermo Fisher Scientific Inc (TMO): Thermo Fisher's main areas of trading are the life science, health care, and environmental industries. Its products are scientific instruments and laboratory equipment. It sells through different segments such as the analytical technologies segment (~34% of sales), diagnostic products (~20%), as well as consumables, software and services. The company serves 350,000 clients in 150 countries. Some portion of its revenue comes from overseas operations.

The firm's target market is approximately $70 billion-$80 billion, with 2010 sales in excess of $10 billion. TMO excels at research instruments and consumables, mass spectrometry equipment manufacturing and reagents and consumables manufacturing and distributing. Recent investments in R&D paved the way for very successful launches and proved that new products investments are a top priority.

The company is also operating in some parts of Asia: India and China.

Robert Olstein invested in it because it has beaten earnings estimates by an average of 5% above consensus over the last four quarters. TMO has a forward P/E of just 10.6, over a 30% discount to its five-year historical average and its balance sheet has been rated A, with a below-average beta and PEG projected at .88. It is selling near the bottom of its five year valuation range based on P/B, P/S, P/E and P/CF. Consensus EPS estimates for 2011 and 2012 have risen over the past three months. TMO is also expected to have 10% revenue growth in both years.

As regards shares, the company has repurchased almost 10% of shares and raised earnings at an average of 15%. This buyback has been boosted by the rapid growth in emerging markets.

Schlumberger NV (SLB): Schlumberger is one of the largest oil services companies. Some of its operations comprise near-complete array of oil services, exploration and production companies, and national oil companies, and the like.

SLB is well-positioned in the Russian oil services market where it takes the lead and outnumbers its competitor’s growth opportunities as a result of having built relationships with Russian national oil companies for years.

Schlumberger has strong presence from Mexico to Russia and it manages the entire oil field operations in said areas. Its service experience and close relationships with national oil companies help the firm enter into large contracts. Now the Gulf of Mexico is starting to open up again and this should boost deepwater revenues.

These are the advantages Schlumberger holds and that Robert Olstein considered upon investing. Schlumberger has a five year projected PEG of under 0.9, which is a 45% discount to its five-year average. Most importantly, it is growing earnings rapidly. It made $2.86 a share in 2010, is projected to make $3.67 a share in 2011 and is expected to make $4.95 a share in 2012. In addition, SLB has an impressive revenue growth. SLB is rated A+ and S&P forecasts EPS growth of 30%. Last but not least, SLB is selling under analysts´ price targets. The median analysts’ price target on SLB is $94, and Credit Suisse has a price target of $99 on Schlumberger.

Atmel Corporation (ATML): Atmel Corporation's main products are highly integrated semiconductor integrated circuit products. It is a global semiconductor company that has played an interesting role in developing and commercializing nonvolatile memory.

Atmel aims at becoming a purely microcontroller-based company which would translate into high growth and high-margin businesses. This is caused by an ongoing worldwide tendency to use LED in commercial and industrial lighting which inherently needs and supports the production of microcontroller. Atmel already is among the top ten players in this segment. The company´s 8-bit microcontroller revenues continue to show strength and at present account for approximately 85% of the total microcontroller business. The 32-bit microcontrollers also continued to gain traction. In 2008, SLB acquired Quantum and thus launched several new products. These products will soon enter the touch sensing market and expects growth around $3 billion. Atmel is aggressively marketing its new MaxTouch technology. Touch-sensing technology is the fastest growing area in Atmel's microcontroller business. Atmel has also started relationships with Nokia, Motorola, Sharp, Toshiba, HTC and Samsung. Internationally speaking, Asia is the fastest growing region.

The MaxTouch revenues are expected to exceed $375 million. This growth is boosted by the growth in smartphones, tablets and other applications. Now management wants this growth to extend to other applications such as notebooks, cameras, printers and automotive areas.

Financially speaking, Atmel holds a strong balance sheet and expects to repurchase shares to increase value for shareholders. Its board of directors has authorized a $200 million repurchase. In the third quarter, Atmel repurchased shares worth $56.3 million.


Rating: 2.8/5 (10 votes)

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