Bob Rodriguez, who almost one year ago predicted nothing short of another financial crisis by 2018 and was 30% cash, identified only two new opportunities in the first quarter and reduced 13 of his positions. In a recent interview, Rodriguez explained that the fund had increased its cash position in anticipation of a dislocation in the stock market, when it will deploy capital with high margins of safety and substantial expected rates of return, as they did in 2008 and 2009. Their first-quarter moves appear to continue on that trend, as they have increased to 32.2% cash.
Rodriguez’s FPA Capital Fund (FPPTX) has returned 15.01% annually since inception. The two new stocks the fund bought in the first quarter are Helmerich & Payne (NYSE:HP) and Devry Inc. (NYSE:DV).
The FPA Capital Fund bought 179,500 shares of Helmerich & Payne (NYSE:HP) at an average price of $56 per share. The oil and gas contract well-drilling company does business in the U.S. and internationally, offshore and on land. Over the last ten years, the company has achieved revenue growth of 16.8% annually and EBITDA growth of 21.1% annually. Its P/E ratio fell to its lowest level in a year in the first quarter, as well:
In a March 20, 2012 interview, Rodriguez commented on his fund’s view of offshore drilling companies: “We also reduced our positions in onshore oil service companies emphasizing natural gas exploration, as opposed to those that are more offshore-drilling oriented. So the composition of our holdings has changed. Dennis Bryan and Rikard Ekstrand, my successors, currently like the oil service offshore industry more than the E&P or onshore drilling sectors. With the recent collapse in natural gas prices, we do not think the current price level is sustainable.” he said.
Other oil and gas producer holdings he reduced in the first quarter are Rosetta Resources (NASDAQ:ROSE), SM Energy Co (NYSE:SM) and Cimarex Energy (NYSE:XEC).
The other new equity holding in Rodriguez’s fund is for-profit educational company Devry Inc. (NYSE:DV). The fund bought 53,600 shares at an average of $35 per share, a miniscule 0.2% of his fund. The stock lost over a third of its value last summer and has declined 38% in the last year.
Devry escaped many of the hits the for-profit industry took in recent years from increased regulations regarding how it recruits students. Its revenue, earnings per share and cash flow from operating activities each has increased for the last five consecutive years. New student undergraduate enrollment in summer 2011, however, decreased 25.6% compared to the prior year. Fall and spring undergraduate new student enrollment both declined for the first time as well.
Devry is also involved in several law suits by shareholders who allege that the company engaged in fraudulent recruiting and financial aid lending practices that led to damage to the company’s reputation, a lower stock price and the loss of eligibility for financial aid for some of its programs.
Devry also trades at extremely low valuations:
To see Bob Rodriguez’s complete portfolio, go here.