Value-oriented money manager Jeff Auxier, who oversees the Auxier Focus Fund, is seeing significant opportunity in the markets right now. In the first quarter, he bought 10 new stocks for his portfolio, which now contains 140 companies, and did not sell out of any positions. The fund had been harboring more cash than usual, believing “recoveries following balance sheet recessions historically are more susceptible to outside shocks,” both as a precaution and to be ready to spend at the right time.
Exceptional stock picking has contributed to Auxier’s market-beating returns. In 2011, he returned 5.57%, more than twice the S&P’s 2.11% gain, and has returned 113.49% since inception in 1999, compared to 12.58% for the S&P.
In his fourth-quarter letter, Auxier said his firm is focused “on companies that excel in selling quality products (especially lowticket necessities), particularly in emerging markets, and he often waits until a quality company has a surmountable stumble to enter at a rock-bottom price.
Auxier’s top three new purchases in the first quarter of 2012 were: Baxter International (NYSE:BAX), Becton Dickinson (NYSE:BDX) and Carnival Corp. (NYSE:CCL).
Auxier bought 22,715 shares of Baxter International (NYSE:BAX) at an average price of $56. In the first quarter, the fourth quarter, the company’s stock fell to 52-week lows near the time that it purchased Baxa Corp., a privately held company, for $380 million. It has made a strong 12.5% recovery year to date.
Baxter is an 80-year-old global, diversified company that through its subsidiaries develops, manufactures and markets products that treat people with chronic and acute medical conditions. It has grown revenue through each of the last ten years and achieved its highest-ever net income of $2.2 billion in 2011, compared to $1.4 billion in 2010. The company has also generated positive cash flow each of the last 10 years, reaching $1.9 billion in 2011, compared o $2 billion in 2010.
To continue growing, the company spent a record on R&D expenditures in 2011 and advanced about 20 key R&D programs in late-stage clinical development to treat several life-threatening diseases. It is also accelerating its focus on acquisitions, partnerships and related opportunities to propel growth, such as partnering with global governments to expand access to care for individuals as they face pressure to control costs.
In 2011, Baxter returned approximately $2.3 billion to shareholders, a 7% increase from 2010, in the form of $709 million in dividends and approximately $1.6 billion in share buybacks. Since 2006, the company has more than doubled its dividend, and it increased its rate approximately 8% on an annualized basis in 2011.
In the first quarter of 2012, the stock’s P/E dropped dramatically:
Auxier bought 14,000 shares of Becton Dickinson (NYSE:BDX) at an average price of $77. The company’s price fell significantly in the second half of 2011 to the end of the year as the company elected a new CEO and announced it would acquire Carmel Pharma Inc., a Swedish company that manufacturers the leading device to safely handle hazardous drugs packaged in vials. Baxter is a leading global medical technology company.
After its stock began to fall in July, Baxter on August 2 announced that its fourth-quarter sales had increased 10% from the previous year, and on a foreign currency-neutral basis, had increased 4.8%. However, it lowered its revenue growth guidance on a currency-neutral basis due to lower than expected sales in Western Europe.
"We are pleased with our solid results this quarter, with all three segments contributing to growth," said Edward J. Ludwig, Chairman and Chief Executive Officer. "Gross margin expansion reflecting favorable product mix has offset some of the headwinds we have been facing as a result of a challenging macroeconomic environment and increased raw material costs."
On a longer term basis, Becton Dickinson increased revenue for 10 straight years and has produced earnings over $1 billion for the last four years. Free cash flow has also been increasing since 2006 and reached a record $1.2 billion in 2011.
Auxier bought 19,600 shares of Carnival Corp. (NYSE:CCL) at an average price of $31.50 each. Carnival is the cruise company whose stock plunged when its vessel, the Costa Concordia, ran aground on Jan. 14, 2012.
Its first-quarter results reflect some negative financial impact from the event. It had a U.S. GAAP net loss of $139 million while revenues increased to $3.6 billion from $3.4 billion the prior year. The accident cost the company expenses of $29 million, including a $10 million insurance deductible related to third-party injury liabilities. It also recorded an insurance recoverable of $515 million that offset the write off of the net carrying value of the wrecked ship, which was deemed a total loss. While booking trends have been improving since the accident, they were still lagging behind the previous year’s numbers by high single digits, at slightly lower prices. The company has attempted to attract more people by lowering prices.
For 2012, the company forecasts net revenue yields to decline 2% to 4% and net income to be reduced by $57 million compared to 2011, which also reflected an expected $407 million increase in fuel costs.
See the rest of Jeff Auxier’s updated equity portfolio here.