Rogers’ fund has delivered a 10.57% return since inception, and short-term performance has been good, too. He has a year-to-date return of 8.72%, with the three months ending June 30 declining slightly for a negative 2.73% return.
In his first-quarter update, Rogers said he was positive about the outlook for U.S. stocks in the foreseeable future. Some encouraging telltale signs were reasonable P/E multiples despite strong first-quarter gains with room for improvement as the economy improved, healthy and potentially improving corporate earnings and receding threat from the euro zone. His plan going into the second quarter was to find attractive stocks in select market sectors but not make drastic changes to his portfolios. “As always, we focus on established companies exhibiting attractive stock valuations and reasonable dividend yields rather than on a broad view of economic conditions,” he said.
Dell Inc. (DELL)
Dell became a public company in 1998 and by 2000 it became the world’s leading computer systems manufacturer. In the last 10 years the company has grown revenue at a rate of 10.8% annually, and EBITDA at 8.1%. In fiscal 2012, it had record-breaking revenue and free cash flow, with its second-highest earnings. Its gross margin set a record too, and its operating and net margins increased for the third consecutive years.
As annual PC sales have been declining, DELL has adopted a plan to promote continued long-term growth through becoming an end-to-end provider of enterprise solutions and services. To establish itself as a full-services solutions company, DELL will create its own innovative solutions and make acquisitions, which it has already begun to do: In the first quarter of fiscal 2013, 50% of its gross margin came from enterprise solutions and services. In the last 12 months, it made eight acquisitions.
Dell announced on June 12 that it would begin paying a dividend for the first time. The payout will be $0.32 per share annually, or $0.08 quarterly.
Dell’s P/E ratio, at 6.93, has rarely been lower.
Procter & Gamble Co. (NYSE:PG)
Procter & Gamble, the $83 billion global consumer products company reportedly purchased by activist investor Bill Ackman in the second quarter, was Rogers’ second-largest purchase. He bought 1 million shares at an average price of about $64. The stock has since risen about 2% to almost $65.
Procter & Gamble has increased its revenue at an annual rate of 7.3% over the last 10 years, and EBITDA at 9.6%. In the last several years its revenue has fluctuated: It fell to $79 billion in 2009, again to $78.9 billion in 2010, and increased to $82.6 billion in 2011. Each year since 2007 PG has generated free cash flow over $10 billion.
Over the last five years, PG shares have moved just 3.5%, but it pays a sizable 2.4% dividend yield. In a June CNBC interview, investor Donald Yacktman said of PG, “I think Procter & Gamble is a great illustration of the difference between being a short-term investor versus a long-term investor. Most short-term investors would probably shy away from it; long-term investors would probably look and say this is a great bargain long term and a great buying opportunity.”
The massive company has just over $10 billion in cash on its balance sheet, with approximately $42 billion in long-term liabilities and debt, around the same level it has been since 2006.
Bill Ackman said in an FTC filing that his $2 billion position in PG was his largest initial investment in a company ever. The activist investor likely has ideas to fix the weaknesses the company has displayed recently. In July, it warned investors that second-quarter and full-year results would miss estimates.
Hess Corp. (NYSE:HES)
Hess is a global energy company dealing in crude oil, natural gas, petroleum products and electricity. Rogers bought 1.25 million shares at an average price of $49; the stock has since dropped 8%.
Hess Corp. has similar growth rates to his other purchases: Its revenue growth rate it 9.9% annually for the last 10 years, and EBITDA growth rate is 7.2%. After dropping more than $10 billion in 2009, Hess’ revenue has been increasing for the last three years. For 2011, it produced earnings of $1.7 billion, or $5.01 per share, due to lower crude oil and natural gas sales volumes, lower refining results and higher crude oil prices.
In the last five years, Hess’ stock has declined 32%. At one point in 2008, it traded as high as the $120s, but has since dropped to about $45.
Kellogg Company (NYSE:K)
Rogers bought 1 million shares of Kellogg Company at an average price of about $51. Kellogg is the world’s leading producer of cereal, and a top producer of other food brands. It is the only food and beverage company in Rogers’ top 10 holdings.
Kellogg has grown revenue at an average rate of 6.4% and EBITDA at an average rate of 4.8% over the last 10 years. The company has $1.7 billion in cash on its balance sheet, with approximately $6 billion in long-term liabilities and debt. Free cash flow has been positive for the last decade. The company is currently trade at a P/E of 14.23, its lowest level since the recession in 2009.
Kellogg’s stock decline has come on missed earnings estimates due to weaknesses in Europe. The company’s international sales in the first quarter declined 7.1 percent, with Europe down 10.4% and Latin America gaining 7.5%. Because of the weak results, the company lowered its earnings guidance by approximately 2 percent to a range between $3.18 and $3.30 per share.
On May 31, Kellogg bought Pringles for $2.7 billion, which nearly tripled its international snack business. The move plays into Kellogg’s overarching goal of expanding its global snacks businesses to the size of its global cereal business.
Rogers also bought Valero Energy (NYSE:VLO), added to numerous other positions and sold others in the second quarter. See his portfolio here.
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