A major difference of FPA funds from other value shops is the FPA funds does put quite a lot research to macroeconomic picture, and they are very good at it. They predicted the housing price collapse and financial crisis well before crisis hit, and they were prepared by avoiding financials. Currently they are weighted in energy stocks as they think that over long term, oil will be more expensive and do well.
With quite concentrated portfolio, both of the funds own these four companies: Ensco (NYSE:ESV), Rowan Companies (NYSE:RDC), Western Digital (NASDAQ:WDC), and Arris (NASDAQ:ARRS). As we can see, two of them are energy stocks.
Ensco International plc
Ensco International plc, formerly ENSCO International Incorporated, is a provider of offshore contract drilling services to the international oil and gas industry. Ensco Plc Class A Ordinary Shares has a market cap of $12.07 billion; its shares were traded at around $51.59 with a P/E ratio of 14.3 and P/S ratio of 5.9. The dividend yield of Ensco Plc Class A Ordinary Shares stocks is 2.9%. Ensco Plc Class A Ordinary Shares had an annual average earnings growth of 14.8% over the past 10 years.
Steven Romick owns 3.6 million shares of Ensco, which is 2.9% of FPA Crescent Fund. His average cost per share is about $42 a share. The stock is traded at $51 now. This is the holding history of Steven Romick:
This is the holding history of FPA Capital Fund on Ensco:
Both funds are reducing the positions in Ensco.
Rowan Companies (NYSE:RDC)
Rowan Companies plc provides international and domestic offshore contract drilling services. Rowan Companies Plc Class A Ordinary Shares has a market cap of $4.37 billion; its shares were traded at around $35.23 with a P/E ratio of 24.8 and P/S ratio of 4.7. Rowan Companies Plc Class A Ordinary Shares had an annual average earnings growth of 18.2% over the past 10 years.
Rowan has been in FPA Capital Fund for many years. The company is now traded at its tangible book. The company has seen a decline in revenue and profit margins.
Western Digital (NASDAQ:WDC)
Hard drive maker Western Digital (NASDAQ:WDC) was up 21% yesterday. The company reported strong fiscal fourth-quarter results and projected bullish earnings for the new fiscal year as the hard-disk-drive maker benefits from its recent acquisition and its recovery from the flooding.
Both of the FPA funds have been adding to its positions the stock. Regarding to Western Digital, this is from FPA Capital's second-quarter commentary:
Fears of a slowdown and the uncertainties in Europe pressured our technology stocks. Western Digital was in addition hurt by concerns of excess supply of hard drives due to a recovery from the floods in Thailand. We believe these concerns are short sighted and that the earning power of Western Digital (WDC) has been greatly enhanced by its merger with Hitachi Global Storage. This combination should drive sizable synergies and the consolidated industry is likely to exhibit better price discipline going forward. Western Digital is selling at below 7x earnings and 3.5x EBITDA. This is before the expected synergies from its merger with Hitachi, which we believe will be substantial.
This is the holding history of FPA funds with WDC:
The fund has an average cost of $24 a share. It has gone up 65%.
Arris Group, Inc.
Steven Romick bought 3,447,200 shares of Arris Group Inc. at an average of $11 per share. Arris is a global communications technology company that specializes in the design, engineering and supply of broadband services for residential and business customers around the world. Their service enables broadband operators to deliver telephony, demand-driven video, next generation advertising and high speed data services.
Arris Group’s stock has been essentially flat for the last 10 years, but the stock once traded near $60 during the dot-com bubble of 2000. By 2001 it had plummeted to under $4.
Over the same time period that the company’s stock price was coasting, the company experienced slow but steady revenue growth at an annual rate of 4.9 percent, and free cash flow growth at an annual rate of 24.3 percent. In 2011, revenue increased to $1.089 billion from $1.088 billion in 2010, EBITDA declined to $108 million from $146 million in 2010, and earnings declined to a net loss of $12.8 million from a net gain of $64 million in 2010.
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