Richard Pzena is the founder and co-chief investment officer of New York-based Pzena Investment Management. Recently, Pzena reported a total of 90 transactions to its third quarter portfolio update, 10 of which were reductions to current shareholdings and 11 of which were sells of all its shares in companies. The majority of the updates were increases in stakes; there were also seven new buys in the update.
The firm’s investment philosophy is simple: Buy good businesses when they go on sale. Seeking to generate excess returns for long-term investors, Pzena lists five characteristics (on pzena.com) that the firm looks for before investing:
- Low price relative to the company’s normal earnings power
- Current earnings are below normal
- Management has a sound plan for earnings recovery
- The business has a history of earning attractive long-term returns
- There is tangible downside protection
The firm’s portfolio sector weighting is as follows:
|Oil & Gas||7.50%|
Below are three stock reductions that made the most impact on Pzena’s portfolio in the third quarter.
Avon Prodcuts (AVP)
Pzena’s 83.63 percent reduction of cosmetic product manufacturer Avon Products (AVP) brought his current shareholding down to a little over 1 million shares from the 6.6 million shares he reported in the second quarter of this year.
This most recent transaction places Pzena’s Avon holding at its lowest since acquiring his first stake of Avon in the first quarter of 2009.
Avon’s market price has fluctuated from a minimum of $14.52 per share and a maximum of $16.60 per share. Avon is currently trading at $14.12, relatively lower than its beauty stock rivals such as Estee Lauder (EL), Revlon (REV) and Elizabeth Arden (RDEN).
With a Business Predictability rank of 3 out of 5 stars, GuruFocus lists two Severe Warning signs and three Medium Warning signs for Avon, revealing a declining operating margin and a severely divergent cash flow as well as a payout ratio that’s too high and a declining per share revenue.
PPG Industries Inc. (PPG)
Pzena reduced his shares of PPG Industries (PPG) by 20.6 percent in the third quarter, selling more than 380,000 shares at an average price of $109.84 per share. Pzena has been reducing his PPG shares consecutively every quarter since the last quarter of 2011.
As a global provider of coatings and specialty products (such as glass, lenses and sunwear), Pittsburgh-based PPG is currently trading at $118.06 per share, which is close to its 10-year high of $123.19. its P/B ratio of 4.3 and P/S ratio of 1.2 are both close to three-year highs.
Pzena first acquired PPG in the second quarter of 2010. His current shareholding is currently at 1,468,404 shares.
With a Business Predictability rank of 4 out of 5 stars, GuruFocus lists one Severe Warning sign, four Severe Warning signs and two Good Signs for PPG; while PPG has consistent growth in per share revenue and a P/E ratio close to a 10-year low, the company’s operating margin has been in a five-year decline.
Besides Pzena, Guru investor Ken Fisher also reduced his shares of PPG in the third quarter, while Gurus Hotchkis & Wiley, Steven Cohen, Pioneer Investments and Tom Russo all either sold out or reduced their shares in the second quarter.
Computer Sciences Corp. (CSC)
Pzena reduced his shares of Computer Sciences Corp. (CSC) by 20.34 percent in the third quarter, selling a little over a million shares at an average price of $28.42.
This transaction brought his holding down to 4.3 million shares from 5.4 million shares reported in the second quarter.
After holding CSC stock for several years, Pzena sold all of his shares of the company in the fourth quarter of 2008, when the stock took a dive, and then picked back up in the third quarter of 2011, purchasing about 6.2 million shares.
On its website, Virginia-based CSC describes itself as a “global leader in providing technology-enabled business solutions and services.”
Currently selling at $35.28, close to its one-year high, CSC suffers five Severe Warning signs on GuruFocus, revealing a declining Piotroski F-Score, an Altman Z-Score in the distress zone, and declining gross margin, operating margin and per share revenue.
While its P/E ratio of 12.7 is close to a 10-year low, its P/B ratio of 2 is close to its three-year high.
Besides Pzena, Guru Ray Dalio completely sold out his shares of CSC in the third quarter, while Gurus Chuck Royce, Joel Greenblatt and Paul Tudor Jones all either reduced or sold out all of their shares of CDC as of the second quarter.
To view CSC’s holding history with other Gurus, visit CSC: Holding History. Also, view the company’s 10-Year Financials to see its financial standings.
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