Blum’s firm, San Francisco-based Blum Capital Partners, was founded in 1975 and manages approximately $1.6 billion. Blum’s strategy is to identify attractive businesses and invest in them through the most effective means. Often, the firm will take large positions in good, small- and mid-cap undervalued companies and increase value through actively engaging with management teams. He only considers companies with a 10% cash-on-cash yield and projected 10% free cash flow growth rate. As a value investor, the typical holding period for a stock is three to five years.
Since his firm’s inception through the first quarter of 2011, Blum produced a time-weighted return of 17.1%. Performance has not always been as good as recently, particularly due to a foray into a troubled sector.
Though heavy concentration in sunken for-profit education stocks has weighed on Blum’s overall returns, his picks over the past 12 months have excelled. Most of the underperforming stocks were purchased before the arrival of new portfolio managers and partners to join the company in August 2009. The declining sector caused a significant amount of company to leave the company. From 2008 to May 2012, the firm’s assets under management have declined from $2.7 billion to $1.7 billion.
The new stocks added to the portfolio within the past 12 months (third quarter of 2011) are: CareFusion Corp. (CFN), Newell Rubbermaid Inc. (NWL), Marriott Vacations Worldwide (VAC), Advance Auto Parts Inc. (AAP). These positions occupy smaller portions of his portfolio, ranging from 2 percent to 2.7 percent.
The biggest gain of the four was seen at Marriott Vacations Worldwide, which increased 132 percent in the past 52 weeks.
Blum purchased 274,496 shares of Marriott Vacations when he opened the position for $23 per share on average in the first quarter of 2012. He added 250,000 shares the next quarter when the price rose to $29 on average. He reduced a modest 1,530 shares in the third quarter at an average price of $32 each. Marriot opened for $40.71 per share on Wednesday.
The company is a spin-off from Marriott International as a pure-play vacation ownership company with exclusive rights to the Marriott and Ritz-Carlton brands beginning in late 2011. It derives revenue primarily from selling vacation ownership products, managing its resorts, financing consumer purchase of vacation ownership products and renting vacation ownership inventory.
The company owns 64 properties as of Sept. 7, 2012, with 43 in the U.S., 3 in non-U.S. North America, 5 in Europe and 3 in the Asia Pacific. It has significantly cut back on developing new Luxury vacation ownership products and is not currently working on any. It is also evaluating opportunities to sell excess luxury inventory. It also has no plans to build anymore in Europe. In Asia Pacific, however, it is identifying
In the third quarter, it reported net income of $6 million, up from a net loss of $221 million a year previously, which reflected pre-tax non-cash impairment charges and reversals of $320 million. Revenue was $383 million, increased from $378 million a year previously, due to higher revenues from rentals, report management and other services, as well as cost reimbursements. The company expects to save $15 million to $20 million annually as a result of the organizational and separation plan following the spinoff.
After three consecutive quarters of strong performance and positive fourth-quarter expectations, the company raised its adjusted EBITDA guidance for the full year to $130 million to $140 million, from $115 million to $125 million. See its 10-year financial page here.
Blum’s second best stock of the year was Newell Rubbermaid, whose price gained 42 percent. Newell Rubbermand is a consumer products marketer that owns brands such as Rubbermaid, Sharpie, Graco and Calphalon, to name a few.
Early this year, the company implemented a growth strategy that emphasized growth in emerging markets, simplifying the business, innovating, and many other facets. In October, it announced the assembly of a new leadership team to accelerate the growth plan.
After years of declines and stagnation, Rubbermaid’s revenue began to increase for the past two years. It has also remained free cash flow positive for the past decade, which will help it fund its growth initiatives. See its 10-year financial page here.
Blum’s high concentration in the for-profit education sector has dragged on performance. For instance, ITT Educational Services (ESI), which he bought in the first quarter of 2008 and added to in 2010 at some of its peak prices in recent years, has lost 62% of its market cap in the past year. Blum’s holding of the company currently stands at 16.8%, and occupies 14.5% of his portfolio, as his second largest holding. See its 10-year financial page here.
His seventh largest holding, at 5.8% of his portfolio, is Career Education Corp. (CECO). He currently owns 20.07% of the company. This holding predates 2007, but the company’s stock has been mostly declining for most of the decade and is down 88% in the last five years. See its 10-year financial page here.
As a value-oriented, long-term investor, Blum’s for-profit education investments still have time to rebound should the regulatory overhang clear, though the future for them remains uncertain.
See Richard Blum’s portfolio here. Also check out the undervalued stocks, top growth companies, and high yield stocks of Richard Blum.
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