His large cash holding right now, however, indicates he is not finding anything new that is attractively priced. Romick described his investing philosophy in his October interview with GuruFocus: “Well, we are primarily bottoms-up analysts,” he said. “If a business is cheap or an asset trades at a discount we’re interested. But we always have an eye to protecting capital. That’s where our macro considerations come in.”
His macro views were postponed until his fourth quarter letter, he said in his third quarter letter. He noted in several interviews in October, however, that he believes perpetual money printing by the Fed is eroding confidence in currencies, and he cannot predict how it will all end.
Uncertainty surrounding inflation or deflation has left him in an investing “purgatory,” so he is not positioning his portfolio too strongly for one scenario or another, but buying shares of good companies with strong balance sheets.
Romick added 2,532,300 shares of Interpublic Group of Cos. Inc. (IPG) for $11 per share on average in the fourth quarter. Romick initiated this position in the first quarter of 2012 at the average price of $11 per share, and added to it one other time, in the third quarter of 2012. The total share count of his position at the end of the fourth quarter is 9,532,300.
Interpublic Group is a global marketing provider specializing in consumer advertising, digital marketing, communications planning and media buying, public relations and specialty marketing. Its stock has gained 13.5 percent over the past year.
Interpublic’s stock plunged temporarily in October when it issued weak third quarter operating results. The company’s revenue slipped 0.09 percent year over year, due to industry-wide client caution, account losses in 2011 and a particularly strong quarter the year previously.
Net income also tumbled to $68.7 million, or $0.15 per diluted share, from $208.1 million, or $0.40 per diluted share, a year previously.
The company is expecting an increase in full-year profitability from 2011.
Interpublic’s balance sheet reflects $1.2 billion in cash, down from $2.32 billion at Dec. 31, 2011, along with total debt of $1.68 billion, compared to $1.77 billion at Dec. 31, 2011.
It spent $83.2 million repurchasing 7.6 million shares of its stock for $10.94 per share on average in the third quarter. It also paid a dividend of $0.06 per share, which cost $25.8 million in total.
In November, IPG sold a remaining Facebook Inc. (FB) investment for net cash proceeds of $95 million. It acquired the stake in 2006.
The same month, IPG increased its share repurchase program to $400 million from $300 million “reflecting the confidence we have in our company,” Chairman and CEO Michael I. Roth said in a statement.
IPG has a P/E of 12.8, P/B of 2.1 and P/S of 0.66, close to a one-year low.
Romick added 2, 315,000 shares to his Microsoft Corp. (MSFT) in the third quarter, his largest-ever purchase of the company. He paid approximately $28 per share, the price slumping more than 10 percent that quarter. Since initiating the position in the third quarter of 2010, Romick has built the position to a total of 11.265 million shares, or 4.8 percent of his portfolio.
Romick likes Microsoft as an out-of-favor stock. In a recent CNBC interview, he commented:
“Microsoft, there was a point in time in 2011 there was bad news everywhere. Everyone wanted Ballmer out, windows, their lunch was being eaten by every other tech company… people don’t realize some of the value they get, whether it be patents they get that different android manufacturers are paying them. So there’s a lot of hidden value there. We actually felt that if anything happened good, it was going to drive the stock a lot higher, which is what’s happened.”
The software maker’s stock has lost 17.5 percent of its market value over the past five years. Over the same period, it has increased revenue at an annual average rate of 9.9 percent, EBITDA at a rate of 10.2 percent, free cash flow at 13.3 percent and book value at 19.6 percent.
In the third quarter, Microsoft pulled in $16.01 in revenue, an 8 percent year-over-year decline. Earnings per share of $0.53 reflected a 22 percent year-over-year decline.
CFO Peter Klein attributed the 26 percent year-over-year operating income loss to a slowdown in PC demand ahead of its Windown 8 launch. Other divisions’ multi-year licensing revenue increased, however, in several divisions: Windows, Server & Tools and Microsoft Business.
Microsoft’s cash in the third quarter amounted to $76.52 billion, from $67.56 billion the previous year. Long-term liabilities and debt amounted to $21.6 billion, virtually unchanged from the previous year.
Romick added 847,800 to his AIG (AIG) stake for $34 per share in the fourth quarter. The purchase brought his total position to 5,168,800 shares since initiating it in the second quarter of 2012 at $31 per share on average.
The insurance company’s stock has gained almost 37 percent in market value over the past year.
AIG in the third quarter finished easing off of its reliance on the U.S. government by paying back the $182 the country lent it during the financial crisis four years ago. It highlighted its financial strength by repurchasing $13 billion of its stock year to quarter-end.
In addition, it paid down the entire $8.6 billion in remaining preferred interests in a special purpose vehicle of AIA, the U.S. Department of the Treasury held.
Its results for the quarter included a 39 percent year-over-year increase in total revenues to $17.65 billion, and net income of $1.86 billion compared to a loss of $3.99 billion the previous year, and marking its fourth consecutive quarter of profitability.
AIG has a P/E of 2.4, P/B of 0.6 and P/S of 0.9.
Romick also expanded his holdings of Oracle Corp. (ORCL), AvalonBay Communities Inc. (AVB), Owens-Illinois Inc. (OI) and others. See a complete record of his long and short equity moves in the fourth quarter by going here.
Also check out Steven Romick’s Undervalued Stocks, Top Growth Companies and High Yield stocks.