His firm’s implementation of the strategy has delivered an annualized 23 percent return since its inception in 2000. At $3.7 billion in assets under management, Passport focuses primarily on equities, with a portfolio valued at $2.58 billion. Burbank’s latest favorite sector is obvious from a glance at his sector weighting – almost half has gone into basic materials.
The firm’s bullishness on the sector began in mid-2012 and has been growing ever since. The weighting in basic materials has gone from 14.4%, to 19.2%, to 41.2%, to 48% of his portfolio in the first, second, third and fourth quarters of 2012, respectively.
On specific companies, Burbank said in January on Bloomberg that he likes mid and large-cap companies with shareholder-friendly management that are high quality and world-class leaders. He also mentioned his basic materials affinity, saying, “I like certain things in basic materials, like specialty chemicals, very few gold names, and I’m very, very cautious however, on global growth.”
His largest positions in the sector are Cytec Industries (CYT), Huntsman Corp. (HUN) and Kinross Gold Corp (KGC).
Cytec Industries (CYT)
Burbank owns 3,384,680 shares of Cytec Industries, a position he has been adding to for the past three quarters. Its shares have gained almost 28% over the last year, and their current market price is $72.98.
Cytec Industries is a specialty chemicals and materials company whose products serve a range of industries, such as aerospace and mining.
Cytec for the third and fourth quarters of 2012 beat its prior-year results in both sales and net income. The company’s management is taking several measures to improve operations, namely, divesting its underperforming coating resins segment and acquiring Umeco.
The coating resins segment of Cytec reported a net sales decrease of 6% in the third quarter and 10% in the fourth quarter, with selling volumes down 6% and 2% in the same respective quarter. Cytec has already sold the segment’s Pressure Sensitive Adhesives product line to Henkel for approximately $105, and the sale of the remaining business to Advent International for $1.032 billion in cash is expected to close in the first quarter of 2013.
The business acquired in July, Umeco, produced sales of $66.8 million and as-adjusted earnings of $2.9 million in the third quarter and $83.3 million and $3.8 million in the fourth quarter.
Cytec currently has a P/E of 19.3, P/B of 1.9 and P/S of 1, with a dividend yield of 0.7.
Huntsman Corp. (HUN)
Burbank began buying shares of Huntsman Corp. in the fourth quarter of 2010 and has added additional shares each quarter since. His most aggressive purchases were in the third and fourth quarter of 2012, when he purchased about 7.1 million and 1.4 million shares, respectively. His total holding now consists of about 12 million shares.
With a $3.98 billion market cap, the current market price of Huntsman is $16.69, after gaining 21% over the past year.
Huntsman is also a chemical manufacturer and marketer whose products are used in a variety of industries, such as plastics and automotive, to name a few.
In the fourth quarter, the company reported a net loss of $40 million, compared to $105 million in net income in the year-ago quarter, and $116 million in the previous quarter. The loss was primarily due to $78 million it paid to pay off debt early and $40 million in restructuring costs. The company’s restructuring and cost cutting began in 2011, and it hopes it will establish a better cost structure by 2013.
The company’s fourth quarter revenue declined to $2.62 billion, from $2.63 billion in the year-ago quarter. In the third quarter, its revenue failed to beat its prior-year result as well.
Huntsman currently has a P/E of 9, P/B of 2.3 and P/S of 0.4, with a dividend yield of 2.4%.
Kinross Gold Corp (KGC)
After increasing his holding 50.53% in the fourth quarter, Burbank owns about 14 million shares of Kinross Gold Corp., a position he started in the second quarter of 2012, after its market price had been falling for several years.
Kinross, a company with an $8.75 billion market cap, has seen its shares lose almost 30% of their market value over the past year. The market price is $7.68 currently.
Kinross is a mining company with a portfolio of nine mines located in South America, North America, West Africa and Russia, and 2.56 million tonnes of proven and probable gold reserves at year-end 2012.
In the fourth quarter, Kinross recorded $1.19 billion in revenue, compared to $919.8 million in the year-ago quarter and $1.11 billion in the third quarter of 2012. It also recorded a net loss of $2.989 billion, compared to a net loss of $2.79 billion in the year-ago quarter, and net income for the past three consecutive quarters. The net loss included an after-tax non-cash impairment charge of $3.21 billion, primarily related to its Tasiast project. Exploration from that project has confirmed the presence of narrow, high-grade veins.
The company has been focused intently on cost control, margin improvement and free cash flow, and forecasts that it will reduce capital expenditures by approximately $325 million over 2012. It initiated a cost-reduction plan in the second quarter of 2012, in which it aimed to reduce its capital expenditures for 2012 by approximately $200 million.
Kinross has a P/E of 10, P/B of 0.7 and P/S of 201, with a dividend yield of 2.1%, higher than 88% of global gold companies.
Burbank’s next largest positions are Pretium Resources Inc. (PVG), another mining company; Methanex Corp. (MEOH), a chemicals company; and Domtar Corp. (UFS), a forest products company.
For more of his basic materials stock picks, see his portfolio of the sector here, or see his full equity portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of John Burbank.