Pzena Investment Management has been dedicated to “strict valuation discipline” since Richard Pzena founded it in 1996. The firm has experienced some particularly good days recently: Market appreciation and inflows combined to grow assets under management from $14.1 billion in April 2012 to $19.9 billion in April 2013.
Of that, the portfolio of 120 U.S. companies is valued at $14.28 billion. Pzena added five new stocks to it in the first quarter, according to GuruFocus Real Time Picks data, for a 9% quarter-over-quarter turnover.
Choosing stocks at the firm involves a five-point checklist to tease out the best of the good companies they notice have “gone on sale”:
· 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
Entering the first quarter, Pzena was reading a “stark reality” in the market: “The headlong pursuit of yield and stability has created an extraordinary disparity between the expected future returns of fixed income securities and stable earning or high dividend paying stocks, while magnifying the upside opportunity in a range of equities,” he said in his firm’s letter. He named financial and technology sectors as presenting the most compelling opportunities.
The 5 New Buys
Wal-Mart Stores Inc. (WMT)
Pzena purchased 8,193 shares of Wal-Mart stores in the first quarter for $71 per share on average. The holding occupies a mere 0.0043% of his portfolio, qualifying it as his smallest new position. The share price has gained 11% from his average purchase price.
Wal-Mart Stores Inc. was incorporated in Delaware in October 1969. Wal-mart Stores Inc. has a market cap of $256.92 billion; its shares were traded around $78.52 with a P/E ratio of 15.70 and P/S ratio of 0.60. The dividend yield of Wal-mart Stores Inc stocks is 2.20%.
Wal-mart Stores Inc. had an annual average earnings growth of 10.3% over the past 10 years. GuruFocus rated Wal-mart Stores Inc. the business predictability rank of 5-star.
Procter & Gamble Co. (PG)
Pzena made consumer defensive stock Procter & Gamble Co. his fourth largest new buy with 10,290 shares purchased for $75 on average. Since the buy the price has increased 5%.
Procter & Gamble Co. was incorporated in Ohio in 1905, having been built from a business founded in 1837. Procter & Gamble Co. has a market cap of $215.12 billion; its shares were traded around $79.04 with a P/E ratio of 19.90 and P/S ratio of 2.80. The dividend yield of Procter & Gamble Co. stocks is 2.90%.
Procter & Gamble Co. had an annual average earnings growth of 5.9% over the past 10 years. GuruFocus rated Procter & Gamble Co. the business predictability rank of 2-star.
Johnson & Johnson (JNJ)
Pzena purchased 10,075 shares of drug manufacturer Johnson & Johnson for $76 per share on average. It takes 0.0057% of the portfolio as his third largest new buy. Shares have gained 13% from his average purchase price.
Johnson & Johnson has a market cap of $242.11 billion; its shares were traded around $86.81 with a P/E ratio of 23.60 and P/S ratio of 3.60. The dividend yield of Johnson & Johnson stocks is 2.80%. Johnson & Johnson had an annual average earnings growth of 7.6% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 3.5-star.
BancorpSouth Inc. (BXS)
Pzena purchased 940,398 shares of BancorpSouth Inc. (BXS) for $15 per share on average as his second largest new buy taking 0.11% of his portfolio. The price has since increased 12% from his average purchase price.
BancorpSouth Inc. is a financial holding company, which through its subsidiary BancorpSouth Bank, conducts commercial banking and financial services operations in Mississippi, Tennessee, Alabama, Arkansas, Texas, Louisiana, Florida, Missouri and Illinois.
BancorpSouth Inc. has a market cap of $1.6 billion; its shares were traded around $16.99 with a P/E ratio of 19.50 and P/S ratio of 2.30. The dividend yield of Bancorpsouth Inc. stocks is 0.20%.
Interpublic Group of Cos. Inc. (IPG)
For his largest new buy, Pzena purchased 10,896,259 shares of Interpublic Group of Cos. Inc. at $12 per share on average. The position equals a full 0.99% of his portfolio and 2.63% of shares outstanding. From his average purchase price, the shares have gained 20% since.
Interpublic Group of Companies Inc. was incorporated in Delaware in September 1930 under the name of McCann-Erickson Incorporated as the successor to the advertising agency businesses founded in 1902. Interpublic Group of Cos. Inc. has a market cap of $6.33 billion; its shares were traded around $14.91 with a P/E ratio of 16.90 and P/S ratio of 1.00.
The dividend yield of Interpublic Group of Cos. Inc. stocks is 1.70%. Interpublic Group of Cos. Inc. had an annual average earnings growth of 16.4% over the past 10 years.