Brian Rogers' Stock Picks for Barron's Midyear Roundtable
Rogers had the following to say about what he looks for in a stock:
We continue to look for companies with improving fundamentals, decent valuations, good dividend yields, and good dividend histories. Four of the six companies I recommended in January have increased their dividends in recent months.
Legg Mason (LM)
I am going to stick with most of my January picks, including Legg Mason, which named a new CEO in February. Earnings have improved, asset outflows have declined, the company has continued to buy back stock, and it increased the dividend by 18% in April.
Legg Mason is a global asset management company that acts through various subsidiaries to provide asset management and related services to institutional and individual clients, company-sponsored mutual funds and other pooled investment vehicles. The company offers these products and services directly and through various financial intermediaries.
Rogers believes that the company will probably reduce the share count by 4% or 5% this year.
The analysis of Legg Mason reports:
· The price is close to a 2-year high of $36.13.
· The P/S ratio is nearing a 2-year high of 1.84.
· The revenue has been in decline for the past 5 years.
According to the Peter Lynch Valuation of Legg Mason, the company appears to be overvalued:
Legg Mason has a market cap of $4.3 billion; its shares were traded at around $33.59 with a P/E ratio of 24.20 and a P/S ratio of 1.70. The dividend yield of Legg Mason stocks is at 1.40%.
There are currently 11 gurus that hold stake in Legg Mason. Click here to see these gurus’ holding histories.
I am sticking with Kohl's, which has strengthened its management team by bringing in a chief marketing officer from Starbucks. Kohl's' merchandising position is better, inventories are down, and earnings have been OK. It is still a cheap stock, and the company buys back stock aggressively.
Kohl’s operates family-oriented department stores that sell moderately-priced apparel, footwear and accessories for women, men and children; soft home products such as sheets and pillows; and housewares.
The analysis on Kohl’s reports:
· The price is close to a 3-year high.
· Kohl’s has shown predictable revenue and earnings growth.
· The operating margin is expanding.
The Peter Lynch Valuation Chart shows that Kohl’s Corp. appears to be undervalued:
There are currently 16 gurus that hold stake in Kohl’s. Click here to see these gurus’ holding histories.
General Electric (GE)
GE Capital will dividend up about $6 billion to GE this year, some of which will be used to buy back shares. Things are getting better in most of its businesses… General Electric will never be a home run, but its performance will slowly improve.
General Electric is a technology, media and financial services company. The Company provides products and services ranging from aircraft engines, power generation, water processing, and security technology to medical imaging, business and consumer financing, media content and industrial products.
In 2011 GE paid $6.45 billion in dividends, returning $17 million to shareholders every day.
GE Capital is expected to dividend up about $6 billion to GE this year, some of which will be used to buy back shares.
According to the Peter Lynch Valuation Chart, General Electric appears to be overvalued:
GE has a market cap of $253.18 billion; its shares were traded at around $24.33 with a P/E ratio of 17.10 and a P/S ratio of 1.70.
There are currently 30 gurus that hold stake in GE. Click here to see their holding histories.
My real laggard is Apache, which has trailed the market this year… The folks at Apache know they have to improve their performance, and they are fixated on it. They are highly confident, experienced people, and it is a cheap stock.
Apache is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. It currently has exploration and production interests in six countries, divided into seven operating regions: the U.S. (Gulf Coast and Central regions), Canada, Egypt, Australia, the U.K. and Argentina.
Apache is buying back $2 billion of stock this year. Their net asset value is around $110 to $125 a share. Rogers expects the company to earn $8.50 in 2013, so it can cover the dividend easily.
The analysis on the company reports:
· The revenue has been in decline for the past year.
· The operating margin has been expanding.
· The P/S ratio is nearing a 1-year high of 2.15.
· The company has issued $5.8 billion of debt in the past three years.
According to the Peter Lynch Valuation Chart, Apache appears to be slightly overvalued:
Apache has a market cap of $34.23 billion; its shares were traded at around $87.12 with a P/E ratio of 18.70 and a P/S ratio of 2.10. The company had an annual average earnings growth of 11.7% over the past 10 years. GuruFocus rated Apache the business predictability rank of 2.5-star.
There are currently 26 gurus that hold a position in Apache. Click here to see these gurus’ holding histories.
PNC Financial (PNC)
I will stick with PNC Financial Services [PNC]. The company increased its dividend by 10% in April. A new CEO came in, in a well-executed transition… Everyone's credit exposure is improving, and consequently, they are beating earnings expectations, as is the case with PNC. The bank's capital position is strong, and management prefers stock buybacks to big mergers or acquisitions.
PNC Financial is engaged in retail banking, corporate and institutional banking, asset management, residential mortgage banking and global investment servicing, providing many of its products and services nationally and others in its primary geographic markets.
PNC currently owns about 20% of BlackRock.
The analysis on PNC Financial reports:
· The company’s operating margin is expanding.
· The price is close to a 3-year high of $71.64.
· The P/S ratio is close to a 3-year high of 2.44.
· The revenue has been in decline for the past three years.
According to the Peter Lynch Valuation Chart of PNC Financial, the company appears to be undervalued:
PNC Financial has a market cap of $38.42 billion; its shares were traded at around $71.74 with a P/E ratio of 12.70 and a P/S ratio of 2.40. The dividend yield of PNC is 2.3%. The company had an annual average earnings growth of 2.8% over the past 10 years. GuruFocus rated PNC the business predictability rank of 2-star.
There are currently 20 gurus that hold stake in PNC Financial. Click here to see these gurus’ holding histories.
I’m moving someplace controversial. Carnival is a leading cruise-ship operator battered by a series of accidents and self-inflicted operating snafus, beginning with the Costa Concordia's capsizing in Italy in 2012... There are few companies with worse PR and press coverage. The stock has dropped by 12% in 2013.
Carnival is a cruise company and one of the largest vacation companies in the world. It has a portfolio of widely recognized cruise brands and is a provider of cruises to all major vacation destinations. Its mission is to deliver exceptional vacation experiences through some of the world's best-known cruise brands that cater to a variety of different geographic regions and lifestyles.
Carnival has been under a lot of pressure from the media this past year. This year alone, one of the company’s ships has caught on fire, stranding people in boat with no electricity in the ocean for several days. And even more recently, there have been malfunctions of water/sanitary and engine-power systems on several different cruises.
The analysis on the Carnival Corp. reports:
· The revenue has been in decline for the past year.
· The P/B ratio and price are at 52-week lows.
· The operating margin and gross margin have been in long-term declines with average rates of decline per year at -4.1% and -11.2% respectively.
According to the Peter Lynch Valuation Chart, Carnival appears to be overvalued:
Carnival Corp. has a market cap of $27.73 billion; its shares were traded at around $34.31 with a P/E ratio of 18.30 and a P/S ratio of 1.70. The dividend yield for the company is at 3.00%. Carnival had an annual average earnings growth of 3.7% over the past 10 years.
There are thirteen gurus that hold stake in Carnival. Click here to see their holding histories.
You can see Brian Rogers’ current portfolio here. Also, check out his undervalued stocks and top yielding stocks.
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