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Scott Black's Delphi Management Top 5 New Stock Buys

October 21, 2013 | About:

Holly LaFon

249 followers
Several times over the quarter, Scott Black, manager of the $970 million Boston hedge fund Delphi Management, insisted individual stocks were still cheap amid the broader rising market. The deep value player in an August CNBC interview called the S&P “fairly valued,” saying:

“But there are individual companies that are still cheap. My advice is to buy companies that have sustainable earnings power, high returns on equity with great balance sheets and low multiples. And they’re still out here.”

On Oct. 2, he reiterated that values in the market still existed, though in scarce quantity:

““We’re always specific because we’re a bottom-up stock picker like Warren Buffett and we’re trying to find deep discounted value and we pretty much stay fully invested at all time. But it is getting increasingly difficult to find very good values in this market…”

Black did find copious worthy new positions over the quarter, as revealed in his third quarter portfolio. Out of 14 new stocks, the largest are: Everest Re Group Ltd. (RE), Rogers Communications Inc. (RCI), Fluor Corporation (FLR), Express Scripts (ESRX) and Sanchez Energy Corp. (SN).

Everest Re Group Ltd. (RE)

Black’s largest new position, Everest Re Group, at 1.2% of his portfolio, comprises 72,936 shares. In the third quarter, this stock’s price averaged $136.

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Everest Re Group is a property and casualty reinsurance and insurance company.

In the last five years, Everest grew per-share revenue at a rate of 12.5%, free cash flow at 3% and book value growth at 11.3% annually.

The company currently trades at a price around $153 per share, which is close to a 10-year high, and a P/S ratio of 1.49, which is near a 10-year high. Its dividend yield is near a five-year low at 1.3%. Its P/E is 8 and P/B is 1.1. Everest Re has a return on equity of 12.3% for 2012.

Everest Re’s 10-year revenue and earnings history:

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Rogers Communications Inc. (RCI)

Black purchased 212,037 shares of Rogers Communications, equating to 1% of his portfolio. The average price for the stock in the third quarter was $41.

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Rogers Communications is a communications and media company based in Canada.

In the past five years, Rogers Communications grew per-share revenue at a rate of 8.3%, EBITDA at 9.7% and free cash flow at 69.5% annually. Book value declined by a 6.6% over the same period.

The company has a return on equity of 45.1 as of 2012, with cash and cash equivalents of $2.23 billion and long-term liabilities and debt of $12.39 billion.

Rogers Communications’ 10-year revenue and earnings history:

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Fluor Corporation (FLR)

Black purchased 115,905 shares of Fluor Corp., equaling 0.93% of his portfolio. The price in the third quarter averaged $65.

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Fluor Corporation is a contract designer, builder and maintainer of complex building projects.

In the past five years the company grew revenue per share at a rate of 6.7% and book value at a rate of 6.6%. Per-share EBITDA declined by 3.1% and free cash flow by 10.8% rates.

Fluor’s return on equity is 17.5%, cash balance is $3.65 billion and long-term debt and liabilities are $1.08 billion. Its per-share price at $77.19 is near a five-year high, and its P/S ratio is close to a two-year high at 0.45. It has a P/E of 27.2 and P/B of 3.5.

The company’s 10-year revenue and earnings history:

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Express Scripts (ESRX)

Black purchased 75,336 shares of Express Scripts, equal to 0.53% of his portfolio. The share price in the third quarter averaged $65.

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Over the past five years, Express Scripts grew per-share revenue at a rate of 32.4%, EBITDA at 24.5%, free cash flow at 29% and book value at 66%. Its share price of around $63.76 is near a 10-year high.

Express Scripts’ return on equity was 5.6% in 2012, and its cash balance stands at $5.9 billion, with long-term liabilities and debt around $20.1 billion.

Express Scripts’ 10-year revenue and earnings history:

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Sanchez Energy Corp. (SN)

Black purchased 85,300 shares of Sanchez Energy, equal to 0.26% of his portfolio. Shares averaged around $24 in the third quarter.

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Sanchez Energy is an exploration and production company focused on the Gulf Coast and Eagle Ford Shale.

In the past 12 months it grew per-share revenue by 404.2% and book value by 164.2%. The company’s per-share price around $29.99 is close to a two-year high and its P/E is close to a one-year high at 651.8.

The company’s return on equity in 2012 was negative 4.4%, and it has cash of $276.49 million and long-term liabilities and debt of $402.9 million.

Sanchez’s historical revenue and earnings history:

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For more Scott Black stock picks, go to his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Scott Black.

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