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Guru John Hussman's New Stock Buys

November 01, 2013 | About:
Holly LaFon

Holly LaFon

272 followers
John Hussman runs the Hussman Funds, a group of long-term oriented group of diversified mutual funds, and regularly shares his economic point of view in the well-known Weekly Market Commentary. In the third quarter, he bought 27 new stocks, bringing his total number of positions to 207, in a portfolio valued at $1.82 billion. His quarter-over-quarter turnover is 22%.

His largest new holdings he bought during the third quarter are: General Mills Inc. (GIS), Mattel Inc. (MAT), Open Text Corp. (OTEX), Unum Group (UNM) and Kellogg Company (K).

Hussman prizes a company selling at a discount to its free cash flow over its earnings, and considers his assessment of “market action” and “market climate” when making buying and selling decisions, though he does not use them to make market predictions but to compare them to similar historical instances.

General Mills Inc. (GIS)

Hussman bought 500,000 shares of his largest new holding, General Mills, making it 1.3% of his portfolio. The price of the company averaged $50 in the third quarter.

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General Mills has per-share growth rates for the recent five years of 6.2% for revenue per share, 5.5% for EBITDA, 15.2% for free cash flow and 8% for book value. The company generated $2.3 billion in free cash flow in fiscal year 2013, a 10-year record, and produced more than $1 billion in free cash flow for the preceding nine years.

General Mills’ historic free cash flow growth:

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The company is currently at 10-year highs for four things: share price at $50.06, P/E ratio at 18.7, P/B at 4.71 and P/S at 1.83.

Mattel Inc. (MAT)

Hussman purchased 488,000 shares of Mattel Inc., making it 1.1% of his portfolio in the third quarter when the price averaged around $43.

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Mattel grew at the following per share rates for the past five years: 4.5% for revenue, 15.6% for EBITDA, 29.4 for free cash flow and 8.5 for book value. The company generated $1.06 billion in free cash flow in 2012, a record for the company.

Mattel’s free cash flow growth history:

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Mattel is also at 10-year highs for four things: price at $44.05, P/E at 19.7, P/B at 5.19 and P/S at 2.36.

Open Text Corp. (OTEX)

Hussman bought 250,000 shares of Open Text Corp., making it 1% of his portfolio, in the third quarter when the price averaged $70.

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Open Text had per-share growth rates for the recent five years of the following: 12.2% for revenue, 16.2% for EBITDA, 14.5% for free cash flow and 14.9% for book value. It generated $295 million in free cash flow for fiscal year 2013, a company record.

Open Text’s historic free cash flow growth:

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The company is trading at a 10-year high stock price of $80.95 and PS ratio near a five-year high at 3.38. It also has a PE of 28.9 and P/B of 3.2.

Unum Group (UNM)

Hussman bought 500,000 shares of Unum Group, making it 0.84% of his portfolio, in the third quarter when the price averaged around $31.

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Unum group had the following per-share growth rates over the recent five years: 6.2% for revenue, 0.9% for EBITDA, 5.4% for free cash flow and 10.9% for book value. The company had free cash flow of $1.38 billion in 2012.

Unum Group’s historic free cash flow growth:

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The company is trading near a 10-year high price at $31.35 and P/S at 0.81. It also has a P/E of 9.5 and P/B of 1.

Kellogg Company (K)

Hussman bought 250,000 shares of Kellogg Company, making it 0.81% of his portfolio, in the third quarter when the price averaged $64.

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Kellogg had the following per-share growth rates over the recent five years: 4.5% for revenue, 8.2% for free cash flow and 10.3% for book value. EBITDA per share declined at a rate of 3.9% over the same period. Free cash flow was $1.23 billion in 2012.

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Kellogg is trading near a 10-year high stock price at $62.43 and P/E ratio at 23.6. It also has a P/B of 8.9 and P/S of 1.6.

For more John Hussman picks, see his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of John Hussman.

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Rating: 2.3/5 (3 votes)

Comments

david45
David45 - 1 year ago
Holly, please explain exactly what this means and how it is being calculated: "a company selling at a discount to its free cash flow over its earnings". An example would be helpful.

Thank you.
guruhl
Guruhl premium member - 1 year ago
Hi David. My understanding is that it means he is more interested in paying a low price for a company with outstanding future free cash flows, and places less emphasis on its earnings. Per his website:

"While earnings are important, the simple fact is that stocks are not a claim on earnings. In order to provide for future growth, a portion of earnings is reinvested in capital that will depreciate away. A portion is diluted by grants of options to corporate insiders. A portion must be retained as working capital to support future revenue growth. Stocks are a claim on free cash flow - the portion of earnings that remains after all other claims have been satisfied. This free cash flow can be used either to pay dividends or to repurchase stock for the benefit of shareholders (reducing the number of shares outstanding and thereby increasing the ownership stake of existing shareholders). The higher the price an investor pays for a given stream of future cash flows, the lower the long-term return earned by that investor. The lower the price an investor pays for a given stream of future cash flows, the higher the long-term return earned by that investor."

Hope this helps. Thanks!
david45
David45 - 1 year ago
Holly, yes indeed. This is most helpful. Thanks very much.

David

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