Hillman likes companies with positive quantitative factors that have competitive advantages but have temporarily fallen out of favor and are thus undervalued by the market. Using this strategy his Focused Advntage Equity Fund has returned 15.88% on average annually, beating the 8.83% of the benchmark Russell 1000 since inception.
The three new stocks Hillman Capital Management selected in the third quarter are: Corning Inc. (NYSE:GLW), United Parcel Services Inc. (NYSE:UPS) and AT&T Inc. (NYSE:T).
Corning Inc. (NYSE:GLW)
Hillman purchased 45,000 shares of Corning Inc. in the third quarter when the price averaged $15. The new holding equals 1.2% of his portfolio.
Corning is the leading specialty glass and ceramics company, whose products are used in electronics, technology and the sciences. Its stock gained more than 38% year to date, with most of the gain occurring in October, when the stock reached a two-year peak.
Corning’s stock jumped on news of its preliminary third-quarter financial results and announcement of an agreement with Samsung Display Co. Ltd. The company reported an 18% year-over-year core EPS increase to $0.33, its fourth consecutive quarter of year-over-year core EPS growth. The improvement resulted from improved profitability in its non-display business, LCD glass price declines and cost controls.
According to the second announcement, Samsung and Corning will “strengthen strategic collaborations.” A series of transactions will give Corning full ownership of Samsung Corning Precisions Materials Co Ltd., the Korea LCD glass manufacturer equity venture of which Samsung currently owns 43%. Samsung will invest $400 million in Corning through convertible preferred shares, giving it 7.4% ownership of the company.
The two companies also signed a glass supply agreement through 2023 and decided to increase collaboration on new product development and commercialization.
The deal would immediately increase Corning’s domestic cash balances and be immediately accretive to earnings and free cash flows. It is expected to close in the first quarter of 2013.
In the past five years, Corning has been growing per-share revenue at a rate of 11.2%, EBITDA at a rate of 10.4%, free cash flow at a rate of 41.6% and book value at a rate of 14.8%.
The company’s long-term revenue and earnings history:
Corning has a P/E ratio of 13.4, P/B of 1.2 and P/S of 3.2., which is close to a two-year high.
United Parcel Services Inc. (NYSE:UPS)
Hillman purchased 7,000 shares of United Parcel Service Inc. (NYSE:UPS) in the third quarter when the price averaged $88 per share. The holding comprises 1.1% of his portfolio.
UPS is the world’s largest package delivery company by revenue and volume, and, in recent years, has developed a supply chain solutions business.
This year the company reported year-over-year growth in EPS in the first quarter, and a decline in EPS in the second quarter. Third quarter EPS increased 9.4% to $1.16, with 4.6% more packages delivered worldwide than the same period last year. In the first nine months of the year, UPS generated $3.6 billion in free cash flow, paid $1.7 billion in dividends and repurchased 33 million shares of $2.9 billion.
UPS has maintained the same guidance in each quarter of full-year diluted earnings per share of $4.65 to $4.85, a 3% and 7% increase, respectively, over 2012.
UPS has five-year growth rate of 3.8% for revenue and 1.6% for free cash flow. It has per-share decline rates of 11% for EBITDA and 11.1% for book value over the same period.
UPS’ long-term earnings and revenue history:
As of Monday, UPS has a stock price of $99.88, which is near a 10-year high. Its P/E is 116.4, near a three-year high. Its P/B is 25.88, near a 10-year high. And its P/S ratio is 1.7, near a five-year high.
AT&T Inc. (NYSE:T)
Hillman bought 16,000 shares of AT&T in the third quarter when the price averaged $35. He previously traded the stock many times in the past.
AT&T’s stock price traded up just over 6% year to date to $36.45, which is near a five-year high.
AT&T saw strong revenue and earnings growth this year after divesting its Advertising Solutions business. First quarter revenue fell 1.5% over the previous year, but was up 0.9% excluding the impact of the divested business. Second quarter revenue increased 1.6%, and third quarter revenue rose 2.2%. Diluted EPS was up 11.7% in the first quarter, 7.6% in the second quarter and 14.3% in the third quarter. The growth was driven by gain in its mobile and IP data, U-verse and strategic business services.
AT&T repurchased 55 million shares in the third quarter for $1.9 billion, leaving 216 million shares on its current repurchase authorization.
Over the past five years, AT&T grew revenue at a rate of 1.3%, free cash flow at a rate of 6.9% and book value at a rate of 0.6%. EBITDA per share declined at a rate of 9.4% over the same period.
AT&T’s long-term revenue and earnings history:
The company has a P/E of 25.1. Its PB is 2.26, near a 10-year high, and its PS ratio is 1.6, near a five-year high.
For more Mark Hillman stocks, visit his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Mark Hillman.
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