Barron’s The Art of Successful Investing Conference – Guru Stock Picks
The following three gurus were interviewed by Barron’s editorial team, and their stock picks and discussions are highlighted below.
You can read the entire article from Barron’s here.
In Black’s interview he discusses his three stock picks: Oracle (ORCL), SanDisk (SNDK) and Skyworks Solutions (SWKS). Black also discusses his lack of faith in Apple (AAPL).
The market has been worried that companies like Salesforce.com, and cloud computing generally, will encroach on Oracle’s turf, which has helped put a lid on the stock. But Oracle is a one-stop shop, offering both enterprise and cloud computing.
What Scott Black’s looking for with Oracle:
· Potential earnings of $2.90 per share for the fiscal year ending May 2014.
· Growth of 6% to 7% a year.
· Management’s profit-improvement plan to raise margins 50% over time.
As of the close of the third quarter, Oracle was Scott Black’s 12th largest holding, holding on to 365,759 shares and taking up 1.4% of his total portfolio and a small 0.01% of Oracle’s shares outstanding. Over the duration of the third quarter Black upped his holdings 4.62% by purchasing 16,145 shares. He bought these shares in the third quarter price range of $ 30.10 to $34.05, with an estimated average quarterly price of $32.44. Since then the price per share is up about 5%.
Since Black bought into Oracle in 2009Q4, the guru has seen average gains of 29% on his shares bought.
Black’s historical holding history:
Oracle provides technologies of cloud computing, including database and middleware as well as web-based applications, virtualization, clustering and systems management. It provides cloud services as well as software and hardware products to other cloud service providers, both public and private.
Oracle’s historical revenue and net income:
On October 17, Oracle announced that they had become the second largest software company in the world, beating out IBM’s revenue numbers over the duration of the past year.
The company’s Q1 financial results released in September highlighted:
· GAAP and non-GAAP revenues up 2% to $8.4 billion.
· GAAP EPS up 14% to $0.47 and non-GAAP EPS up 12% to $0.59.
· Operating margin of 45% for the quarter.
· Free cash flow record of over $6 billion.
Oracle has a market cap of $155.5 billion. Its shares are currently trading at around $34.12 with a P/E ratio of 14.60, a P/S ratio of 4.40 and a P/B ratio of 3.50. The company had an annual average earnings growth of 20% over the past ten years.
GuruFocus rated Oracle the business predictability rank of 5-star.
It has a dominant position in solid-state drives and flash memory. Capacity is sold out, and the company isn’t adding more.
What Black’s looking for with SanDisk:
· Revenue to increase by more than 20% this year.
· Revenue growth of an additional 12% to 13% in 2013.
· Earnings of $5.80 per share, up 14%.
As of the close of the third quarter, Black held a smaller role in SanDisk. The guru holds on to 179,491 shares of SanDisk, representing 1.2% of his portfolio and 0.07% of the company’s shares outstanding. Over the past quarter Black upped his stake 20.12% by purchasing 179,491 shares. He bought these shares at the estimated average quarterly price of $58.73, and since then the price has gone up about 15.9%.
Black bought into SanDisk in the second quarter of 2013 and has since then seen average gains of 19% on his buys.
Scott Black’s historical holding history:
SanDisk designs, develops and manufactures data storage solutions in a variety of form factors using flash memory, proprietary controller and firmware technologies. Its products include SSDs, removable cards, embedded products, universal serial bus, or USB, drives, digital media players, wafers and components.
SanDisk’s historical revenue and net income:
SanDisk recently released its third quarter financials which reported:
· Revenue increased 28% from last year to $1.63 billion.
· GAAP net income of $277 million, or $1.18 per share, compared to $77 million or $0.31 per share from the third quarter of 2012.
· Non-GAAP net income of $371 million, or $1.59 per share, compared to $118 million and $0.48.
· Established its first ever dividend program on July 31, with its first payment made in Q3.
· Spent $1.07 billion on stock repurchases.
SanDisk has a market cap of $15.39 billion. Its shares are currently trading at around $68.11 with a P/E ratio of 18.00, a P/S ratio of 2.80 and a P/B ratio of 2.40. As of its first dividend, the company currently holds a dividend yield of 0.70%.
The company was known as Alpha Industries years ago, and made microwave products for the defense industry. Now it makes radio-frequency chips…It is a good play on the growth of mobile communications.
What Black looking for with Skyworks:
· Thinks the company is trading for very cheap.
· It trades for nine times next year’s expected earnings.
· Revenue growth of double digits.
Skyworks Solutions is one of Black’s smaller positions. The guru holds on to 15,910 shares as of the close of the third quarter, representing a minor 0.045% of his total portfolio and an even smaller 0.01% of the company’s shares outstanding.
Black bought back into the company during the third quarter. The guru had previously sold out of the company in 2012Q1. During the third quarter Black bought his shares in the price range of $20.98 to $26.33, with an estimated average quarterly price of $24.29. Since then the price per share is up about 7.5%.
Black’s historical holding history as of the third quarter:
Skyworks Solutions, together with its consolidated subsidiaries is an innovator of high reliability analog and mixed signal semiconductors. Skyworks offers standard and custom linear products supporting automotive, broadband, cellular infrastructure, energy management, industrial, medical, military and cellular handset applications.
Skyworks Solutions’ historical revenue and net income:
The company recently reported its fourth quarter results which highlighted:
· $477 million in revenue, up 13.3% from last year.
· Non-GAAP operating margin up to 27.3%.
· Non-GAAP EPS of $0.64 and GAAP EPS of $0.44, which was up 2% from guidance.
· Generated $166 million in cash flow from operations.
Skyworks Solutions has a market cap of $4.9 billion. Its shares are currently trading at around $26.11 with a P/E ratio of 19.80, a P/S ratio of 2.90 and a P/B ratio of 2.40.
Black was also asked of his opinion on the tech-giant Apple. The guru believes that Apple is not a good buy because there is no Steve Jobs left in the company. Black also stated:
The stock isn’t a good value because it’s hard to see new products and more growth on the horizon.
Check out Scott Black’s current portfolio here.
In Cooperman’s interview he discusses why he hangs out in the oil and energy sectors but steers clear of the big players. Cooperman also discusses his stock picks, Atlas Energy (ATLS) and SandRidge (SD).
I look for companies growing more rapidly or yielding underlying asset value than their share price suggests. Atlas is an example.
What Cooperman is looking for with Atlas Energy:
· Thinks the company is undervalued by 40% to 50%.
· A potential dividend yield of 5.3%, or $2.50 per share.
· The dividend to be tax-deferred due to depletion accounting.
Cooperman has not reported his third quarter portfolio yet, but as of the close of the second quarter Atlas Energy was his seventh largest holding. The guru held on to 3,973,567 shares of Atlas Energy, representing 3% of his total portfolio and 7.73% of the company’s shares outstanding.
The guru bought into Atlas Energy in 2009Q3 at an estimated quarterly price of $3.35 per share and has since then seen gains of up to 1379.1%. Cooperman’s seen average gains of 948% on his shares bought.
Leon Cooperman’s historical holding history:
Atlas Energy provides natural gas gathering services in the Anadarko, Arkoma and Permian Basins and the Golden Trend in the southwestern and mid-continent U.S. and the Appalachian Basin in the eastern U.S. In addition, it is a provider of natural gas processing and treatment services in Oklahoma and Texas.
Atlas Energy’s historical revenue and net income:
The company recently increased its quarterly dividend to $0.46 per common unit. This dividend represents an approximate 5% increase from 2013Q2, as well as a 70% increase from the second quarter of 2012.
The company is set to release their third quarter results Thursday Nov. 7, 2013.
Atlas Energy has a market cap of $2.54 billion. Its shares are currently trading at around $49.41 with a P/S ratio of 1.30 and a P/B ratio of 5.60. The dividend yield of Atlas Energy stocks is 3.00%.
New management is upgrading the company’s drilling prospects, drilling more productively, and reducing operating costs.
What Cooperman thinks about SandRidge:
· Their analysts value the company at around $10 a share.
· Wall Street’s view will grow more positive.
· The company’s assets are 40% to 50% more valuable than the stock price.
· Needs to avoid a situation similar to Chesapeake Energy.
SandRidge Energy is another one of Cooperman’s bigger holdings. As of the close of the second quarter Cooperman held on to 29,258,509 shares of the company’s stock. His position represents 2.1% of his total portfolio weighting and 5.96% of the company’s shares outstanding.
The guru has consistently increased his position in SandRidge over the past three quarters. Since Cooperman’s initial buy in to the company, his fund has seen an average loss of -4% on shares bought.
Cooperman’s historical holding history:
SandRidge Energy is an independent natural gas and oil company, which concentrates on exploration, development and production activities. It is also engaged in the production and sale of natural gas and crude oil.
SandRidge Energy’s historical revenue and net income:
The company recently released its third quarter results which reported:
· Adjusted EBITDA of $252 million, compared to $297 million last year.
· Adjusted operating cash flow of $235 million, compared to $281 million last year.
· Adjusted net income of $40.4 million, or $0.07 per share, compared to $29.6 million, or $0.05 per share in the third quarter of 2012.
SandRidge Energy has a market cap of $2.93 billion. Its shares are currently trading at around $5.98 with a P/S ratio of 1.00 and a P/B ratio of 1.60.
In Herro’s interview he discusses Japanese stocks and the toll of the European financial crisis on European public’s confidence. Herro’s stock recommendations are Daiwa Securities (TSE:8601) and Credit Suisse (XSWX:CSGN).
It is a good-quality business selling at good value. It is exposed to the asset-management business in Japan, and rising stock-market activity.
What Herro thinks about Daiwa Securities:
· The stock to do well as Japan continues to grow.
· Consistent and strong market capitalization.
· Growth in the Japanese market.
Herro has not released his third quarter portfolio as of yet, but as of the close of the second quarter Daiwa Securities was the guru’s seventh largest position.
As of the close the second quarter, Herro held on to 52,936,000 shares of Daiwa, representing 2.8% of his total portfolio. Since the guru bought in to the company in 2008, he has seen average gains of 132% on his shares bought.
David Herro’s historical holding history:
Daiwa Securities Group provides a complete assortment of financial products and services. It includes both face-to-face consulting and services provided over the Internet, mainly to individual investors and unlisted companies.
Daiwa Securities’ historical revenue and net income:
The company released its second quarter results on Oct. 29 which reported:
· Six month period operating revenue of ¥331,982 million, up from ¥227,384 last year.
· Net income of ¥92,831, compared to ¥10,067 last year.
· EPS of ¥54.61, up from ¥5.95 per share.
· Equity ratio of 5.4% in comparison to 4.8% last year.
Daiwa Securities has a market cap of ¥1526 billion. Its shares are currently trading at around ¥903.00. The company currently holds a dividend yield of 1.50%.
We tried to take advantage of the blind selling by looking for companies with good balance sheets, good business models, and the strength to make it through an economic slowdown. We bought Credit Suisse, which remains one of our largest holdings.
What Herro thinks about Credit Suisse:
· The private bank is stable and the investment bank has been de-risked.
· Selling for less than 10x normalized earnings.
· Potential to start generating excess capital, which could be used for company growth.
Credit Suisse was David Herro’s largest holding as of the close of the second quarter. Herro upped his stake by 51.35% during the quarter. The guru held on to 31,197,000 shares of the company’s stock, representing 5.1% of his total portfolio and 1.96% of the company’s shares outstanding as of 2013Q2.
Herro’s historical holding history as of the close of the second quarter:
Credit Suisse holds direct or indirect interests in all types of businesses in Switzerland and abroad, in particular in the areas of banking, finance, asset management and insurance. The company's business consists of two operating divisions: Private Banking & Wealth Management and Investment Banking.
Credit Suisse’s historical revenue and net income:
The company’s third quarter financials were reported last week and they reported:
· Net income of CHF454 million, compared to CHF254 million last year.
· Diluted EPS of CHF0.26, compared to CHF0.16 per share last year.
· Net revenues of CHF4,74 million, down from CHF5,309 million in 2012.
· Assets under management of CHF1,252.7 billion.
Credit Suisse has a market cap of CHF41.37 billion. Its shares are currently trading at around CHF25.98 with a P/E ratio of 16.40, a P/S ratio of 1.49 and a P/B ratio of 0.96.
You can check out more information on each of these gurus by looking at their guru trades pages.
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