Richard Pzena's Top 5 Quarter Three Buys
Founded in 1996, Pzena Investment Management seeks five specific criteria in a company before investing (per his website):
· Low price relative to the company’s normal earnings power
· Current earnings are below normal
· Management has a sound plan for earnings recovery
· The business has a history of earning attractive long-term returns
· There is tangible downside protection
Pzena’s largest third quarter stock selections are: TRW Automotive Holdings Corp. (TRW), News Corporation (NWS), Superior Energy Services Inc. (SPN), Intel Corp. (INTC) and Masonite International Corp. (DOOR).
TRW Automotive Holdings Corp. (TRW)
Pzena bought 2,985,869 shares of TRW Automotive Holdings in the third quarter when the price averaged $70. The portfolio percentage is 1.4%.
TRW Automotive Holdings Corp. supplies safety technologies to the automotive industry in each of the world’s vehicle-producing regions.
Growth at the company over the past five years as increased at a rate of 70.6% for EBITDA, 3.5% for free cash flow and 33% for book value. Revenue declined at a rate of 1.8% for the same period. TRW had a return on equity of 21.2% and gross margin of 10.7% as of the third quarter.
Shares of TRW gained 182% over the recent 10 years, trading near a 10-year high of $74.27 Monday.
TRW Automotive’s long-term revenue and earnings history:
The company trades with a P/E of 9.1, P/B of 2.3 and P/S of 0.55, near a 10-year high.
News Corporation (NWS)
Pzena bought 4,568,752 shares of News Corp in the third quarter when the price averaged $16. The holding’s portfolio percentage is 0.48%.
News Corp is a media company that owns titles such as the New York Post, HarperCollins, Dow Jones and News America Marketing. It separated from Twenty-First Century Fox on June 28, 2013.
News Corp began trading on the Nasdaq in June 2013, with shares advancing 14% since to $17.72 on Monday.
For the fiscal year ended June 20, 2013, News Corp revenue increased 3% from the previous year to $8.89 billion, primarily due to the inclusion of revenues from the consolidation of Fox Sports Australia, the acquisition of Thomas Nelson, higher UK newspaper revenues and higher advertising revenues at its Digital Real Estate Services segment.
The company posted net income of $506 million, compared to a net loss of $2.1 billion in 2012, primarily due to gains on a sale and transaction, as well as lower impairment and restructuring charges.
News Corp’s cash balance is $2.38 billion, and it generated $72 million of free cash flow for fiscal 2013, decreased from $408 million in fiscal 2012.
Superior Energy Services Inc. (SPN)
Pzena purchased 2,310,224 shares of Superior Energy Services in the third quarter when the price averaged $26. The holding’s portfolio percentage is 0.37%.
Superior Energy is a company that offers support services to oil and gas companies worldwide.
The company’s shares have reached close to a two-year high price of $27.82 on Monday.
Over the recent five years, Superior has experienced per-share growth of 8.3% in revenue, 10.3% in EBITDA and 12.8% in book value. It has a return on equity of 6.4% and gross margin of 27.1% as of the third quarter. It also generated $159 million in free cash flow, compared to $1 million in the third quarter of 2012.
Superior Energy 10-year revenue and earnings history:
Intel Corp. (INTC)
Pzena purchased 2,004,454 shares of Intel Corp in the third quarter when the price averaged #23. The holding’s portfolio percentage is 0.3%.
Intel is a computing innovation company based in Santa Clara, Calif. Its share price is on Monday close to a one-year high at $24.09.
In the recent five years Intel increased revenue at a rate of 14.9%, EBITDA at a rate of 22.4%, free cash flow at a rate of 13.9% and book value at 10%. It had a return on equity of 21.2% and gross margin of 62.4% as of the third quarter.
Intel’s 10-year revenue and earnings history:
Intel trades with a PE of 13.1%, P/B of 2.2 and P/S of 2.4%.
Masonite International Corp. (DOOR)
Pzena purchased 759,360 shares of Masonite International in the third quarter when the price averaged $50. The holding’s portfolio percentage is 0.24%.
Founded in 1925, Masonite International provides doors to the new residential construction, residential repair and non-residential construction industries. The company bears a $1.38 billion market cap and has traded on the NYSE since 2009, with its shares up 147% since it began trading.
In the third quarter, Masonite reported a 1.9% net sales increase to $433.1 million from the previous year, and net income of $3.6 million, or $0.12 per diluted share, compared to a loss of $9.9 million, or $0.36 per diluted share, in the third quarter of 2012. The company ended the quarter with $113.12 million in cash and cash equivalents, down from $122.3 million at year-end 2012. Liabilities totaled $803.67 million, down from $808.13 million a year-end 2012.
To see more Richard Pzena stocks, visit his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Richard Pzena.
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