Over the past days hedge funds have been filing their form 13-F, which is a quarterly report of equity holdings by filed institutional investment managers with at least $100 million in equity assets under management, as required by the United States Securities and Exchange Commission (SEC). In this article, let´s concentrate in one particular hedge fund and try to see the principal holdings in its portfolio. I will look into Pzena Investment Management LLC (PZN) from Richard S. Pzena, founder and co-chief investment officer.
Recently, the fund reported its equity portfolio ended September. The total value of the portfolio amounted to $18.293 million, up from $18.013 million disclosed at the end of the previous quarter. Consequently, the fund's equity market change value was 279.4 million in the last quarter. The filing revealed that at the end of September, the fund added 6 new positions to its equity portfolio and sold out 2 positions. The top ten portfolio holdings as of the end of the quarter represented 28.73%. The largest changes from previous 13-F´s fillings are in the tech and industrial sectors.
In this article, we have selected three companies, in which the fund holds the largest stakes in terms of market value.
The first on the list is Hewlett-Packard Company (HPQ, Financial), in which Pzena Investment disclosed a $739.1 million stake with over 20.84 million shares. The company is a leading maker of computer products, including printers, servers and PCs, has a large service and support network. It operates in a highly competitive industry, including companies such as Apple (AAPL, Financial), IBM (IBM, Financial) and Dell (DELL, Financial).
The company reports in seven segments: Personal Systems accounted for 28% of fiscal 2013 sales, Printing 21%, Enterprise Group 24%, Enterprise Services 20%, Software 3%, HP Financial Services 3% and Corporate Investments about 1%. Although the company is a leader the company faces many threats in various segments. It will separate into two companies: one will focus on printers and personal computers and the other on enterprise (software and infrastructure and services). On the other hand, we think the firm has a good technology, but the transition to the future tech is not guaranteed.
Earnings per share have decreased in the most recent quarter compared to the same quarter a year ago. But, as we can appreciate in the next chart, the company has demonstrated a pattern of positive earnings per share growth.
As we can see, from the beginning of 2013, the business is doing pretty well. The share price has jumped by 41.15% the past year.
Other hedge fund gurus have also been active in the company. Ray Dalio (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Jim Simons (Trades, Portfolio), Bernard Horn (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Jean-Marie Eveillard (Trades, Portfolio) and Richard Snow (Trades, Portfolio) have taken long positions, as well as Pioneer Investments (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio).
Bank of America Corporation (BAC, Financial) comes in next; the fund owns more than 31.65 million shares, worth $539.6 million. We believe the bank will succeed as a provider of retail banking and wealth management services in the long run. Further, we believe that cross-selling investment products will be the key to boost revenues. Moreover, in the actual scenario of low interest rate and with a high consumption we believe it has good earnings potential.
During the past fiscal year, the company increased its bottom line. It earned $0.91 versus $0.25 in the previous year. For the next year, Wall Street expects a contraction of 48.4% in earnings ($0.47 versus $0.91). The company has declined earnings per share by 18.8% in the most recent quarter compared to the same quarter a year ago. Despite this, compared to the level of one year ago, it is higher and it has outperformed the S&P 500 over the same period.
Other hedge fund gurus have also been active in the company. Steven Romick (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) have taken long positions in the third quarter of 2014, as well Pioneer Investments (Trades, Portfolio).
In Royal Dutch Shell PLC (RDS.A, Financial) the fund disclosed ownership of over 6.96 million shares, worth $530.2 million. Although the investor´s confidence on the stock doesn´t looks good after years of poor execution, it is the opportunity to the new CEO to revert the situation. It is highly important that the firm improves cash flows, while having cost savings.
Other hedge fund gurus have also been active in the company. Jim Simons (Trades, Portfolio) bought the stock in the second quarter of 2014.
Final comment
The three stocks are certainly attractive for fundamental investors and make it a worthy investment for Pzena’s portfolio. With respect to Hewlett-Packard we believe the company´s services, its logistics and the technology are drivers for success. Bank of America's crises problems were in part due to a poor capital-allocation, but we think it is improving this aspect. Finally, we think Shell can reach good cash flow generation in the next years. We think the three stocks could move higher in the future and so I would advise to take a long position on them.
Disclosure: Omar Venerio holds no position in any stocks or funds mentioned
