Investors can learn about investing from examining the strategies used by the most successful investors in the world. Studying their past picks can help us understand what works and what does not work in investing. It is important to identify the mistakes of great investors too; this is how we learn without losing our own money. Today we examine Pitney Bowes, a 1-Star Business Predictability ranked provider of “mail processing equipment and integrated mail solutions.”
Our method of learning today is by studying the battle between investment gurusDavid Dreman (Trades, Portfolio) and Steven Romick (Trades, Portfolio). Purchased in the doldrums of the 2009 stock market, Dreman initiated his Pitney Bowes (PBI, Financial) position then sold out by Q4 2012.
David is a value investor, contrarian, and author of, “Contrarian Investment Strategies: The Next Generation.” He states his method is to “invest in undervalued companies that exhibit strong fundamentals, above-market dividend yields and historic earnings growth, which our analysis indicates will persist.”
The question we present today is: is Pitney Bowes in a cyclical decline, like airlines often are, or secular decline, like the late buggy-whip industry? If a company has short-term negative fundamentals that lead to declining earnings and cut dividends, could David’s method lead to exiting a cyclical company at an inopportune time?
Below is a chart of David’s PBI holding. With a large position initiated in 2009 and increased for a couple years, David then sold out by Q4 2012. Will exiting PBI in 2012 prove to be a better decision than Steven Romick’s 2012 pick?
Portfolio manager of the FPA Crescent Fund, with $2.8 billion under management Steven is also a value investor with contrarian qualities. The difference with David is Steven’s belief in the future value of Pitney Bowes.
Entered almost at the same time David exited, in 2012 Steven had hope for a company that was exhibiting negative fundamentals including decreasing earnings and a dividend being cut. Still holding to his original position, thus far Steven is in the lead. Will Steven finish this battle over Pitney Bowes victorious or will David’s selling prove to be a better decision?
Let us examine a couple fundamental charts of investment concepts value investors find important.
Displayed below is a chart of Pitney Bowes' total assets in blue and market capitalization in green. The blue line represents the value of all Pitney Bowes’ assets, which include property, plant, equipment and even cash in the bank. The green line is the price the market is paying for those assets. Did Steven’s waiting until the price was below PBI’s asset level provide a large enough margin of safety?
The next chart is Pitney Bowes’ revenue in green and market capitalization in blue.
Even though David purchased revenue at a discount in 2009, “Mr. Market” offered a bigger bargain for Steven three years later in 2012. Fearful of the declining revenue, however, if revenue keeps declining, David’s decision to exit may prove a good decision.
Thanks to Gurufocus.com for Pitney Bowes interactive charts.
Share your thoughts on the continuing battle over Pitney Bowes.
