Alan Fournier's undervalued stocks trading at low P/E

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May 28, 2015

Alan Fournier (Trades, Portfolio) is the manager of Pennant Master Fund, Pennant Windward Master Fund, Broadway Gate Master Fund, Ltd., and Pennant General Partner, LLC.He began his investment career at Sanford C. Bernstein in 1988 and in before he was the partner responsible for global equity investments at Appaloosa Management L.P. He manages a portfolio composed of 40 stocks with a total value of $5,338 Mil with 16% Q/Q Turnover.

Marathon Petroleum Corp (MPC)

The company is a marketer, transporter and transporter of petroleum product refiners in the United States that sells refined products to wholesale marketing customers domestically and internationally.

The stock is currently trading at 8.90 of P/E +45.26% from its 52-week low and -6.79% from its 52-week high. Over the past 12 months, the price rose by +16%.

The DCF model, gives a fair value of $168.75 that put the stock as undervalued and with a margin of safety of 40% at current prices.

Profitability & growth is rated 6/10 and returns are ranked higher than 84% of other in the Global Oil & Gas Refining & Marketing industry.

Their financial performance for the first quarter is quite strong. MPC had earnings of $891 million or $3.24 per diluted share during the first quarter of 2015 compared to $199 million or $0.67 per diluted share in last year's first quarter.

The main reason for such a difference is the $954 million increase in Refining and Marketing and a $110 million increase in Speedway income, partially offset by higher income taxes associated with those higher earnings.

Refining and Marketing segment income from operations was $1.3 billion in 2015Q1 compared to $362 million in the same quarter last year. The increase was due to higher crack spreads in the U.S. Gulf Coast in Chicago regions as well as lower turnaround in other direct operating costs in the business.

James Barrow (Trades, Portfolio) is the bigger holder of MPC (he holds 2.95% of shares outstanding), followed by T Boone Pickens holding 53,146 shares or 0.02% of outstanding shares).

United Continental Holdings Inc (UAL)

The company transports people and cargo through its mainline operations, which use jet aircraft with at least 118 seats, and its regional operations and it has a comprehensive global route network.

The stock is currently trading at 9.30 of P/E +46.52% from its 52 weeks low and -27.94% from its 52 weeks high. Over the past 12 months, the price rose +20%.

The DCF model, gives a fair value of $84.67 that put the stock as undervalued and with a margin of safety of 37% at current prices. This means the balance sheet is good regardless of the price.

Profitability & growth is rated 5/10 and returns are ranked higher than 72% of other companies in the Global Airlines industry.

They reported pre-tax earnings of $585 million, the highest first quarter profit in UAL's history and over $1 billion improvement compared to the first quarter of last year. They earned $1.52 per diluted share, achieved at pre tax margin of 6.8% and expanded their return on invested capital to 17.1% over the last 12 months. In Q1 they generated more than $1 billion of free cash flow and repurchased $200 million of their common stocks.

David Tepper (Trades, Portfolio) is the bigger holder of UAL (he holds 1.04% of Shares Outstanding), followed by Leon Cooperman (Trades, Portfolio) (holding 2,835,228 shares or 0.74% of outstanding shares) and George Soros (Trades, Portfolio) (holding 2,088,268 shares or 0.55% of outstanding shares).