Brian Rogers (Trades, Portfolio) of T. Rowe Price Equity Income Fund added two new stocks to the portfolio during the second quarter, and sold out six other positions, according to data reported by GuruFocus Real Time Picks.
Rogers’ largest purchase during the quarter was 2,750,000 shares of Occidental Petroleum (OXY, Financial), which traded at an average price of $78.24 during the quarter. Occidental is an international oil and gas exploration company that also owns OxyChem, a manufacturer of PVC resins, chlorine and caustic soda.
The company’s stock was not exempt from the industry’s struggle amid low oil prices worldwide — the stock dropped 24% over the past year, closing at $73.09 on July 15. Revenue grew by 7.4% over the past five years, while EBITDA declined by 3.6%.
For the first quarter of 2015, Occidental reported net loss of $218 million, compared to profit of $1.39 billion for the prior-year quarter. The company’s dividend yield is attractive at 3.99%, which is close to the 10-year high, and the payout ratio is 39%.
Rogers’ other purchase was 500,000 shares of Tyco International PLC (TYC, Financial) for an average of $40.73 per share. The company provides security, fire detection and suppression products and services. The stock price decreased 16% over the last year, and closed at $38.13 on July 15.
In FY 2014, net income was $1.83 billion, a significant increase from $536 million the year before.
Tyco’s dividend yield is close to the two-year high at 1.96%, while the payout ratio is 45%.
The fund sold out of six holdings in Q1, the largest of which was 1,750,000 shares of Quest Diagnostics (DGX, Financial) sold at an average price of $73.83 per share. Rogers first initiated the position in Q3 2011, and the sale provided a gain of 37%.
Quest Diagnostics’ services include clinical testing services such as routine testing, gene-based and esoteric testing, anatomic pathology services and drug testing. The stock price rose 19% in the last year and closed at $74.08 on July 14.
The DCF calculator estimates the stock is overvalued with a fair price of $38.33. The margin of safety is -91%.
Over the past five years, revenue grew by 4.8% while EBITDA grew by 3.6%. EBITDA per share declined to $9.17 from $11.72 the year before. However, the figure grew 4.25% in the last five years.
Rogers has managed the portfolio since 1985, and will step down from his post in October. John Linehan, former head of T. Rowe Price’s U.S. equity, will take over the fund on Nov. 1, though Rogers will remain as chairman and CIO.
Average annual total returns of the fund underperformed the S&P 500 over the past three, five and 10 years. Since inception, the fund has matched the performance of the index.
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