Bruce Berkowitz (Trades, Portfolio) founded Fairholme Fund (Trades, Portfolio) in 1999. He is a contrarian value investor, which ultimately led to him being named Stock Manager of the Decade from Morningstar. He is known for taking very large positions and concentrates in a very small number of companies in his portfolio. He believes that the more positions an investor has in their portfolio, the likelier the performance will be average. His investment focus centers on finding businesses that generate free cash, have great management and are cheaply priced.
Here are three businesses that we find interesting at current levels:
International Business Machines (IBM, Financial) – P/E of 9.77, FCF yield of 9.77%, EV/EBIT of 9.06, and dividend of 3.56%
IBM helps solve business problems through information technology and knowledge of business processes. Nicknamed “Big Blue,” they are a multinational computer technology and IT consulting company headquartered in Armonk, NY. The company dates back to the 19th century and has been one of the few companies to evolve and iterate over time to changing environments.
As we know, technological changes are the most difficult to predict and prepare for in the long-term. IBM has shown that it has the culture and characteristics to evolve with the times. They’ve gone from butchers’ scales to lead the early computer market. They’ve failed just as many times as they’ve succeeded, yet they continue to exist and evolve.
IBM’s biggest shift has been their shift from technology to one of a provider of services. IBM gets a bad rap sometimes in the technology space, but they’ve made the transition to a service provider under the leadership of Ginni Rometty. Rometty was hired as president, chairman and CEO of IBM in October 2012. She’s been with IBM since 1991 through various capacities. As a result, she has a very sound understanding of the behemoth that is IBM.
The company’s shares are down 14% over the past 12 months and trade at $140.50 per share (near 52-week lows). For its most recent fiscal quarter, IBM reported revenue of $19.28 billion, compared to $22.39 billion in the same quarter a year ago. Net earnings were $2.95 billion ($3.01 per share diluted) compared to $22.39 billion ($5.51 per diluted share) in the same period.
Shares look appealing at current levels with a P/E of 9.77, FCF yield of 9.77%, EV/EBIT of 9.06, and dividend of 3.56%.
Now Inc. (DNOW, Financial) – FCF yield of 15.72% and very little debt
Now is a distributor to the upstream, midstream, downstream and industrial markets. They are one of the largest distributors to energy and industrial markets on a worldwide basis and they have been operating for 150 years. They have a network of 300 locations and 5,000 employees worldwide.
Like many of the companies in the energy complex, the company’s shares are down 24% over the past 12 months and trade at $18.20 per share. For its most recent fiscal quarter, Now reported revenue of $753 million, compared to $1.07 billion in the same quarter a year ago. Net loss was -$224 million ($2.09 per share diluted) compared to $32 million (30 cents per diluted share) in the same period.
This is a relatively new and unheard of company that generates excess free cash. Shares look appealing at current levels with a FCF yield of 15.72% and very little debt.
National Oilwell Varco (NOV, Financial) – P/E of 11.10. FCF yield of 5.95%, EV/EBIT of 7.92, and dividend yield of 5.03%
The company’s shares are down 45% over the past 12 months and trade at $36.50 per share (at five-year lows). For its most recent fiscal quarter, National Oilwell reported revenue of $3.30 billion, compared to $5.58 billion in the same quarter a year ago. Net earnings were $155 million (41 cents per share diluted) compared to $699 million ($1.62 per diluted share) in the same periods.
Third quarter results were better than expected, yet still down dramatically year-over-year. Every single segment of the company reported weaker revenue and the Rig Systems segment was down 25%. Fortunately, the cost cutting initiatives have helped suppress the further margin pressure. These divisions are likely to experience setbacks the longer oil and gas prices remain at these depressed levels.
Shares look appealing at current levels with a P/E of 11.10, FCF yield of 5.95%, EV/EBIT of 7.92, and dividend yield of 5.03.
