TransDigm Group (TDG)
TransDigm Group, through its wholly-owned subsidiaries, including TransDigm Inc., is a leading global designer, producer and supplier of highly engineered components for use on nearly all commercial and military aircraft in service today. Transdigm Group Inc. has a market cap of $2.1 billion; its shares were traded at around $43.35 with a P/E ratio of 13.1 and P/S ratio of 2.7.
Daniel Leob purchased a million shares of TDG and made the following comments about the company:
In September, we initiated a position in the equity of TransDigm, an aerospace aftermarket supplier. TransDigm’s focus on proprietary, niche products allows it to achieve EBITDA margins in excess of 45%, an exceptional feat for a manufacturing company. We are attracted to TransDigm’s recurring revenue business model and superior pricing power which enable the company to generate double‐digit, organic earnings growth. In addition, TransDigm is a proven serial acquirer of accretive add‐on acquisitions, which enhances the overall, long‐term earnings growth profile to 20%+.
The management team and corporate culture is highly performance oriented, which is manifested in an effective incentive plan. The recent dividend recapitalization (a special dividend of $7.65 or 15% was paid in October) validates our view of management’s focus on shareholder value creation and return of capital. The current downturn in the aerospace industry enabled us to purchase shares at an attractive valuation of less than 10x EBIT, which represents a large discount to historical trading multiples and the intrinsic value of the business. As the aerospace aftermarket recovers in 2010, we expect continuing earnings improvement. We forecast that TDG equity values will increase at roughly the same rate of that of its cash flow – approximately 20% per annum.
Popular, Inc. (BPOP)
Popular, Inc. is a diversified, publicly owned bank holding company. The corporation's principal subsidiary, Banco Popular de Puerto Rico, has one of the largest retail franchise in Puerto Rico, operating numerous branches and automated teller machines. The Bank also operates branches in the U.S. Virgin Islands, the British Virgin Islands, and New York. Popular Inc. has a market cap of $727.7 million; its shares were traded at around $2.58 with and P/S ratio of 0.2. Popular Inc. had an annual average earning growth of 24.1% over the past 10 years. GuruFocus rated Popular Inc. the business predictability rank of 2-star.
Daniel Leob acquired 17.75 million shares in an exchange offer that he discussed below:
Continuing this year’s government intervention in the financial sector theme, during the third quarter we built a position in Banco Popular of Puerto Rico (BPOP), which was rebuilding its capital base through a planned August exchange offer. We initiated our position in the bank's preferred shares, which we bought at an average price of $0.64 and exchanged for common stock at an implied cost of $1.50 per share in the exchange. The common stock has appreciated significantly since then. We continue to hold BPOP equity and believe it is significantly undervalued relative to its peers, with a strong franchise in Puerto Rico and the best management team on the island.
Aside from these two stocks, which are No.1 (BPOP) and No.4 (TDG) top purchases. Daniel also purchased these stocks:
No. 2: Cablevision Systems Corp. NY Group (CVC), Buy: 2.86% of the portfolio - Total: 1,500,000 Shares
Cablevision Systems Corp. is one of the nation's leading entertainment and telecommunications companies. Its cable television operations serve households located primarily in the New York metropolitan area. The company's advanced telecommunications offerings include its Lightpath integrated business communications services and its Optimum-branded high-speed Internet service. (Company Press Release) Cablevision Systems Corp. Ny Group has a market cap of $7.7 billion; its shares were traded at around $25.56 with a P/E ratio of 24.2 and P/S ratio of 1.1. The dividend yield of Cablevision Systems Corp. Ny Group stocks is 1.6%.
No. 3: Health Net Inc. (HNT), Buy: 3.7% of the portfolio - Total: 3,000,000 Shares
Health Net, Inc. is an integrated managed care organization which administers the delivery of managed health care services. The company's health maintenance organizations, insured preferred provider organizations and government contracts subsidiaries provide health benefits to individuals through group, individual, Medicare risk, Medicaid and TRICARE programs. Health Net Inc. has a market cap of $2.25 billion; its shares were traded at around $21.69 with a P/E ratio of 9.9 and P/S ratio of 0.1. Health Net Inc. had an annual average earning growth of 6.6% over the past 5 years.
No. 5: WellPoint Inc. (WLP), Buy: 3.04% of the portfolio - Total: 800,000 Shares
WellPoint, Inc. is the largest publicly traded commercial health benefits company in terms of membership in the United States. WellPoint, Inc. is an independent licensee of the Blue Cross and Blue Shield Association and serves its members as the Blue Cross licensee for California; the Blue Cross and Blue Shield licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.), Wisconsin; and through HealthLink and UniCare. Wellpoint Inc. has a market cap of $26.18 billion; its shares were traded at around $55.1 with a P/E ratio of 8.9 and P/S ratio of 0.4. Wellpoint Inc. had an annual average earning growth of 20.8% over the past 5 years.
Aside from the two companies he explained why he bought the shares, Daniel Loeb also found value in healthcare related stocks such as HNT and WLP.
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