Pzena Investment Management recently disclosed its 13F portfolio updates for the second quarter of 2021, which ended on June 30.
Richard Pzena (Trades, Portfolio), the founder and co-chief investment officer of New York-based Pzena Asset Management, follows a classic value investing style that considers both a quantitative analysis of a company as well as fundamental analysis on its quality and ability to grow. Pzena and his team look for good companies trading below fair value, but they understand that such opportunities are rare unless there is some sort of problem with the company. The key question is whether the problem that caused the share price drop is temporary or permanent.
According to its latest 13F filing, the firm’s top buys for the quarter were NRG Energy Inc. (NRG, Financial) and Westinghouse Air Brake Technologies Corp. (WAB, Financial), while its biggest sells were Viatris Inc. (VTRS, Financial) and Capital One Financial Corp. (COF, Financial).
NRG Energy
The firm upped its stake in NRG Energy (NRG, Financial) by 4,914,254 shares, or 52.8%, for a total of 14,220,693 shares. The trade had a 0.77% impact on the equity portfolio. During the quarter, shares traded for an average price of $36.21.
Headquartered in Houston, NRG Energy is involved in the generation of electricity as well as the provision of natural gas and energy solutions to residential, small business, commercial and industrial customers in North America.
On Aug. 25, shares of NRG Energy traded around $45.60 for a market cap of $11.16 billion. According to the GuruFocus Value chart, the stock is a possible value trap.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.04 is lower than 84% of industry peers, though the Piotroski F-Score of 5 out of 9 is typical of a financially stable company. The return on invested capital has recently surpassed the weighted average cost of capital, indicating the company is returning to profitability.
Westinghouse Air Brake Technologies
The firm also added 2,160,850 shares, or 26.28%, to its investment in Westinghouse Air Brake Technologies (WAB, Financial) for a total of 10,381,826 shares. The trade had a 0.69% impact on the equity portfolio. Shares traded for an average price of $81.12 during the quarter.
This Pittsburgh-based company is a leading global supplier of components, locomotives, services, signaling and logistics systems to the rail industry. Ever since merging with MotivePower Industries in 1999, Westinghouse had done business under the name Wabtec Corp.
On Aug. 25, shares of Westinghouse traded around $87.64 for a market cap of $16.57 billion. According to the GF Value chart, the stock is “significantly overvalued.”
The company has a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. The Piotroski F-Score of 6 out of 9 and Altman Z-Score of 2.12 indicate a stable balance sheet with only minor bankruptcy risk. The three-year revenue per share growth rate is -0.6%, while the three-year Ebitda per share growth rate is 2.6%.
Viatris
The firm sold out of its 11,467,520-share holding in Viatris (VTRS, Financial), impacting the equity portfolio by -0.65%. During the quarter, shares traded for an average price of $14.46.
Viatris is a global generic and specialty pharmaceuticals company that was formed from the November 2020 merger of Mylan N.V. and Pfizer’s (PFE) off-patient medicine division. The company’s goal is to provide universal access to medicine through its profile of generic, branded generic, brand-name and biosimilar drugs.
On Aug. 25, shares of Viatris traded around $14.52 for a market cap of $17.56 billion. According to the GF Value chart, the stock is fairly valued.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 0.64 indicates the company is at risk of bankruptcy within the next two years, though the Piotroski F-Score of 4 out of 9 is typical of a financially stable company. The company has a three-year revenue per share growth rate of -3.6% and a three-year Ebitda per share growth rate of -18.1%.
Capital One Financial
The firm reduced its investment in Capital One Financial (COF, Financial) by 896,399 shares, or 16.54%, leaving a remaining stake of 4,522,626 shares. The trade had a -0.46% impact on the equity portfolio. Shares traded for an average price of $150.34 during the quarter.
Capital One Financial, headquartered in McLean, Virginia, is the bank holding company that contains the Capital One chain of banks and financial services. The bank provides a range of traditional banking services primarily to customers in the U.S.
On Aug. 25, shares of Capital One traded around $173.93 for a market cap of $77.59 billion. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.98 is higher than 64% of industry peers, though the debt-to-equity ratio of 0.55 is well below the industry median of 1.04. The return on equity of 21.91% and return on assets of 3.33% are more than double their respective industry medians.
Portfolio overview
As of the quarter’s end, the firm held shares in 166 stocks valued at a total of $25.70 billion. The top holdings were General Electric Co. (GE, Financial) with 4.25% of the equity portfolio, Halliburton Co. (HAL, Financial) with 3.46% and Wells Fargo & Co. (WFC, Financial) with 3.41%.
In terms of sector weighting, the firm was most invested in financial services, industrials and consumer cyclical.
