Distressed-debt Investor Howard Marks Sells Five Holdings

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May 14, 2015
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Howard Marks (Trades, Portfolio) is the founder and chairman of Oaktree Capital Management, which is the world’s largest distressed-debt investor.

The firm invests in specialized niche markets, but the primary goal is superior performance with less-than-commensurate risk, according to the company website.

Marks’ portfolio contains 68 stocks, with the majority of assets in the real estate industry at 31%, followed by 22.9% in consumer cyclical stocks, and 12.6% in financial services.

During the first quarter, Marks added nine new stocks to the portfolio and sold out of five others.

Pulse Electronics (PULS, Financial)

Marks sold 11,999,585 shares of Pulse Electronics, a pink sheet stock, for an average price of $1.24 per share. He first initiated the holding in Q3 2012 with 171,741 shares bought for $14.59 per share.

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Pulse produces precision-engineered electronic components and modules. The stock declined 47% over the past year and now trades at $1.60. The company has not made a profit since FY 2008, and reported a loss of $32.9 million in 2014. In 2014, the book value per share was $-5.01.

Ocwen Financial Corp (OCN, Financial)

Marks sold 237,000 of Ocwen Financial at an average price of $8.93 per share. He purchased the holding in Q1 2014 for about $43.25 per share, resulting in a 79% loss.

Ocwen Financial is engaged in the servicing and origination of mortgage loans; its business is concentrated mainly in California, Florida, Texas, New York and New Jersey.

The stock price dropped 68% over the past year and is now priced at $10.14. The stock is undervalued when comparing the price to the Peter Lynch earnings line.

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Over the past five years, EBIT per share increased by more than 45%, recording at $1.55 in 2014. Net income declined from $310 million in 2013 to $171 million in 2014; however, this figure rose 55% over the last five years.

China Unicom (Hong Kong) Ltd (CHU, Financial)

Marks also sold out of 221,700 shares of China Unicom, which traded for an average price of $15.54 during the quarter. He initiated the position in Q4 2014, purchasing the shares for an average $14.41 per share. The sale gives him an 8% gain on the investment.

China Unicom is incorporated in Hong Kong and provides cellular and fixed-line voice services, broadband, and business and data communications. The stock rose 15% over the past year and is trading at $17.95 with a P/E ratio of 23.7 and P/S ratio of 1.

EBIT per share increased dramatically in FY 2013 to $5.19, up from $0.75 the year before. It remained in the $5-range in 2014.

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Net income increased 41% over the past five years, recording at $1,948 million in 2014.

American International Group (AIG, Financial)

Marks also sold his 44,100 shares of AIG for an average price of $53.62 per share. The insurance company’s stock rose 9% over the past year and now trades at $58.75, with a P/E ratio of 10 and P/S ratio of 1.3.

Net income in 2014 was $7,529 million, a decline from $9,086 million the year before.

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Last year, EBIT per share recorded at $7.25, up from $6.32 the year before. Similarly, the operating margin has been improving, increasing from 13.6% in 2013 to 16.3% in 2014.

The current dividend yield is 0.85%, while the payout ratio is 9%, indicating plenty of room for continued dividend growth.

Transportadora de Gas del Sur SA (TGS, Financial)

Marks sold out of Transportadora de Gas del Sur, selling 547,476 shares for an average price of $3.94 per share. He bought the holding in Q2 2014 and profited 46% from the sale.

The company transports and processes natural gas liquids in Argentina. The stock rose 88% over the past year, even amid the low oil price environment.

Over the past five years, the EBIT per share growth rate was 14.4%, and recorded at $0.67 in 2014.

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The current dividend yield is 2.93%, while the payout ratio is high at 179%.

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