Paul Singer's undervalued stocks trading with low P/E ratio

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Jul 13, 2015
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Paul Singer (Trades, Portfolio) founded Elliot Management in 1977 and now it manages more than $8,000 million in assets with about 60 stocks. Singer is well-known for taking an activist investor stance in underperforming companies, and for buying sovereign debt at a discount, including countries such as Peru, Democratic Republic of the Congo, and Argentina.

These are the companies in his portfolio that are trading with a very low P/E ratio and even look undervalued according to the GuruFocus’ DCF calculator.

CA Inc. (CA)

He bought CA in 2015Q1 for the first time, and now he is holding 1,000,000 shares at an average price of $31.69/share that is giving him a loss of 4%.

CA develops and delivers software and services that help organizations manage and secure their IT infrastructures and deliver more flexible IT services.

CA is trading with a trailing 12-month P/E multiple of 15.90 and a forward P/E of 12.38. The stock during the last 5 years has risen by 57%. The stock is now trading -9.22% from its 52-week high and +20.16% from its 52-week low with a 200-day moving average of $30.55.

The DCF model gives a fair value of $52.10 that put the stock as undervalued and with a margin of safety of 42% at current prices. The Peter Lynch earnings line fair value is $26.7 that put the stock as fairly valued since it’s trading at about $30.

The company has a dividend yield of 3.30% with a payout ratio of 55% and strong growth rate.

3 Year 5 Year 10 Year
35.70% 56.10% 28.20%

James Barrow (Trades, Portfolio) is the main guru of the company, he holds 9,832,551 shares (2.24% of outstanding shares) with an impact of 0.44% on his portfolio. The second one is Brian Rogers (Trades, Portfolio) (he holds 0.68% of outstanding shares that is 0.36% of his total assets) followed by NWQ Managers (Trades, Portfolio) (it holds 0.61% of outstanding shares that is 1.09% of its total assets).

Cia De Saneamento Basico Do Estado (SBS)

He bought SBS in 2013Q4 for the first time, and now he is holding 14,659,000 shares at an average price of $10.05/share that is giving him a loss of 39%.

The company was formed from the merger of different sanitation companies and under the guidelines of the National Sanitation Plan. The company is engaged in providing basic and environmental sanitation services in the state of SĂŁo Paulo, as well as it supplies treated water and sewage services on a wholesale basis.

SBS is trading with a trailing 12-month P/E multiple of 15.40 and a P/B of 0.84. The stock during the last 5 years has dropped by 21%. The stock is now trading -52.15% from its 52-week high and +9.43% from its 52-week low with a 200-day moving average of $6.26.

The DCF model gives a fair value of $11.98 that put the stock as undervalued and with a margin of safety of 56% at current prices. The Peter Lynch earnings line fair value is $7.40 that put the stock still undervalued but with a lower margin of safety, since it’s trading at about $5.

The company has a dividend Yield of 8.24% with a reasonable payout ratio of 73%.

Paul Singer (Trades, Portfolio) is the main guru of the company, he holds 14,659,000 shares (2.14% of outstanding shares) with an impact of 0.98% on his portfolio. The second one is Charles Brandes (Trades, Portfolio) (he holds 2% of outstanding shares that is 1.02% of his total assets) followed by Jeremy Grantham (Trades, Portfolio) (he holds 1.33% of outstanding shares that is 0.15% of his total assets).

Oracle Corporation (ORCL)

He bought ORCL in 2012Q2 for the first time, and now he is holding 560,000 shares at an average price of $30.97/share that is giving him a total gain of 32%.

The company develops, manufactures, markets, hosts and supports database and middleware software, application software, cloud infrastructure, hardware system including computer server, storage and networking products and related services that are engineered to work together in cloud-based and on-premise information technology (IT) environments.

ORCL is trading with a trailing 12-month P/E multiple of 18.20 and a forward P/E of 14.62. The stock during the last five years has risen by 69%. The stock is now trading -13.59% from its 52-week high and +12.67% from its 52-week low with a 200-day moving average of $42.28.

The DCF model gives a fair value of $50.81 that put the stock as undervalued and with a margin of safety of 21% at current prices. The Peter Lynch earnings line fair value is $34.60 that put the stock overpriced, since it’s trading at about $40.

The company has a dividend Yield of 1.34% with a payout ratio of 23%.

First Eagle Investment (Trades, Portfolio) is the main guru of the company, it holds 37,600,182 shares (0.87% of outstanding shares) with an impact of 3.86% on its portfolio. The second one is James Barrow (Trades, Portfolio) (he also holds 0.87% of outstanding shares that is 2.21% of his total assets) followed by Donald Yacktman (Trades, Portfolio) (he holds 0.81% of outstanding shares that is 6.97% of his total assets).

Twenty-First Century Fox Inc (FOX)

He bought FOX in 2013Q2 for the first time, and now he is holding 14,895,526 shares at an average price of $29.67/share that is giving him a total gain of 10%.

The company is a diversified media and entertainment company. Its segments includes Cable Network Programming, Television, Filmed Entertainment and Direct Broadcast Satellite Television. The Cable Network Programming consists of the production and licensing of programming distributed through cable television systems, direct broadcast satellite operators and telecommunication companies primarily in the U.S., Latin America, Europe and Asia.

FOX is trading with a trailing 12-month P/E multiple of 7.80 and a forward P/E of 16.45. The stock during the last 5 years has risen by 153%. The stock is now trading -13.98% from its 52-week high and +8.07% from its 52-week low with a 200-day moving average of $33.56.

The DCF model gives a fair value of $62.99 that put the stock as undervalued and with a margin of safety of 48% at current price that is about $32. The Peter Lynch earnings line gives the same fair value ($64).

The company has a dividend Yield of 0.85% with a payout ratio of 6% with a good growth rate as follow :

3 Year 5 Year 10 Year
18.60% 13.90% 9.20%

Jeff Ubben (Trades, Portfolio) is the main guru of the company, he holds 31,385,000 shares (1.53% of outstanding shares) with an impact of 5.70% on his portfolio. The second one is Donald Yacktman (Trades, Portfolio) (he holds 1.29% of outstanding shares that is 4.02% of his total assets) followed by Paul Singer (Trades, Portfolio) who holds 0.72% of outstanding shares that is 6.06% of his total assets.

Summary

All the companies give to the investor a big margin of safety and are trading with a very low P/E ratio. Some of them pays to shareholders a high dividend yield and may be worth to think about having some of them in our portfolio.

Ticker Margin of Safety (DCF) P/E Yield
CA 42% 12.38 3.30%
SBS 56% 15.40 8.24%
ORCL 21% 18.20 1.34%
FOX 48% 7.80 0.85%