The asset management team of Barrow, Hanley, MeWhinney & Strauss went bargain hunting in the final months of the year.
The Dallas-based firm established new positions in telecommunications conglomerate Comcast Corp. (CMCSA, Financial). It also snatched up shares of Amerco Inc. (UHAL, Financial), owner of the U-Haul brand of trucks and moving supplies. Each stock has a discount of at least 70%, according to the discounted cash flow model that is calculated by GuruFocus. Year to date, both stocks are down by about 10%.
Value investors typically take pride in identifying companies that have fallen out of favor but have the strong potential to make gains later on. These investors base their decisions on extensive research and are trained to ignore the negative buzz around a stock.
Barrow Hanley is no different. Its strategy is to select stocks on a bottom-up basis. Barrow Hanley looks for price-earnings and price-book ratios that are below the market, while seeking a dividend yield that is above the market.
For example, as part of a strategy for its large-cap value equity fund, which is valued at over $42 billion, the firm has set a price-earnings ratio for the trailing 12 months of 20.2, a price-book ratio of 2.3 and dividend yield of 2.5%. The S&P 500’s price-earnings is 23.2, price-book, 3.2 and dividend yield, 1.8%.
In 2016, Barrow Hanley posted a 16.34% rate of return compared to the S&P 500’s 11.96%.
Overall, Barrow Hanley’s 15-year cumulative is a gain of 41.4% above the index, which translates into a gain of approximately 1% per year.
Comcast
Philadelphia-based Comcast is the global media and technology company that also operates NBCUniversal. It is the world's largest pay-TV company after AT&T Corp. (T, Financial). Its stock price has fallen by 11% year to date.
The money manager paid an average of $37.59 a share in the fourth quarter. It purchased 16.2 million shares of the entertainment company. The shares make up 0.97% of the portfolio.
In early trading on Friday, the stock stood at $36.43, up 0.77%. The company has a price-earnings ratio of 7.68 versus the median of 18.38 and a price-book ratio of 2.47 versus the median of 2.17. It has a price-sales ratio of 2.06 versus the median of 1.56. Its dividend yield is 1.73%. It forward dividend yield is 2.10%.
The company has a market cap of $168 billion.
Comcast has seen consistent growth in revenue per share, dividend yield and its operating margins have been expanding.
One potential concern is long-term debt, which has been steadily increasing over the last 15 years and is now at $59 billion.
Following the standard of legendary investor Peter Lynch, the stock appears to be undervalued. The company’s median stock price is closer to $71 a share if you compare the stock's price-earnings ratio.
Lynch writes in one of his bestsellers: “If you bought familiar growth companies, when the stock price fell well below the earnings line, and sold them when the stock price rose dramatically above it, the chances are you’d do pretty well.”
Amerco
Barrow Hanley bought 411,818 shares of the stock for an average price of $374.04 a share. It sits in roughly 0.23% of the portfolio.
The company has a price-earnings ratio of 8.54 versus an industry median of 17.07. It has a price-book ratio of 2 versus an industry median of 1.78.
The company has a market cap of $6.7 billion. GuruFocus ranks it 5 of 10 in financial strength and 8 of 10 in profitability and growth.
Its revenue per share has been rising for the last 15 years. In earnings per share, the company reported $20.34 in 2017.
Operating margins also have been rising since 2003. The company reported a slight dip in 2017 to 21.69% compared to 26.46% in 2016.
In Friday trading, shares stood at $341.83 a share. Year to date, the stock has fallen 10%.
