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Yamil Berard
Yamil Berard
Articles (192) 

Michael Price's Top Picks of 1st Quarter

The merger between Meredith Corp and Time Inc. drew his attention

Value investor Michael Price (Trades, Portfolio) initiated three major positions as part of an equity portfolio of mostly small- to mid-cap stocks in the first quarter.

The guru’s New York-based MFP Investors opened a position in broadcaster and media publisher Meredith Corp. (NYSE:MDP) soon after its merger with legacy publisher Time Inc. (NYSE:TIME).

Price now holds 2.17% of the Iowa-based media company that has expanded its reach to 175 million U.S. consumers, including the widely sought-after audience of millennial women. The all-cash $2.8 billion purchase of Time was partly financed by the private equity firm of brothers David and Charles Koch.

Other transactions

MFP Investors also initiated a 2.11% position in Bunge Ltd. (NYSE:BG), a New York-based international soybean exporter. Last year, the company successfully fended off a takeover from Swiss company Glencore (GLNCY), one of the world's largest mining and commodity traders. Some analysts thought the merger could improve profits for Bunge because of persistent problems with the glut of grain supply in the global markets.

Genworth MI Canada Inc. (GMICF) was the guru’s third major position. The over-the-counter equity sits in 1% of the portfolio. Genworth is a Canadian residential mortgage insurer that serves first-time home buyers.

Investing style

Price holds a total of 119 stocks in a portfolio valued at $842 million. He has a value-based approach to investing, picking stocks of out-of-favor small-cap companies that are of good value.

He’s also famous for making unusual statements about investing. He has said that one of his favorite times to buy is when the markets are bad. “We wait for bad times,’’ he said. “I love to read about losses.”

He worked for Max Heine, who led one of the best mutual funds of his day in the 1970s and 1980s.

A University of Oklahoma graduate, Price has also been a generous donor of the institution. The university named its business school after the guru.

Meredith Corp.

The guru purchased 340,000 shares for an average price of under $60 a share. So far, the investment has posted an estimated loss of 17%. Year to date, shares are trading for $49 a share, kissing a 52-week low of just under $48.80 a share.

In early trading on Tuesday, the stock was down 1% on a day that began with poor trading after eight consecutive days of increases. In the early afternoon, the S&P 500 stood at 2,708.52, down 0.79%, while the Dow Jones Industrial Average stood at 24,692, down 0.83%.

The market has been pleased by the merger. In late November, Meredith shares jumped more than 8% in premarket trading. However, six months later, 33% of its float is shorted as investors worry about its slowdown in growth of revenue per share and new debt..

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The combined company was billed as a “media powerhouse” with $4.8 billion in revenues, including $2.7 billion in advertising dollars. Meredith owns 17 television stations in 12 markets. It also publishes magazines like Better Homes and Gardens. Time publishes magazines like People, Sports Illustrated, InStyle, Time, Real Simple, Southern Living, Entertainment Weekly, Travel + Leisure, Cooking Light, Fortune and Food & Wine.

The company has a price-earnings ratio of 20.11, which is higher than 81% of its Global Publishing peers. It has a price-book ratio of 1.94, which is lower than 69% of its peers. Its price-sales ratio is 61% lower than its peers at 1.18.

It has produced a dividend yield of 4.28% for investors. That is 65% higher than its Global Publishing peers. In market cap, it has been in slow-growth mode, up 4% to over $2.2 billion since 2013.

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The merger has boosted its return on equity, which is 20% compared to 3.69% in June 2014. Its operating margins have been growing steadily to 18% from 11% in the last decade.

Many recent figures provided to GuruFocus are preliminary.

Long-term debt, after the merger, was reported at $3 billion in March. A preliminary figure of free cash flow reported a loss of $18 million, also as of March. Net income, as of June 2017, was reported as $276 million.

Analysts project Meredith will produce $3 billion in revenues next year and earnings of almost $800 million. Forecasts are for $4 in earnings per share in 2019. Meredith was ranked 5 out of 10 in financial strength and 7 of 10 in profitability and growth.

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Bunge

Price purchased 240,000 shares of the New York-based soybean exporter for an average price of $75.38 a share. The stock is estimated to have produced a loss of 6% since he purchased the shares.

The agribusiness and food company was trading at $71 a share on Tuesday afternoon. It has seen a 6% increase year to date. The 52-week range of Bunge is $63.87 to $83.75 a share. It has struggled to make a profit in recent years. Over 10 years, it reported average annual earnings of -3.3%. It had operating margins of less than 3% in the last six years.

In net income, it reported $160 million in December 2017. In revenue, it reported $5.7 billion in December 2017, compared to $42.6 billion the prior year. Long-term debt has been mounting. It stood at $4 billion in December, compared to $2.5 billion eight years ago.

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It has a market cap of $10 billion. It is ranked 5 out of 10 in financial strength and 4 of 10 in profitability and growth.

Mario Gabelli (Trades, Portfolio) also bought shares of the company in the first quarter.

Genworth MI Canada Inc.

Price bought 272,500 shares for an average price of just under $33 a share. The investment has produced an estimated loss of 3%. The guru last held shares in the second quarter of last year, but quickly sold in the following quarter.

On Tuesday, it was trading at $31.86. It is an over-the-counter stock.

The company has a price-earnings ratio of 6.73, which is higher than its peers. It has a price-book ratio of 0.91, which is higher than its peers. It has a price-sales ratio of 3.71, lower than 90% of its peers.

It produced a dividend yield of 4.54% for its investors. It has a financial strength rating of 4 out of 10 and a profitability and growth rating of 5 out of 10. Annualized average earnings were reported as 4.2% over the last five years. Net income reached $413 million in December 2017, compared to $312 million in the prior year. Long-term debt stood at $339 million in December 2017. Free cash flow was reported at $342 million.

Other buys and sells

Other buys included Colony NorthStar Inc. (CLNS), Coty Inc. (COTY) and The Hain Celestial Group Inc. (NASDAQ:HAIN). The guru also opened a small position in Facebook (NASDAQ:FB), which sits in 0.13% of the portfolio. Smaller positions of 0.09% or less were launched in OP Bancorp (NASDAQ:OPBK), Park Electrochemical Corp (PKE) and Forest City Realty Trust Inc. (NYSE:FCE.A). Top sells for Price included Citizens Financial Group Inc. (CFG), where he held 0.91% of the company. Other top sells included Tenet Healthcare Corp. (NYSE:THC) and Keysight Technologies Inc. (KEYS)


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