Barrow, Hanley, Mewhinney & Strauss' equity picks reflected a significant push into a popular bargain stock, as well as stocks of those industries that have performed well on Wall Street in recent months.
The fund in the first quarter reported assets of more than $62.8 billion for a quarter-over-quarter turnover of 4%. In all, the fund initiated 31 positions out of 425 stocks in total. The fund has been shrinking since just under a year ago, when it held more than 460 stocks and roughly $66 billion worth of assets.
Its largest new position was Bank of New York Mellon Corp. (BK, Financial). Shares of the financial institution totaled 2.28 million and sit in about 0.19% portfolio space. Stock valuation charts provided by GuruFocus suggest the stock may be slightly undervalued.
Axis Capital Holdings Ltd. (AXS, Financial), a global property and casualty insurance company, was the second-largest buy for 1 million shares in a portfolio space of about 0.1%. Valuation charts also suggest the stock of Axis is a bargain because it is trading below fair value.
Axis reported a disappointing loss in net income last year. But the stock grabbed the attention of a handful of gurus in the first quarter, which may signal a turnaround is in store.
Shares of the world’s largest oilfield services company, Schlumberger Ltd. (SLB, Financial), sat in 0.08% of the portfolio in the first quarter. A total of 729,000 shares were in the slot.
Many gurus are piling on the stocks of financial institutions, like JPMorgan Chase (JPM, Financial), Bank of America (BAC, Financial) and Bank of New York Mellon, as banks and insurance companies become well positioned to grow earnings in an environment of rising interest rates. The banks have a huge customer base, which represent large deposits and significant loan books.
Crowds of investors have also flocked to energy stocks in the early months of the year. The values of energy stocks are improving as a result of rising oil prices and a favorable economy.
The value-oriented manager also zeroed in on a meatier position in Comcast Corp. (CMCSA, Financial).
Barrow, based in Dallas, expanded that stake by more than 108%. GuruFocus shows that the asset manager held more than 33.8 million shares of the Philadelphia-based media giant in a portfolio space of 1.84% in the first quarter.
Barrow’s stake in Comcast, which, at roughly $32 a share, is trading at a discount of 77%, is valued at more than $1.15 billion. (The Peter Lynch chart estimates the stock’s fair market value is closer to a median of $73 a share.) After estimations of quarterly figures and stock values, Barrow reported an estimated loss of 16% since the fourth-quarter buy, according to GuruFocus.
Barrow also expanded its stake in the Chicago-based energy company Exelon Corp. (EXC, Financial) by a significant amount. It reported an increase in shares of 269% to total more than 12.4 million shares that sit in a portfolio space of 0.77%. The investment is valued at $485 million. The investment has produced a gain of 3% since it was initiated in the third-quarter of last year. GuruFocus shows Exelon’s current stock price of $40 a share is selling at a bargain, based on the Peter Lynch chart, which provides a median of $52.50 a share.
At 21% of holdings, Barrow’s portfolio largely favors financial services stocks. Health care is 16% of the portfolio, while industrials and energy each make up about 12%. Technology, consumer defensive, consumer cyclical and basic materials are one-third of the portfolio. Lesser positions are dedicated to communication services, real estate, exchange-traded funds and utilities.
Barrow operates by a mantra that its holdings will "always exhibit below-market price-to-earnings ratios, below-market price-to-book ratios, and above-market dividend yields, regardless of market conditions."
Barrow's holdings reported a rate of return of 19.51% in 2017, compared to 21.71% for the S&P 500. In 2016, it reported 16.34% versus the S&P’s 11.99%.
Bank of New York Mellon
Barrow has gained 1% on its investment in the New York-based global bank,. The bank was founded by American intellectual banking architects, such as Aaron Burr, Thomas Mellon and Alexander Hamilton. Barrow purchased shares for an average price of $55.65 a share.
Wednesday afternoon, the stock was enjoying a day of brisk trading in the market, similar to other bank stocks, including JPMorgan Chase, Bank of America, Morgan Stanley (MS, Financial) and Goldman Sachs (GS, Financial). In Wednesday afternoon trading, Bank of America kissed $30 a share, up 3%.
Bank of New York Mellon has a market cap of $303 billion, while GuruFocus ranks it 4 out of 10 in financial strength and 3 of 10 in profitability and growth. The bank is challenged by mounting debt. GuruFocus shows it has loaded up $12.7 billion in debt over the last three years.
Its stock was trading at $56.56 a share, up 1.74%, in afternoon trading. The stock has jumped 31% over the last three years.
It has a price-book ratio of 1.48 times, which is lower than 66% of more than 1,000 companies in its peer group. During the past 12 months, Bank of New York Mellon's average book value per share growth rate was 10.5% per year. Over the past three years, the average book value per share growth rate was 5.10%.
It has a price-sales ratio of 3.78, or 57% higher than its competitors.
The stock is trading at 14 times earnings, or lower than 55% of in excess of 860 peers in the global asset management industry. The stock is trading 13.21 times forward earnings and has a dividend yield of 1.71%, or lower than more than 100 of its peers.
The Peter Lynch chart suggests the stock is undervalued. The median is $60 a share.
Axis Capital Holdings
Barrow has produced an estimated gain on the stock of Bermuda-based Axis. GuruFocus shows an estimated gain of about 11%. The average purchase price for the shares was about $51 a share.
On Wednesday, the stock was trading at $57.68, up 0.51%. It reported gains of 8% in the last three years. Year to date, it is up 15%.
It has a market cap of $4.8 billion and is rated 5 out of 10 in financial strength and 4 of 10 in profitability and growth by GuruFocus. It had trouble turning a profit last year. It reported a net income loss of $369 million, compared to a gain of $513 million in the prior year. It reported a free cash flow in 2017 of $259 million. In 2012, its free cash flow exceeded $1.1 billion.
The Peter Lynch chart suggests the company is slightly undervalued or trading below fair market value. Its median is $67 a share.
The stock has a dividend yield of 2.68%.
A number of gurus hold the stock, including Richard Pzena (Trades, Portfolio), Donald Smith (Trades, Portfolio) and NWQ Managers (Trades, Portfolio).
Schlumberger
Barrow has produced an estimated loss of 2% in its investment of the global oilfield services company. It purchased shares for an average price of $69.84 a share. Schlumberger’s U.S. headquarters is in Houston. Its other principle executive offices are in Paris, London and the Hague.
Its stock has dropped 23% over the last three years. Year to date, it has slipped 1%. On Wednesday, it was trading for almost $69 a share. It was up 0.64%. Its 52-week range is $61 to $80 a share. The Peter Lynch chart reflects the median price of the stock well below its trading price on Wednesday.
The stock is trading at 33.44 times forward earnings. That is lower than 69% of its indstury peers. Schlumberger has a price-book ratio of 2.57 and a price-sales ratio of 3.05. Both ratios are more than 80% lower than industry peers.
The company has watched revenue per share decline and its operating margins drop over five years. The average rate of decline for its operating margin per year is -16.9%, according to GuruFocus.
Analysts, however, are optimistic about the company’s future prospects, in particular, its revenues. Analysts forecast revenues will climb to over $41 billion by 2020, compared to $34 billion by the end of the year, on earnings per share of $2.16 in 2018, compared to $3.60 in 2020. It also reports a Piotroski F-Score of 7, which indicates very healthy business operations.
GuruFocus ranks it 5 out of 10 in financial strength and a 5 of 10 in profitability and growth.
Gurus also like the stock because it is a loyal distributor of cash flow to shareholders. Even at the bottom of the energy industry’s worst cycle in recent years, Schlumberger was dispersing dividends. It reported a dividend yield of 2.91%, higher than 66% of the industry.
Many are also impressed with the company’s research and development programs.
Among the gurus who have invested in the stock are Dodge & Cox, First Eagle, Ken Fisher (Trades, Portfolio), John Rogers (Trades, Portfolio), Arnold Van Den Berg (Trades, Portfolio) and NWQ Managers (Trades, Portfolio).
Schlumberger has a market cap of $95 billion.
