A look at guru investor Ken Fisher (Trades, Portfolio)’s portfolio of undervalued stocks demonstrates to investors the proper way to optimize one’s holdings.
Fisher has an array of stocks that are sold at a bargain based on the discounted cash flow model. In at least a handful of cases, the guru has held his positions for multiple years, triggering returns in the triple-digits on bargains. In most cases, the stocks have high marks on GuruFocus' business predictability Rrankings and show robust scores on growth and profitability indicators.
Check it out.
Torchmark Corp.
McKinney, Texas-based life and health insurance provider, Torchmark Corp. (TMK, Financial), has sat in the $76 billion portfolio of more than 800 stocks for more than five years. In early 2012, the stock was priced at an average of just under $32 a share. At last check, on Monday afternoon, it sold for more than $84 a share.
Fisher’s investment portfolio has gained an estimated 106% from the holding, which packs a 64% discount. It sits in 0.02% of his equity portfolio.
In the second quarter, he diminished the holding by 5%, currently holding a total of more than 173,000 shares.
In Monday trading, the stock stood up 1.7% at $84.37 a share. It is a four-star rated stock, meaning it has an average annual growth rate of 9.8%, according to GuruFocus business predictability rankings. At a market cap of $9.57 billion, it is trading at 6.68 times price-earnings, which is higher than almost 90% of its competitors in the Global Insurance Life-Industry. It is trading at 13.85 forward earnings, lower than 70% of about 33 companies in the same industry. The price-book ratop reported 1.64 and the price-sales ratiop reported 2.36. Both ratios are lower than more than half of its competitors.
There is only one indicator of a severe warning sign for the stock, which has a financial strength of 4 out of 10 and a profitability and growth rating of 5 out of 10. And that indicator is its climbing debt load, which has reached $249 million in three years. Revenue and net income have been on the rise.
The company reported a dividend yield of 0.74%.
The Kroger Co.
Stock of the Cincinnati-based grocer has been a long-term presence in Fisher’s portfolio, sitting in about 0.01% portfolio space for multiple years. The company operates more than 2,700 supermarkets, 784 convenience stores and 319 jewelry stores in 35 states.
In late 2012, the stock was priced at under $13 a share. It sold on the market for a little over $28 a share on Monday. The equity portfolio now holds about 182,000 shares. In the second quarter, Fisher Investments reduced the holding about 5.63%. The stock has a discount of 76%. Only one other holding in the portfolio is a better discount. Shares of British American Tobacco (BTI, Financial) reported a 92% discount.
The portfolio reported an estimated gain of about 110% of Kroger’s holdings in the second quarter.
It traded on Monday for a price of $28.22 a share. The stock was slightly up 0.28% in afternoon trading. It is a five-star rated stock, which means it averages a gain in value of 12.1% a year. At a market cap of $22 billion, the supermarket retailer is trading at 6.81 times price-earnings. The ratio is higher than 82% of its competitors. It packs a dividend yield of 1.77%.
There are two severe warning signs for the company, which ranked a 6 out of 10 in financial strength and a 7 of 10 in profitability and growth. Long-term debt has been climbing to more than $1.9 billion in three years. It has also seen its operating margins decline. The average rate of decline is -6.3%.
Revenues for the grocery store operator have increased to more thn $122 billion. Net income stood at $1.9 billion.
For 2018, Kroger raised the low end of its net earnings guidance range to $3.64 to $3.79 per diluted share. The previous GAAP range was $3.59 to $3.79. The company raised the low end of its adjusted net earnings guidance range to $2 to $2.15 per diluted share for 2018, up from $1.95 to $2.15 previously.
The company continues to expect capital investments, excluding mergers, acquisitions and purchases of leased facilities, to be approximately $3 billion in 2018.
Its big announcement this year was plans to partner up with online grocery supermarket Ocado (LSE:OCDO), which is based in the United Kingdom. Under the agreement, Kroger will have access to the Ocado Smart Platform, which includes online ordering, automated fulfillment and home delivery capabilities.
SoftBank Group Corp.
Over 21.6 million shares of SoftBank Group Corp. (SFTBY, Financial) sit in 1.02% of the equity portfolio. Fisher expanded the holding by 3.62% in the most recent quarter.
The discount for the shares is estimated at 63% while the estimated gain has been an approximate 11%. He first began buying shares more than a year ago for $37.20 a share. Shares of the over-the-counter stock stood at $43 on Monday, down 1.62%.
With a financial strength rating of 4 out of 10 and a profitability and growth rating of 9 out of 10, the telecom and e-commerce company provides mobile communication services and the sale and lease of mobile devices in the U.S. It is based in Japan. It is an earnings generator, reporting average earnings growth of 15.7% a year over the last five years.
There were two severe warnings signs associated with the stock, in which its gross margins have been in decline over the last three years to a rate of -3.6%. The company’s assets also have been growing faster than revenue growth, which could mean the company is becoming less efficient. It reported a dividend yield of 0.46%. Net income stood at $9.8 billion while revenue exceeded $86 billion in 2018.
