Steven Romick Top Purchases: Abbott Laboratories, Aon, CIT Group Inc., Pfizer Inc, Vodafone Group plc

(GuruFocus, March 3, 2010) Recently, Steven Romick was seen interviewed by Consuelo Mack of WealthTrack when he talked about his investment philosophy, experience during the past decade, and some of his holdings.





During the past quarter, the theme was in Health Care, as he discussed in the January 18, 2010 Letter to Shareholders:

…Nevertheless, there have been some pockets of bad news that have allowed us to make certain investments at prices that we deemed inexpensive.


The arguments for health-care reform were loud and varied in 2009, filling minutes on television and the pages of your preferred newspaper. The fear of the unknown drove the share prices of many health-care companies down to a level we just couldn’t pass up. We purchased a number of them and we presently hold positions in Covidien, WellPoint, Health Net, Omnicare, Abbott Labs, and Pfizer. We believed, however, that the political window of opportunity did not exist for the tougher measures proposed, not when the expected cost was going to expand an already bloated Federal budget and, at a time when government-run entities are not viewed as efficiently managed. As a result, health-care represented 11.1% of the Fund at year-end 2009, up from 4.3% at the end of 2007.

During the quarter, these are his top purchases:


No. 1: Abbott Laboratories (ABT, Financial), Buy: 2.05% of the portfolio - Total: 500,000 Shares


Abbott Laboratories is a medicine and medical device company. Abbott Laboratories has a market cap of $84.42 billion; its shares were traded at around $54.58 with a P/E ratio of 14.7 and P/S ratio of 2.7. The dividend yield of Abbott Laboratories stocks is 2.9%. Abbott Laboratories had an annual average earning growth of 4.4% over the past 10 years. GuruFocus rated Abbott Laboratories the business predictability rank of 3.5-star.


No. 2: Aon (AON, Financial), Buy: 3.92% of the portfolio - Total: 1,348,700 Shares


Aon Corporation is a holding company whose operating subsidiaries carry on business in three distinct segments: insurance brokerage and other services; consulting; and insurance underwriting. Aon has a market cap of $11.21 billion; its shares were traded at around $40.94 with a P/E ratio of 13.1 and P/S ratio of 1.5. The dividend yield of Aon stocks is 1.5%.


Steve Romick commented on the stock in the aforementioned stock:

We are looking for competitively advantaged businesses that produce a relevant, necessary, cost-competitive product, and are managed for the benefit of passive outside owners. This helps to explain why we like Aon Corp. Aon is the world’s largest commercial insurance broker with operations in over 40 countries. When operated at sufficient scale, commercial brokerage is a wonderful business. Adequate insurance coverage is a prerequisite for economic activity in a modern, developed economy. Both insurers and insured rely on the broker. Because insurance coverage is a necessary good and brokers occupy a relatively unassailable position as middle man, commercial brokerage operated on sufficient scale and market share, amounts to a tax on economic activity. In addition, the brokerage business does not require any capital and revenues/profits naturally rise in line with increasing insurance premiums. Broker’s natural pricing mechanism (% of premium) and lack of capital requirement leave brokers relatively well positioned in the event of inflation.


We believe Aon is among the world’s best positioned and operated insurance brokerage firms. Over the past four years, management has made steady progress integrating the company’s divisions and systems and improving the company’s margins. Under current management, Aon has shown a commitment to returning capital to shareholders through share repurchase. We purchased Aon at less than 10x our view of normalized earnings.

Romick also discussed this holding in the interview with Consuelo Mack.


No. 3: CIT Group Inc. (CIT, Financial), Buy: 1.55% of the portfolio - Total: 740,303 Shares


CIT Group Inc. is a bank holding company that provides financing and leasing capital for commercial companies throughout the world.


CIT had a prepackaged debt workout and emerged from bankruptcy in 4Q09. Romick commented on his investment in CIT in his 3Q09 Letter to Shareholders:

We purchased CIT bonds based on analysis that suggests that the position should do well in the event CIT were to file for bankruptcy. We believed that we would make money in our investment across a range of outcomes that included both bankruptcy and restructuring. Please refer to our 2nd quarter commentary for the details of that discussion. Since then, CIT ran out of money and was forced to seek temporary “rescue” financing to prevent a disorderly free-fall bankruptcy and the situation bears revisiting now.


Thanks to our existing position and understanding of CIT, we were able to take advantage of the company’s July liquidity crisis by increasing our position at highly attractive levels (mid 50s) and help fund the company’s rescue facility (on terms that seem extremely favorable to the new lenders). CIT proposed an exchange offer and bankruptcy plan to existing unsecured bondholders in October. The proposal and plan were largely in line with our expectations for a restructuring of CIT. The principal of the exchange and plan are consistent with the rule of absolute priority. Under either the exchange or proposal, unsecured bondholders will receive over 95% of CIT’s economic value and functional control of the company’s board/strategy. We believe that the exchange is unlikely to succeed, but that the pre-packaged bankruptcy plan will succeed. Under that plan, we estimate that bondholders should realize more than 90 cents on the dollar (over time) through a combination of new notes and new common stock.

Of course, the events happened exactly has Romick expected and he ended the quarter with some CIT Group common stocks.


No. 4: Pfizer Inc (PFE, Financial), Buy: 2.4% of the portfolio - Total: 1,737,100 Shares


Pfizer Inc is a research-based, global pharmaceutical company. Pfizer Inc has a market cap of $142.02 billion; its shares were traded at around $17.6 with a P/E ratio of 8.7 and P/S ratio of 2.9. The dividend yield of Pfizer Inc stocks is 4.1%. Pfizer Inc had an annual average earning growth of 11% over the past 10 years.


No. 5: Vodafone Group plc (VOD, Financial), Buy: 3.01% of the portfolio - Total: 1,718,000 Shares


Vodafone AirTouch Plc is the world's largest international mobile communications firm. Vodafone Group Plc has a market cap of $114.93 billion; its shares were traded at around $21.85 with and P/S ratio of 1.8. The dividend yield of Vodafone Group Plc stocks is 5.8%.


Here we found Romick in agreement with Long time GuruFocus columnist Vitaliy Katsenelson as he commented in one of the recent Yahoo! Finance interview

Mobile Giant: Often overlooked by U.S. investors - and chastised as plodding by those who do - Vodafone is the world's largest mobile operator by sales. The firm just announced strong fiscal third quarter results and raised its guidance. Vodafone's 45% stake in Verizon Wireless is key to Katsenelson's bullish thesis; he believes will soon revive its dividend payments to Vodafone and majority owner Verizon. Meanwhile, Vodafone pays a 7% dividend yield; like Pfizer, owning Vodafone is like owning a "bond with a call option," he says.

Conclusion


Steven Romick is a concentrated investor who bets on a few sectors. For 4Q09, he took advantage of the market weakness in Health Care sector.


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