Pzena Investment Management founder Richard Pzena (Trades, Portfolio) released his first-quarter portfolio last week, listing 11 new holdings.
The guru’s New York-based firm says on its website it uses a classic value approach to invest in good businesses that are underperforming their historical earnings power.
Based on these criteria, Pzena’s five largest new buys for the quarter were PVH Corp. (PVH, Financial), Mohawk Industries Inc. (MHK, Financial), Westinghouse Air Brake Technologies Corp. (WAB, Financial), CNO Financial Group Inc. (CNO, Financial) and Spectrum Brands Holdings Inc. (SPB, Financial).
PVH
In his largest trade of the quarter, Pzena invested in 1.9 million shares of PVH, dedicating 1.29% of the equity portfolio to the stake. The stock traded for an average price of $109.32 per share during the quarter.
The New York-based apparel company, which owns brands like Van Heusen, Tommy Hilfiger, Calvin Klein and IZOD, has a $9.32 billion market cap; its shares were trading around $124 on Monday with a price-earnings ratio of 12.84, a price-book ratio of 1.61 and a price-sales ratio of 0.99.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated PVH’s financial strength 6 out of 10. While the company has sufficient interest coverage, the Altman Z-Score of 2.67 indicates it is under moderate fiscal pressure.
The company’s profitability and growth fared a bit better, scoring an 8 out of 10 rating. In addition to operating margin expansion, PVH is supported by strong returns that outperform competitors, consistent earnings and revenue growth and a perfect Piotroski F-Score of 9, which implies business operations are healthy. The apparel manufacturer also has a business predictability rank of three out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 8.2% per year.
With his purchase of 2.59% of outstanding shares, Pzena became PVH’s largest guru shareholder. Other top guru investors include Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Ray Dalio (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Mariko Gordon (Trades, Portfolio), Richard Snow (Trades, Portfolio), Scott Black (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss.
Mohawk Industries
After closing a position in Mohawk Industries in the first quarter of 2013, the guru opened a new 1.3 million-share stake, allocating 0.94% of the equity portfolio to the holding. The stock traded for an average price of $130.07 during the quarter.
The flooring manufacturer, which is headquartered in Georgia, has a market cap of $9.96 billion; its shares were trading around $137.31 on Monday with a price-earnings ratio of 13.27, a price-book ratio of 1.29 and a price-sales ratio of 1.02.
According to the Peter Lynch chart, the stock is undervalued.
Mohawk’s financial strength was rated 6 out of 10 by GuruFocus. Although the company has adequate interest coverage, the Altman Z-Score of 2.9 suggests it is under some fiscal stress.
The company’s profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin, strong returns that outperform industry peers and a moderate Piotroski F-Score of 5, which indicates business conditions are stable. Mohawk also has a one-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.
Of the gurus invested in Mohawk Industries, First Pacific Advisors (Trades, Portfolio) has the largest position with2.88% of outstanding shares. Ruane Cunniff (Trades, Portfolio), Steven Romick (Trades, Portfolio), John Rogers (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Simons’ firm, Tom Gayner (Trades, Portfolio), Pioneer, Robert Olstein (Trades, Portfolio), Greenblatt, Charles Brandes (Trades, Portfolio), Caxton and Murray Stahl (Trades, Portfolio) are also shareholders.
Westinghouse
The investor picked up 919,252 shares of Westinghouse, expanding the equity portfolio 0.37%. The stock traded for an average price of $72.15 per share during the quarter.
The Pennsylvania-based company, which provides value-added, technology-based products to freight rail, passenger transit and industrial customers, has a $12.12 billion market cap; its shares were trading around $74.49 on Monday with a price-earnings ratio of 35.45, a price-book ratio of 0.92 and a price-sales ratio of 1.55.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated Westinghouse’s financial strength 5 out of 10. As a result of issuing approximately $2.6 billion in new long-term debt over the last three years, the company has poor interest coverage. In addition, the low Altman Z-Score of 1.19 warns the company is at risk of going bankrupt.
The company’s profitability and growth fared better with a 7 out of 10 rating. Although the operating margin is in decline, the company is supported by returns that outperform competitors and a moderate Piotroski F-Score of 4. Despite posting consistent earnings and revenue growth, the 2.5-star business predictability rank is on watch. According to GuruFocus, companies with this rank typically see their stocks gain an average of 7.3% per year.
Barrow, Hanley, Mewhinney & Strauss is the company’s largest guru shareholder with 1.66% of outstanding shares. Other gurus who have positions in the stock include the T Rowe Price Equity Income Fund (Trades, Portfolio), Pioneer, Chuck Royce (Trades, Portfolio), Dalio, Ken Fisher (Trades, Portfolio) and Caxton.
CNO Financial
Having previously sold out of a position in CNO Financial in the third quarter of 2012, Pzena established a new 2.4 million-share stake. The trade had an impact of 0.21% on the equity portfolio. The stock traded for an average price of $16.93 during the quarter.
The financial services company, which is based in Carmel, Indiana, has a market cap of $2.72 billion; its shares were trading around $17.07 on Monday with a price-book ratio of 0.69 and a price-sales ratio of 0.63.
The median price-sales chart shows the stock is trading slightly below its historical value.
Weighed down by low cash-debt and debt-to-equity ratios, CNO Financial’s financial strength was rated 3 out of 10 by GuruFocus.
The company’s profitability and growth didn’t fare much better, scoring a 4 out of 10 rating as a result of negative margins and returns. CNO’s one-star business predictability rank is also on watch.
With 4.09% of outstanding shares, Hotchkis & Wiley is the company’s largest guru shareholder. Snow, Simons’ firm and Pioneer also own the stock.
Spectrum Brands
The guru purchased 609,735 shares of Spectrum Brands, giving 0.18% of the equity portfolio to the holding. The stock traded for an average price of $53.31 per share during the quarter.
The Madison, Wisconsin-based company, which manufactures everything from home and personal care products to pet, home improvement and garden products, has a $3.07 billion market cap; its shares were trading around $62.22 on Monday with a price-earnings ratio of 10.43, a price-book ratio of 2.39 and a price-sales ratio of 0.76.
The Peter Lynch chart suggests the stock is undervalued.
Spectrum Brands’ financial strength and profitability and growth were both rated 4 out of 10 by GuruFocus. In addition to poor interest coverage, the Altman Z-Score of 0.79 warns the company is in danger of bankruptcy.
While the operating margin is expanding and returns are strong, the moderate Piotroski F-Score of 4 and declining revenue per share have put pressure on the company. In addition, the one-star business predictability rank is on watch.
Leucadia National (Trades, Portfolio) is the company’s largest guru shareholder with 13.99% of outstanding shares. Simons’ firm, Greenblatt, Mario Gabelli (Trades, Portfolio) and Stahl are also shareholders.
Additional trades
During the quarter, Pzena also established positions in Super Micro Computer Inc. (SMCI, Financial), Anthem Inc. (ANTM, Financial), Apple Inc. (AAPL, Financial), Exelixis Inc. (EXEL, Financial), j2 Global Inc. (JCOM, Financial) and RenaissanceRe Holdings Ltd. (RNR, Financial).
The guru’s $18.38 billion equity portfolio, which is composed of 171 stocks, is largely invested in the financial services sector.
Disclosure: No positions.
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