Tag Archives: management

12 Top Picks From Buffett And Others

Summary Here is what top funds own in the latest quarter. Opportunities remain in these positions. Here are some of the best ideas. Media General (NYSE: MEG ) While the long term is what really matters, Warren Buffett has returned 1,826,163% since 1965 which is a strong start by any measure. If he can keep this up in the second half of his career, he could literally end up with all of the money currently in the world. Buffett’s Berkshire Hathaway ( BRK.A / BRK.B ) owns 3.4 million shares of MEG. It is up over 4% since this position was first disclosed on StW . If you would like to read more about it, you might like Catalysts Drive Media General’s 20% Upside . Additionally, we discussed it in Is Nothing Sacred? Rangeley Podcast #2 . It currently costs under $16 and will probably be sold for over $17 in a deal announced before yearend. Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we’re trying to do. It’s imperfect, but that’s what it’s all about. – Warren Buffett It has been a busy quarter for Berkshire. They doubled their position in Phillips 66 (NYSE: PSX ). Berkshire’s Todd Combs and Ted Weschler added to Axalta (NYSE: AXTA ), Liberty Media ( LMCA / LMCK ), Liberty Global ( LBTYA / LBTYK ), 21st Century Fox (NASDAQ: FOXA ) and Charter (NASDAQ: CHTR ). Folks in Omaha are substantially overlapping with John Malone these days. In terms of stock sales, Berkshire reduced its exposure to Chicago Bridge & Iron (NYSE: CBI ). A number of other positions were the result of corporate events as opposed to active trades. For example, Buffet now owns over 325 million shares of Kraft Heinz (NASDAQ: KHC ) as a result of the successful completion of the merger between Kraft and Heinz. Berkshire has held onto the 59 million shares of AT&T (NYSE: T ) that they received as a result of its acquisition of DirecTV. John Malone, the perpetual new ticker generator, recently created the new Liberty Global Latin American ( LILA / LILAK ) tracking stocks. Berkshire received these as a result of their Liberty Global stake. The Berkshire portfolio is active in terms of ongoing corporate events in the latter half of 2015. They own 10 million shares of Charter after increasing the size by 21%. Charter is wading through the regulatory process of acquiring Time Warner Cable (NYSE: TWC ). They own 4.2 million shares of Precision Castparts (NYSE: PCP ) which Berkshire is in the process of acquiring. There is a $4.02 net arbitrage spread which offers a 6% annual return if they close the deal by next March. No impediments are expected to delay or threaten the deal’s closing. They own 30 million shares of Suncor (NYSE: SU ) which recently launched an unsolicited offer for Canadian Oil ( OTCQX:COSWF ). While Buffett is not a fan of hostile bids, his portfolio companies do not necessarily share his dislike. M&T (NYSE: MTB ) is a 5.3 million share position for Buffett. It is integrating its recently completed acquisition of Hudson City Bancorp. Liberty Global is buying Cable & Wireless ( OTCPK:CBWYY ). Berkshire owns 19 million shares of Liberty Global. Finally, Berkshire has about 11 million shares of General Electric (NYSE: GE ) which is refocusing on its industrial portfolio through a series of major asset sales. What’s next after the PCP deal closes? Another collaboration with 3G on the horizon? We could see another food or beverage deal within the next year that breaks their prior record for scale. ChipMos (NASDAQ: IMOS ) Seth Klarman , one of history’s greatest investors, added 14%% to his position in IMOS, taking it to about 3.8 million shares for his fund, Baupost Group. IMOS is up by over 19% since it was first disclosed on StW . For background reading on this idea, please check out 30% Underpriced? How Is The Market So Wrong About ChipMOS? It is still a compelling long opportunity worth substantially more than it costs. Value investing is at its core the marriage of a contrarian streak and a calculator. – Seth Klarman Greenlight RE (NASDAQ: GLRE ) David Einhorn’s annual returns have been about 19% per year. I highly recommend his book, Fooling Some of the People All of the Time , to any investor, especially one interested in short ideas. Greenlight is down over 17% this year. One way to get exposure to a potential recovery would be to buy Greenlight RE . Its book value per share was $23.29 at the beginning of the quarter. When someone doesn’t want you to look at traditional metrics, it’s a good time to look at traditional metrics. – David Einhorn Allergan (NYSE: AGN ) Stephen Mandel, who used to work as a consumer analyst at Julian Robertson’s Tiger, added 13% to his Allergan position. His hedge fund, Lone Pine Capital, owns about 2.6 million shares. AGN is in a deal with Pfizer (NYSE: PFE ) in which AGN holders will get about $363 per share in PFE equity. Even with a wide spread, the deal is worth between $310-325 per AGN share. Pershing Square Holdings ( OTCPK:PSHZF ) Bill Ackman’s Pershing Square is down about 25% year to date. One way to get exposure to a potential recovery is via a long position in Pershing Square Holdings. Its NAV/share was $19.92 while its price was $19.45 as of November 17. Aercap ( AER ) Lee Ainslie has compounded at around 14% per year for two decades. He added 9% to his Aercap position which now stands at 4.9 million shares in his hedge fund, Maverick Capital. For background reading on AER, I recommend Aercap: An Incredible Bargain Hiding In Plain Sight, 40-50% Upside (For Starters) , winner of a recent Seeking Alpha investing competition . Danaher (NYSE: DHR ) Dan Loeb has annualized at over 20% for over 20 years. In a new position, his fund, Third Point, owns 2.3 million shares of DHR. DHR underwent a complex series of transactions this year. The split into two companies will be finalized by the end of next year. The two key managers, Mitch and Steven Rales, will each serve on both boards. This is crucial as they have proved to be among the very best asset allocators among many corporate insiders. It is up over 13% since it was disclosed in StW earlier this year. For further reading on this idea, I recommend Better Than The Berkshire Hathaway? Danaher’s Value . Our philosophy is to be opportunistic all the way across the capital structure from debt to equity, across industries and different asset classes. – Dan Loeb Altera (NASDAQ: ALTR ) John Paulson was the single greatest exploiter of the price opportunities presented by the housing finance bubble. What is he up to this year? In a new position, his hedge fund, Paulson & Co., recently bought about 3.5 million shares of ALTR. The $1.45 net arbitrage spread currently offers a 7% annual return if the deal closes by next April. It is up over 28% since first discussed on StW . If you want to learn more about this opportunity, then click on 6% Yield From Intel’s Deal With Altera . Baker Hughes (NYSE: BHI ) Jeff Ubben is one of the greatest activist investors of all time. His ValueAct Capital owns over 37 million shares of Halliburton (NYSE: HAL ) and 23 million shares of BHI. He supports their merger and could substantially benefit from the 73% annual return from the arbitrage spread if the deal closes by next March. Cigna (NYSE: CI ) Leon Cooperman’s Omega Advisors has earned an annualized net return of about 11% since inception. His fund owns about a quarter of a million shares of CI. He will benefit from a 42% annual return if CI’s sale to Anthem (NYSE: ANTM ) closes by next August. Time Warner Cable One of Chase Coleman’s forefathers, Peter Stuyvesant built the wall in Wall Street. He has compounded at over 21% since inception. TWC is a new position of Chase’s Tiger Global hedge fund. He newly owns about 580,000 shares. The $17.83 net arbitrage spread offers a 26% annual return if the deal closes by next April. It is up over 35% since we disclosed our position in this equity. You can read more about it here . Humana ( HUM ) After Larry Robbins came out of Leon Cooperman’s Omega Advisors, he turned Glenview Capital into a spectacular success. With over 6.6 million shares, his largest position is HUM. After adding 1% to this position over the quarter, it is now about 6% of his portfolio. Robbins has probably been the greatest beneficiary of the Affordable Care Act, racking up massive profits on his investments in health insurers. There will be more to come if the Aetna (NYSE: AET ) deal to acquire HUM slips past its antitrust review. There is a 38% annual return if it closes by next August. As he also owns 5.5 million shares of AET, his position in the combined company will still be substantial if and when the deal closes. Briadcom (NASDAQ: BRCM ) Andreas Halvorsen’s Viking Global has returned an average of 13% over the past ten years. One big new position of his is BRCM. He owns almost 24 million shares. He will benefit from a 13% annual return if BRCM’s sale to Avago (NASDAQ: AVGO ) closes by next February. It is up over 13% since we disclosed our position in this equity. You can read about the details here . Solarwinds (NYSE: SWI ) Andrew Spokes’ Farallon Capital is one of the largest and best funds that focuses heavily on risk arbitrage. His fund recently started a new position in SWI. Today, he owns about 2.4 million shares. The arbitrage spread offers an annual return of about 13% if it closes by next March. It returned about 22% since we disclosed our position in this one. If you are interested in learning more, you can get the details in this edition of M&A Daily . Icahn Enterprises (NASDAQ: IEP ) Carl Icahn has defined the role of activist investor since it was called “corporate raider”. I prefer the name “owner”. His Icahn Capital owns 115 million shares of IEP; the last I heard, he is satisfied with management. IEP is 28% of the portfolio, up 2% in the past quarter. IEP is down about 28% since I disclosed it as a short earlier this year. I like Icahn. However, he is on the long, long list of people that I do not want to pay a premium for. There’s a strategy behind everything. Everything fits. Thinking this way taught me to compete in many things, not only takeovers but chess and arbitrage. – Carl Icahn Exits One of the big exits of this past quarter was DirecTV, which was sold to AT&T . This was a top position of many funds including mine. Next Ideas What are the best ideas for 2016? We will disclose our #1 candidate in early December on StW . Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Best And Worst Q4’15: Mid Cap Growth ETFs, Mutual Funds And Key Holdings

Summary The Mid Cap Growth style ranks ninth in Q4’15. Based on an aggregation of ratings of 10 ETFs and 343 mutual funds. RFG is our top-rated Mid Cap Growth style ETF and CCPIX is our top-rated Mid Cap Growth style mutual fund. The Mid Cap Growth style ranks ninth out of the twelve fund styles as detailed in our Q4’15 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Mid Cap Growth style ranked eighth. It gets our Dangerous rating, which is based on an aggregation of ratings of 10 ETFs and 343 mutual funds in the Mid Cap Growth style. See a recap of our Q3’15 Style Ratings here. Figure 1 ranks from best to worst all ten Mid Cap Growth ETFs and Figure 2 shows the five best and worst-rated Mid Cap Growth mutual funds. Not all Mid Cap Growth style ETFs and mutual funds are created the same. The number of holdings varies widely from 23 to 573. This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Mid Cap Growth style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 (click to enlarge) * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 (click to enlarge) * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Virtus Equity Trust Mid-Cap Core (VIMCX, VMCCX) and the Professionally Managed Portfolios Villere Equity Fund (MUTF: VLEQX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The Guggenheim S&P MidCap 400 Pure Growth ETF (NYSEARCA: RFG ) is the top-rated Mid Cap Growth ETF and the Calvert World Values Capital Accumulation Fund (MUTF: CCPIX ) is the top-rated Mid Cap Growth mutual fund. RFG earns an Attractive rating and CCPIX earns a Very Attractive rating. The Ark Industrial Innovation ETF (NYSEARCA: ARKQ ) is the worst-rated Mid Cap Growth ETF and the Tocqueville Opportunity Fund (MUTF: TOPPX ) is the worst-rated Mid Cap Growth mutual fund. ARKQ earns a Neutral rating and TOPPX earns a Very Dangerous rating. Lear Corporation (NYSE: LEA ) is one of our favorite stocks held by Mid Cap Growth ETFs and mutual funds and earns an Attractive rating. Since going public in 2010, Lear has grown after-tax profits ( NOPAT ) by 7% compounded annually. The company has maintained NOPAT margins ~5% and currently earns a top quintile return on invested capital ( ROIC ) of 17%. Such strong fundamentals have propelled Lear shares over 20% higher this year, but shares still remain undervalued. At its current price of $125/share, LEA has a price to economic book value ( PEBV ) ratio of 1.1. This ratio implies the market expects Lear to only grow NOPAT by 10% for the remainder of its corporate life. If Lear can grow NOPAT by just 8% compounded annually for the next decade , the stock is worth $174/share today – a 39% upside. CoStar Group Inc. (NASDAQ: CSGP ) is one of our least favorite stocks held by Mid Cap Growth ETFs and mutual funds and earns a Dangerous rating. Despite reporting positive and increasing net income over the past five years, CoStar’s economic earnings have fallen from -$3 million in 2010 to -$131 million on a TTM basis. The company’s ROIC has fallen from 9% to a bottom quintile 1% over this same timeframe. CSGP is up ~3% year-to-date and is currently overvalued given its deteriorating business operations. To justify its current price of $204/share, CoStar must grow profits by 20% compounded annually for the next 19 years. With such lofty expectations baked into the stock price investors would be wise to avoid CSGP. Figures 3 and 4 show the rating landscape of all Mid Cap Growth ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Funds (click to enlarge) Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Blaine Skaggs receive no compensation to write about any specific stock, style, or theme.

Consider Midwest Utility ITC Holdings For Your DGI Portfolio

Summary Following my analysis of Wisconsin Energy, Southern Company and Avista, I decided to look at another possible growth prospect in the utilities sector. ITC offer superb growth opportunities together with great fundamentals and fair valuation. However, there are still several risk factors that must be taken into consideration, especially when we know it is a utility company. If you follow my last two articles, you will see that lately I am writing and debating with the readers about utility companies. I also wrote two articles about utilities back in March. The debate is whether one should look for a classic utility with high yield and low growth such as Southern Company (NYSE: SO ) or medium yield and medium growth like Wisconsin Energy (NYSE: WEC ). I must also note that I invest in Avista (NYSE: AVA ) as well, which also has medium yield and growth. I mentioned two out of the three types of dividend growth stocks. The third one is low yield and high growth. ITC Holdings (NYSE: ITC ) is a great example of such a company. I am going to analyze this company in this article, as I try to look for new investment opportunities. I found this stock while doing one of my routine screening, and I found out that it isn’t well known among dividend growth investors. ITC Holdings is a holding company. Through its regulated operating subsidiaries, International Transmission Company, Michigan Electric Transmission Company, ITC Midwest LLC and ITC Great Plains. It is engaged in the transmission of electricity in the U.S. It operates high-voltage systems in Michigan Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri and Kansas that transmit electricity from generating stations to local distribution facilities connected to its systems. Fundamentals The fundamentals shown by ITC are really remarkable. They are remarkable for any company, and especially for a utility company. The revenue rose steadily over the past decade. Ten years passed since the initial IPO of the company, and in these ten years the revenue grew from $200 million in 2005 to $1020 million in 2014. This is CAGR of 17.69%. This rate will not be sustained, but the revenue will keep growing in the next years to come at high single digits according to the management. ITC Revenue (Annual) data by YCharts EPS also grew in a very impressive manner, and it is going to grow quickly in the next years to come. Issuance of new shares slowed the EPS growth, but as you will see, it had very little effect. The EPS grew from $0.353 in 2005 to $1.54 in 2014. This is CAGR of 15.87%. This is again an amazing number especially for a utility. The company is forecasted to show EPS of over $2 in 2015. The company reiterates its five year plan, and is going to show double digits EPS growth until 2018. ITC EPS Diluted (Annual) data by YCharts The dividend also grew quickly over that decade. It grew at a slower pace than the EPS, so the payout ratio actually declined to around 36%. In addition, the company told investors in November that it might expand the payout up to 40% in the future. The dividend grew from $0.175 in 2005 to $0.61 in 2014. This is CAGR of 13.3% which is great. In 2015 the dividend was raised by additional 15%, and the management is willing to raise the annual payment by 10%-15% annually. The drawback is that the current yield is very low for a utility company at just 2.2%. ITC Dividend data by YCharts Over the past decade the amount of shares outstanding increased by around 50%. This is typical for companies that are growing, issuing equity is a common way to raise capital. However, in the last two years, 2014 and 2015, the board authorized a buyback plan of $250 million. The board is positive about the strength of the balance sheet and the cash from operations, and I believe it will issue another similar plan in 2016. $250 million is around 5% of the shares outstanding, pretty impressive. Valuation ITC is really fairly valued. The forward P/E is around 16. When taking into consideration the double digits growth rate, some might say that the valuation is low. The high growth rate is lowering the P/E for 2016 and 2017 significantly. If I have to determine, I find it valued fairly to slightly undervalued. ITC PE Ratio (NYSE: TTM ) data by YCharts The reasons for the lower valuation are the fact that ITC is a less known company with no buzz at all, and the fact that the dividend yield is extremely low for a utility company. If the company can achieve its dividend growth goals, it will be a great opportunity for long term investors. Opportunities ITC enjoys a high rate of revenue, EPS and dividend growth. This growth is achieved while the company is practically a monopoly in several states, as it possesses a very wide moat due to its massive infrastructure. If the company can grow that quickly while being a supervised monopoly, it has a pretty bright future. ITC will also enjoy the transformation on the American energy market. As power plants using coal are closed, and plants using naturals gas and renewable energy are opened, they will all need to transmit the electricity from the plants to their customers. The massive infrastructure owned by ITC will be ready to join forces with the power plants. In my previous article about Southern Company and Wisconsin Energy, I was told by several readers, that SO has an advantage over WEC, and it is the fact that it operates in the growing south and not in the Rust Belt. I am not sure that this is an advantage for the long term, as the economy is cyclical, but ITC for sure has nothing to worry about it. The company is well diversified, and it operates and in the Rust Belt as well as in the south. Geographical diversification is always a plus for a utility company which is usually locked in a certain area. Another advantage is the regulation. While the typical utility company is regulated by the states and the federal government, and therefore in a position where it can suffer from multiple state jurisdiction, ITC is solely regulated by the federal government, because it is an electric transmission company. In addition, the allowed return on equity is higher, which allows the company to charge more money for its service. According to S&P, the allowed ROE by the federal government is between 12.16%- 13.88%. Risks The first risk is competition. The competition can come from two places, other transmission companies especially from the west, and electric companies that can build their own infrastructure. The advantage of ITC is the fact that infrastructure requires a lot of capital. This is the wide moat that the company has, and the reason for this risk to be less relevant at current prices. The federal regulator received in 2013, a complaint asking for the reduction of the allowed ROE. A similar case in New England back in 2011 resulted in reduction of the allowed ROE two years later. This might harm the profitability. However, the request wasn’t fully granted, and I believe that the same will happen here as well. The low dividend is another downside. Yes, it can and should grow in the near future. The company believes that it can sustain substantial growth for the long run here. However, the profits depend on the regulators, and a change in the regulation might slow down the dividend growth, and we will have a utility stock that yields less than 2.5%, not something to brag about. The debt load is high, and is getting even higher. With the interest rates raising, it will be even more expensive. The company is using at the moment debt to finance its operation. The expects annual cash from operations to be around $650 million, while the annual capital investment is $800 million. Now, add the dividend and the buyback, and this small company must have access to credit at all time. The management is aware of that, and they know that their goal is to maintain the current credit rating- A. Conclusion Well, I can’t see myself buy ITC now, I prefer WEC and AVA over it. The growth is important and unique for a utility, but it will take years for it to reach a “utility yield”. It will need 5 years of superb growth to reach the yield of WEC, and 8 years of superb growth to reach the yield of SO. My preferred utility companies are the medium growth and medium yield like WEC and AVA. Therefore, I prefer these two over both SO and ITC. If you have several utilities and a very long investment horizon, you should consider adding ITC to your dividend growth portfolio. If you are a value investor, you might be buying it as well, as the growth prospects are here and valuation is fair. You can initiate a small position and enjoy the growth, it is an odd utility by yield and payout ratios as well as by growth, but it is also a great company, that isn’t necessarily right for my portfolio.