At the end of the fourth quarter what he sees as a dim economic environment and hazy business prospects compelled him to have cautious positioning with net exposure to risk assets at 70.5%, which includes 5% of mainly lower-risk corporate bonds. Romick is conflicted about the economic landscape of 2012. He believes the market won�� likely crash as it did in 2008-09 mainly because people are more fearful. Yet despite deep analysis, he could not decide whether inflation or deflation is more likely to occur. Therefore, he did not tilt his portfolio one way or the other. Nevertheless, he said in his investor letter, ��n the inflation outcome, our stocks should do well (at least nominally), but not as well as a portfolio committed to commodities. Should deflation come to pass, stocks will likely perform badly, but in that event, our substantial cash stake will allow for deployment at lower asset prices.��
No matter how the year unfolds, he plans to let price be his guide, and will welcome volatility as an opportunity to add shares.
He bought three new stocks in the fourth quarter, which are Arris Group Inc. (ARRS), Citigroup Inc. (C) and Hollyfrontier (HFC).
Arris Group Inc. (ARRS)
Steven Romick bought 3,447,200 shares of Arris Group Inc. at an average of $11 per share. Arris is a global communications technology company that specializes in the design, engineering and supply of broadband services for residential and business customers around the world. Their service enables broadband operators to deliver telephony, demand-driven video, next generation advertising! and high speed data services.
Arris Group�� stock has been essentially flat for the last 10 years, but the stock once traded near $60 during the dot-com bubble of 2000. By 2001 it had plummeted to under $4.
Over the same time period that the company�� stock price was coasting, the company experienced slow but steady revenue growth at an annual rate of 4.9 percent, and free cash flow growth at an annual rate of 24.3 percent. In 2011, revenue increased to $1.089 billion from $1.088 billion in 2010, EBITDA declined to $108 million from $146 million in 2010, and earnings declined to a net loss of $12.8 million from a net gain of $64 million in 2010.
The stock price declined slightly during the year due to a weak first quarter under analysts��expectations and a second quarter with revenue, earnings and gross margin declines. Net sales also declined in the second quarter 2011, largely due to lower pricing in its broadband communication systems segment the company had to implement to remain competitive.
Another negative factor for the company is that two companies account for almost 40 percent of its sales. In the three months ended June 30, Time Warner Cable dropped to 10.4 percent of its sales from 18.9% the same period of 2010. Comcast and its affiliates grew to 25.3% of sales, from 23.4% the same quarter the previous year. By the third quarter, Time Warner made up 12.4%, and Comcast makes up 29.2% of sales.
In the fourth quarter, the company returned to improvements in revenue, net income and gross margins, sending the stock price back up. Demand is being driven by a rise in the number and usage of connective devices in homes that require more bandwidth. The company also closed its acquisition of BigBand Networks, which will help the company expand its video product suite and what the company called ��he evolution towards network convergence onto an all IP platform.��On the company�� earnings call, it said it would not provide specific guidance but does ! anticipat! e 10 percent or more of top line growth and EBITDA to increase in the high teens.
Citigroup Inc. (C)
Steven Romick bought 1,172,320 shares of Citigroup Inc. (C) at an average price of $28. Citibank is the New York-based financial services corporation that has the largest financial services network in the world and had to be rescued in 2008 by a bailout from the U.S. government after realizing massive losses. Partial government ownership of the bank ended in December 2010.
Romick said in his investor letter that he took out some small bank positions as part of a housing recovery play. ��e are mindful that when a big asset bubble finally bursts, the ramifications are large, and the time to resolution is usually long,��he said. ��ake housing for example. The drinking binge of easy money has created a five year hangover, and counting. The housing market remains weak, but does seem to be bumping along a bottom. We have made a number of investments exposed to the housing sector, e.g., Lowes, mortgage whole loans, and some small bank positions.��br>
Citigroup has focused on building its balance sheet and loan portfolio since the crisis. Its Tier 1 Capital ratio was 13.5% at ten end of the third quarter, and its Tier 1 common ratio was 11.7%. Total allowance for loan losses also dropped to 5.1% of total loans, down from 6.7% year over year, due to asset sales, lower non-accrual loans and overall improvement in credit quality of its loan portfolios.
Romick also said in his letter that he is seeking U.S.-based companies with strong growth in emerging markets, a bill that Citigroup fits. Revenue from Latin American Regional Banking grew 11% year over year in the nine months ended Sept. 30, 2011, revenue from Asia grew 9% in the same span of time, and revenue from EMEA countries increased 2% in the same span of time. Revenue from its North American regional consumer banking segment, on the other hand, declined 10% in the same span of time.
HollyFrontier (HFC)
HollyFrontier formed July 2011 when Holly Corporation merged with Frontier Oil Corporation to give it a more diversified company with greater global presence, stronger financial position, more efficient corporate overhead structure, and greater earnings per share resulting from synergies. IT is a petroleum refiner that produces gasoline, diesel, jet fuel, specialty lubricant products and specialty and modified asphalt.
HollyFrontier�� stock price appreciated from just over $20 per share to as high as just over $44 per share by mid-year when the merger occurred. In the fourth quarter, when Romick bought it, it had dropped to just over its initial price on declined earnings that fell short of forecast.
The companies have only been reporting as one for two quarters. In the most recent fourth quarter, net income declined to $223 million from $523 million the previous year, and sales declined slightly to $5 billion from $5.2 billion the previous year. Revenue, however, increased significantly and was helped by a 19% year-over-year increase in refined products sales prices. Currently HollyFrontier has $1.7 billion in cash on its balance sheet and $1.9 billion in long-term liabilities and debt.
Since it completed its merger to the end of the fourth quarter, shareholder-friendly management had issued $1.50 per share of specialty distributions to shareholders, approximately equivalent to $315 million. It also has a $350 million share repurchase program and a regularly quarterly dividend of $0.10 per share.
See more of Steven Romick�� portfolio here or check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Steven Romick.
Top 10 Undervalued Companies To Watch In Right Now: Caterpillar Inc.(CAT)
Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. It operates through three lines of businesses: Machinery, Engines, and Financial Products. The Machinery business offers construction, mining, and forestry machinery, including track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment, and related parts. It also manufactures diesel-electric locomotives; and manufactures and services rail-related products and logistics services for other companies. The Engines business provides diesel, heavy fuel, and natural gas reciprocating engines for Caterpillar machinery, electric power generation systems, marine, petrol eum, construction, industrial, agricultural, and other applications. It offers industrial turbines and turbine-related services for oil and gas, and power generation applications. This business also remanufactures Caterpillar engines, machines, and engine components; and offers remanufacturing services for other companies. The Financial Products business provides retail and wholesale financing alternatives for Caterpillar machinery and engines, solar gas turbines, and other equipment and marine vessels, as well as offers loans and various forms of insurance to customers and dealers. It also offers financing for vehicles, power generation facilities, and marine vessels. The company markets its products directly, as well as through its distribution centers, dealers, and distributors. It was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Caterpillar Inc. was founded in 1925 and is headquartered in Peoria, Illinois.
Advisors' Opinion:- [By Dan Caplinger]
Moreover, Manitowoc has managed to maintain a healthy backlog of orders that show the company's potential to sustain its long-term growth. With $776 million of outstanding crane orders as of March, the backlog represents about four months' worth of revenue for the segment, roughly in line with what industry giant Caterpillar's (NYSE: CAT ) $20.4 billion in order backlog equates to as a proportion of its much larger total revenue. Yet Manitowoc hasn't seen Caterpillar's substantial contraction in sales recently, pointing to the crane-maker's greater resiliency.
- [By Raymond Boisvert]
Caterpillar (NYSE: CAT ) -- YTD return: -1.62%
Heavy-equipment manufacturer Caterpillar has had its performance hampered by a hefty decline in overseas demand for its products coupled with falling commodity prices. Falling commodity prices mean tighter margins for mining companies who lose the capital to reinvest in new equipment from Caterpillar. As a result, Caterpillar's mining segment saw a 23% decline in sales in the first quarter. Construction spending has not increased enough to make up for losses incurred in the mining segment. Cost-cutting efforts and layoffs have been implemented to try to salvage some of the bottom line. All of the above has contributed to a lackluster stock performance since the year began. - [By David Sterman]
It's mining giant Caterpillar (NYSE: CAT).
Gates started building a position in Caterpillar before the financial crisis, but he became a very aggressive buyer once the crisis hit and shares had fallen by half. Yet remarkably, Gates has kept on buying, even as shares steadily rebounded to previous peaks.
- [By Dan Carroll]
Investing in China represents far more of a risk than the likes of JPMorgan, despite whatever hurdles regulators can throw at the big bank. Despite strong growth in past years that has propelled China's economy to the second-largest in the world, the bubbling housing market, rising middle class, and poor infrastructure climate will challenge the nation in the coming years. If investing in China's growth story tempts your hand, it's better to find a buy among the strongest global companies betting on the leading emerging market's growth. Industrial giant Caterpillar (NYSE: CAT ) has hitched much of its future on China, and while slow sales have hit Caterpillar hard lately, this is one stock that's poised to capitalize in a significant way of Chinese economic growth picks up in the future. At a cheap P/E, Caterpillar -- which sits atop the cyclical industrial industry -- is a safe pick to invest indirectly in China.
Top 10 Undervalued Companies To Watch In Right Now: Dollar Tree Inc.(DLTR)
Dollar Tree, Inc. operates discount variety stores in the United States and Canada. Its stores offer merchandise primarily at the fixed price of $1.00. The company operates its stores under the names of Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant, and Dollar Bills. Its stores offer consumable merchandise, including candy and food, and health and beauty care, as well as household consumables, such as paper, plastics, household chemicals, in select stores, and frozen and refrigerated food; variety merchandise, which includes toys, durable housewares, gifts, party goods, greeting cards, softlines, and other items; and seasonal goods, such as Easter, Halloween, and Christmas merchandise. As of April 30, 2011, it operated 4,089 stores in 48 states and the District of Columbia, as well as 88 stores in Canada. The company was founded in 1986 and is based in Chesapeake, Virginia.
Advisors' Opinion:- [By Jon C. Ogg]
Deutsche Bank is making a change in its coverage of dollar store themes on Monday: Dollar Tree Inc. (NASDAQ: DLTR) was raised to Buy from Hold and Family Dollar Stores Inc. (NYSE: FDO)�was downgraded to Hold from Buy, but the price target was raised to $74 from $70.
- [By Jacob Roche]
With the economy starting to improve, you might think Dollar Tree's (NASDAQ: DLTR ) fortunes will reverse. The deep discounter provided unemployed and lower-income consumers a safe place in the storm, but with the economic weather clearing up, it would be reasonable to expect consumers to venture out again to higher-end retailers. However, that assumption would be wrong.
5 Best Blue Chip Stocks To Invest In Right Now: Schlumberger N.V.(SLB)
Schlumberger Limited, together with its subsidiaries, supplies technology, integrated project management, and information solutions to the oil and gas exploration and production industries worldwide. The company?s Oilfield Services segment provides exploration and production services; wireline technology that offers open-hole and cased-hole services; supplies engineering support, directional-drilling, measurement-while-drilling, and logging-while-drilling services; and testing services. This segment also offers well services; supplies well completion services and equipment; artificial lift; data and consulting services; geo services; and information solutions, such as consulting, software, information management system, and IT infrastructure services that support oil and gas industry. Its WesternGeco segment provides reservoir imaging, monitoring, and development services; and operates data processing centers and multiclient seismic library. This segment also offers variou s services include 3D and time-lapse (4D) seismic surveys to multi-component surveys for delineating prospects and reservoir management. The company?s M-I SWACO segment supplies drilling fluid systems to improve drilling performance; fluid systems and specialty tools to optimize wellbore productivity; production technology solutions to maximize production rates; and environmental solutions that manages waste volumes generated in drilling and production operations. Its Smith Oilfield segment designs, manufactures, and markets drill bits and borehole enlargement tools; and supplies drilling tools and services, tubular, completion services, and other related downhole solutions. The company?s Distribution segment markets pipes, valves, and fittings, as well as mill, safety, and other maintenance products. This segment also provides warehouse management, vendor integration, and inventory management services. Schlumberger Limited was founded in 1927 and is based in Houston, Texas.
Advisors' Opinion:- [By David Smith]
A few of the compelling companies
From my perspective, the message to be taken away from Stuart's presentation is simply that, even in the face of potential U.S. economic distress, a well-structured portfolio will contain at least a modicum of energy of names. For starters I'd look to Schlumberger (NYSE: SLB ) , the world's leading oilfield services company and energy's technology major domo. Given its operations in about 85 countries, a worldwide energy cataclysm would seemingly be required for the big company to face a significant slowdown. - [By Matt DiLallo]
Investors may wonder if peers like�Halliburton� (NYSE: HAL ) �and�Schlumberger� (NYSE: SLB ) �were pressured this quarter as well. Both companies have waded through the sluggish North American market by relying on growth overseas. If that trend continues, it should continue to mute some of the weakness Nabors experienced.
- [By Matt DiLallo]
Along with announcing earnings, both Halliburton (NYSE: HAL ) and Schlumberger (NYSE: SLB ) announced multi-billion-dollar stock buybacks. With so much money on the line, investors have to ask if this is the right move for these two oil-field service giants. Are these stocks cheap enough to warrant the buybacks or should these companies consider other options for those funds?
Top 10 Undervalued Companies To Watch In Right Now: Tupperware Corporation(TUP)
Tupperware Brands Corporation operates as a direct seller of various products across a range of brands and categories through an independent sales force. The company engages in the manufacture and sale of kitchen and home products, and beauty and personal care products. It offers preparation, storage, and serving solutions for the kitchen and home, as well as kitchen cookware and tools, children?s educational toys, microwave products, and gifts under the Tupperware brand name primarily in Europe, Africa, the Middle East, the Asia Pacific, and North America. The company provides beauty and personal care products, which include skin care products, cosmetics, bath and body care, toiletries, fragrances, nutritional products, apparel, and related products principally in Mexico, South Africa, the Philippines, Australia, and Uruguay. It offers beauty and personal care products under the Armand Dupree, Avroy Shlain, BeautiControl, Fuller, NaturCare, Nutrimetics, Nuvo, and Swissgar de brand names. The company sells its Tupperware products directly to distributors, directors, managers, and dealers; and beauty products primarily through consultants and directors. As of December 26, 2009, the Tupperware distribution system had approximately 1,800 distributors, 61,300 managers, and 1.3 million dealers; and the sales force representing the Beauty businesses approximately 1.1 million. The company was formerly known as Tupperware Corporation and changed its name to Tupperware Brands Corporation in December 2005. The company was founded in 1996 and is headquartered in Orlando, Florida.
Advisors' Opinion:- [By Oliver Pursche]
European large-cap pharmaceuticals like Novartis (NVS) �and Bristol Meyers Squibb (BMY) �count amongst some of our favorite stocks right now, as do U.S. multinationals that are growing revenue and margins in Asia ��Tupperware (TUP) �is a shining example. Stay away from utilities and energy stocks, as they are likely to be the laggards over the next year.
- [By John Udovich]
Everyone is familiar with�the Tupperware brand from�consumer products stock Tupperware Brands Corporation (NYSE: TUP) and you are probably familiar with the brands�of mid cap stock Jarden Corp (NYSE: JAH) along with small cap stocks Libbey Inc (NYSEMKT: LBY) and Lifetime Brands Inc (NASDAQ: LCUT); but what about the stocks themselves? Chances are, their brands or products are right under your nose at home and you probably don�� know anything about the mid cap or small cap stock behind them.
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