Charles H. Brandes is one of the more closely followed value investors working today, as well being a disciple of the Benjamin Graham school of value investing. Brandes Investment Partners, which was started in 1974, currently has over $52.9 billion under management and is based in San Diego, California. Brandes is listed as #655 in the Forbes List of World's Richest People with a net worth of $1.5 billion. He is author of the book Value Investing Today. He has been a CFA charter holder for more than 25 years. Brandes met Ben Graham in San Diego while he was training to be a stockbroker. He was able to learn firsthand the techniques Graham used to determine undervalued investment securities.
The threat of inflation is making some investors cautious about equity markets. Brandes says, “They wonder, how will it affect my portfolio?’’ Brandes explains, “Benjamin Graham, widely regarded as the father of value investing, addressed this question in his book, The Intelligent Investor.” Graham wrote, ‘‘There is no close time connection between inflationary (or deflationary) conditions and the movement of common-stock earnings and prices.’’
With his illustrious track record, analyzing this Wall Street Wizard’s thought process; portfolio and current activities may provide insightful investment guidance. Please review the following analysis of Brandes Investment Fund for possible nuggets of knowledge that may improve your portfolio’s performance and provide potential buying opportunities.
Brandes Global Equity Fund Portfolio Analysis
The Pittsburgh native majored in economics at Bucknell and performed graduate studies at San Diego State. Brandes emulates iconic bargain-hunter Benjamin Graham. Graham identifies companies whose stocks are trading below intrinsic value and sells them once the company’s true worth is recognized by the market. Brandes founded Brandes Investment Partners in 1974. The firm's Global Equity Fund fell 44.3% in 2008; rallied 19.3% last year. Total assets: $53.1 billion, down from $120 billion in March 2007.
Top Ten Holdings
(NYSE:TEL) TE CONNECTIVITY LTD / (NYSE:PFE) PFIZER INC. / (NYSE:EBR) CENTRAIS ELECTRICAS BRASILEIRAS S.A.ELETROBRAS / (NYSE:CX) CEMEX S.A.B. DE C.V. / (NASDAQ:MSFT) Microsoft Corp. / (NYSE:VLO) VALERO ENERGY Corp. / (NYSE:TMX) TELEFONOS DE MEXICO SA DE CV / (NYSE:PBR.A) PETROLEO BRASILEIRO S.A. / (NYSE:CHK) CHESAPEAKE ENERGY CORP. / (NYSE:T) AT&T INC.
Top Five Holdings Review
TE CONNECTIVITY LTD
TE Connectivity Ltd. (TEL) provides engineered electronic components, network solutions, specialty products, and subsea telecommunication systems. Its Electronic Components segment supplies passive electronic components, which include connectors and interconnect systems, relays, switches, sensors, and wire and cable to original equipment manufacturers and their contract manufacturers in the automotive, data communications, industrial, appliance, computer, and consumer devices markets. TE recently changed their name from Tyco Electronics. TE’s CEO Tom Lynch says, "We offer more than 500,000 products that connect and protect the flow of power and data inside millions of products that consumers and industries use every day, all around the globe. From smart phones to satellites, automobiles to airplanes, dishwashers to data centers, we're in it.” "As a company, we are well-known to the industries and customers we serve," Lynch said. "We want to expand our reach and drive awareness of TE Connectivity beyond our existing customer base to prospective customers, suppliers, investors, recruits and the communities in which we operate around the world." TE Connectivity will report fiscal second quarter results on April 21, 2011. TE’s margins appear solid. Current TTM operating margins are above historical averages. Please review the illustration below for TE’s summary and key statistics.
Pfizer Inc. (PFE), a biopharmaceutical company, engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals worldwide. The company’s Biopharmaceutical segment offers products in the areas of primary care, specialty care, established products, emerging markets, and oncology customer-focused units. PFE closed Tuesday at a share price of $19.94, close to its 52 week high of $20.38. PFE currently has a consensus estimate median target price of $22 by 17 brokers and a high target of $30. On March 14th, Standpoint Research downgraded the company from Buy to Hold. PFE has an impressive product pipeline. Please review the illustration below for PFE’s summary and key statistics.
CENTRAIS ELECTRICAS BRASILEIRAS S.A.ELETROBRAS
Centrais Eletricas Brasileiras S.A. (EBR) primarily engages in the generation, distribution, transmission, and commercialization of electric power; and construction and operation of nuclear power plants in Brazil. EBR closed Tuesday at a share price of $15.06, 5.7% below its 52 week high of $15.93. EBR currently has an estimated target price of $15.19 by 1 broker. EBR is trading for a mere 35% of book value. Book value per share is $41.92 with $7.43 per share in cash. Please review the illustration below for EBR’s summary and key statistics.
CEMEX S.A.B. DE C.V.
CEMEX, S.A.B. de C.V. (CX), through its subsidiaries, engages in the production, marketing, distribution, and sale of cement, ready-mix concrete, aggregates, and other construction materials. It sells its products primarily to distributors in the construction industry. The company has operations in North America, Europe, South America, Central America, the Caribbean, Africa, the Middle East, and Asia. CEMEX, S.A.B. de C.V. was founded in 1906 and is based in Garza Garcia, Mexico. CX closed Tuesday at a share price of $8.68, 45% below its 52 week high of $12.60. CX currently has a consensus estimate median target price of $12 by 11 brokers and a high target of $13. CX is trading for a mere 53% of book value. Book value per share is $16.32. CX received a downgrade on Feb 9, 2011 by HSBC Securities from neutral to underweight. Please review the illustration below for CX’s summary and key statistics.
Microsoft Corp. (MSFT) develops, manufactures, licenses, and supports a range of software products and services for various computing devices worldwide. The company’s Windows and Windows Live Division segment offers Windows operating system, Windows Live, and Internet Explorer. Microsoft is trading at 10.4 times the $2.55 a share it is predicted to earn. Additionally, Microsoft has a huge cash hoard, which makes the stock an even better value. The company has a cash balance of about $41 billion, which gives you approximately a $5 discount on the share price. Microsoft’s shares offer a safe return for investors who have a long term outlook.
Top Ten Adds / Buys
(MOT) Motorola Inc. / (NYSE:SMFG) SUMITOMO MITSUI FINANCIAL GROUP INC / (PBR.A) PETROLEO BRASILEIRO S.A. / (NYSE:DB) DEUTSCHE BANK AG / CHESAPEAKE ENERGY CORP. / (NYSE:MMC) MARSH & MCLENNAN COS/(NYSE:CRH) CRH PUBLIC Ltd. COMPANY / (NYSE:LOW) LOWES COMPANIES INC. / (NYSE:WDC) WESTERN DIGITAL CORP. / (NYSE:BAC) BANK OF AMERICA CORP.
Top Ten Sells / Closeouts
(NYSE:DOW) DOW CHEMICAL COMPANY / (NYSE:TXN) TEXAS INSTRUMENTS Inc. / (SLE) SARA LEE Corp. / (NYSE:AXP) AMERICAN EXPRESS COMPANY / (NYSE:THC) TENET HEALTHCARE Corp. / (NYSE:TEO) TELECOM ARGENTINA S.A. / (KG) KING PHARMACEUTICALS / (NYSE:TEF) TELEFONICA S.A. / (NYSE:BLX) BANCO LATINOAMERICANO DE COMERCIO EXTERIOR S.A / (NYSE:TSO) TESORO Corp.
With the looming uncertainties in the market, shifting to a “risk off” stance seems prudent. The first thing that came to mind was reviewing Brandes’ portfolio to find deep value plays. Out of the top five, I like EBR the best followed by CX and MSFT. I have these stocks on my watch list and am paying close attention to any possible buying opportunities if the market drops based on geopolitical events or macro-economic concerns. Valero was a big winner with a 32% gain over the last quarter and seems positioned well to take advantage of the current oil & gas market conditions, but is trading near recent highs. VLO does not fit the profile.