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Robert Rodriguez is the CEO of the money management firm First Pacific Advisors and manages the FPA Capital Fund (FPPTX) as well as the FPA New Income Bond Fund, which has never posted an annual loss. He is a value investor and attributes his success to investing in companies he understands that have a history of high returns on equity. Rodriguez also focuses on free cash flow, low P/E, low Price/Book Value, and low Market Cap/Total Revenues among other things in order to achieve successful results.

Rodriguez is one of few value investors who not only focus on individual companies' fundamentals but also on macro fundamentals such as market valuation and general economic trends. Recently, he has made statements that 'Another Crisis Coming'. At the moment, FPA Capital Fund is holding more than 30% in cash, just as what he did before the 2001-2002 internet bubble and 2008-2009 financial crisis. Such a macro fundamental driven market call has served the fund well.

At the moment, Rodriguez does not seem to find value in many stocks. However, he continues to favor energy stocks as he believes that the world is running out of oil and gas reserves. In this sector, he likes oil & gas drilling stocks. A look into Rodriguez's top ten holdings shows the following:

Company

Ticker

% Assets

Rowan Companies, Inc.

RDC

8.14

Ensco PLC ADR

ESV

7.71

Rosetta Resources, Inc.

ROSE

6.67

Arrow Electronics, Inc.

ARW

6.53

Avnet, Inc.

AVT

5.85

Trinity Industries, Inc.

TRN

5.81

Western Digital Corporation

WDC

5

Patterson-UTI Energy, Inc.

PTEN

3.46

Foot Locker, Inc.

FL

3.07

Signet Jewelers Ltd.

SIG

2.74

Many of these companies are electronic manufacturers or energy firms and all have a consistently high return on equity (ROE).

Rodriguez's top holding, Rowan Companies, Inc. (NYSE:RDC) is an oil drilling company that has produced a consistent return on equity (ROE), having a positive ROE in every year except 2003 and 2004.

click to enlarge

Likewise, Rodriguez still focuses on low P/E, low Price/Book Value, low Market Cap/Total Revenues, and free cash flow, as shown below. RDC has performed well and has consistently beaten the industry average. These ratios show that Rodriguez is a true value investor.

RDC

Industry Avg

S&P 500

RDC 5Y Avg*

Price/Earnings

18.1

24.6

15.4

9.4

Price/Book

1.2

1.6

2.2

1.3

Price/Sales

2.5

2.9

1.4

1.8

Price/Cash Flow

7.1

8.9

9.7

5.2

Data as of 06/10/2011; *Price/Cash Flow uses 3-year average

This pattern does not change for the rest of his holdings. Ensco PLC (NYSE:ESV), another oil and gas drilling corporation, retains a high ROE as well. ESV mainly operates internationally.

The third energy company in Rodriguez's top 10 holdings, Patterson-UTI Energy Inc. (NASDAQ:PTEN), also provides contract drilling services as well. PTEN mainly operates in the domestic United States, focusing in the regions of Texas, New Mexico, Oklahoma, Arkansas, Louisiana, Mississippi, Colorado, Utah, Wyoming, Montana, North Dakota, South Dakota, Pennsylvania and western Canada.

The graph and table below clearly show that FPPTX and does deliver stellar results. Although FPA Capital faltered from 2006-2008 (because of Rodriguez's conviction on large energy stock holdings), it rebounded a great deal in 2009, beating the S&P by a large percentage. Rodriguez has a history of anticipating financial disasters and, compared to many other funds, weathered the 2008 financial crisis quite well.

Total return comparison between FPPTX and VFINX (Vanguard S&P 500 Index) since 6/24/1996 (Inception of FPPTX).

click to enlarge

The following further compares FPPTX with two asset allocation portfolios of Six Core ETFs.

Portfolio Performance Comparison

Portfolio/Fund Name

1Yr AR

1Yr Sharpe

3Yr AR

3Yr Sharpe

5Yr AR

5Yr Sharpe

FPPTX 30% 198% 7% 31% 7% 27%
Six Core Asset ETFs Tactical Asset Allocation Moderate 11% 128% 9% 76% 16% 109%
Six Core Asset ETFs Strategic Asset Allocation Moderate 16% 172% 3% 16% 8% 40%

In conclusion, Rodriguez has delivered impressive long term investment results, going back a decade. Because of the concentration style in his fund management, his top holdings usually show his conviction on the values of these companies. His energy stocks can be useful starting points for active investors.

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: Author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: First Pacific's Rodriguez Holding Energy Drillers, 30% Cash as He Prepares for Another Crisis