3 Buys and a Sell From Mutual Fund Snow Capital Management

by: GuruFundPicks

Summary: Snow Capital Management, led by Chief Investment Officer Richard A. Snow, manages over $2.6 billion in equity assets, allocated under three different strategies, for mutual fund and institutional clients. Their flagship All-Cap Value fund has delivered market-beating 15.74% annualized returns since the fund's inception in 1992. Three attractive buys from its portfolio Cisco Systems (NASDAQ:CSCO), Du Pont E I De Nemours & Co. (NYSE:DD) and True Religion Apparel (NASDAQ:TRLG), and a conviction sell from the portfolio is Agilent Technologies Inc. (NYSE:A).

Sewickley, PA-based Snow Capital Management, led by President and Chief Investment Officer Richard A. Snow, manages over $2.6 billion in equity assets for mutual fund investors, and for institutional clients in separately managed accounts. Their flagship fund, “the All Cap Value” fund, has returned 15.74% annualized return since inception in 1992, squarely beating the 8.33% return of the S&P 500 over the same period. Besides the “All-Cap Value” fund, Snow Capital also manages client assets under the “Large Cap Value” and “Small Cap Value” strategies for both mutual fund and institutional clients. The firm picks its investments based on a bottom-up analysis designed to uncover out-of-favor companies that have sound balance sheets but have been oversold due to a development or event that is likely to be temporary.

The fund holds a moderately diversified portfolio of 94 positions, with 70% of its holdings in large-caps, 20% in mid-caps and the remaining 10% in small-cap equities. Its portfolio turnover is 80%, implying an average holding period of fifteen months. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that the portfolio is over-weight financials (37%) and basic materials (8%) sectors, and it is under-weight technology (5%), consumer non-cyclical (2%), transportation (0%) and utility (0%) sectors, compared to the weighting of these sectors in the overall economy.

The following summarizes its largest new buys and sells in the latest reported 13-F filing for the March 2011 quarter, and updated based on any 13-G filings since the end of the quarter:

  • Healthcare sector: Snow maintained their position in the sector unchanged at $320 million, including selling out its position in Rehabcare Group Inc. (NYSE:RHB) and cutting $33 million of its $53 million prior quarter position in acute care hospital operator Community Health System (NYSE:CYH). Snow dropping its position in Rehabcare Group Inc. (RHB) was related to RHB’s acquisition Kindred Healthcare (NYSE:KND). The position in CYH was opened in the high-$30s in mid-2007, and it was one of their highest conviction positions, so the cutting of that position in the March 2011 quarter is significant. Subsequent to the end of the quarter, Tenet Healthcare (NYSE:THC) filed a lawsuit against CYH related to its alleged practice of systematically admitting, rather than observing, patients in CYH hospital for financial rather than clinical purposes, and CYH stock has reacted very negatively dropping 40% since early April. This was after CYH launched a hostile bid to acquire THC in December last year.

  • Technology sector: Sell Agilent Technologies Inc. (A) and Buy Cisco Systems Inc. (CSCO). Snow aggressively cut $160 million from its prior $290 million position in the sector, including dropping its $73 million in Agilent Technologies Inc., dropping its $29 million position in Wesco Intl Inc. (NYSE:WCC) and cutting out most of its $45 million position in Cisco Systems Inc. The position in A was initiated in the low-$20s in early 2005, so the selling in the high-$40s last quarter was profit-taking. A sells at a forward P/E ratio of 18, at the top of its historical P/E range and has been on a tear recently rising 350% from its lows in early 2009. The company beat estimates again in its last quarterly report in mid-May, but it seems like earnings growth is projected to slow down going forward from the 150% in fiscal 2010 to 44% in 2011 and to 15% projected for fiscal 2012. Analyst estimates are in the mid-$50s to $60 range, and it seems that with it trading at the top of its P/E range, the stock may already have factored in most of the out-performance in the company, and there may be more risk to the downside now and limited opportunity on the upside going forward. The position in WCO was opened in the $40 range in early 2008, so the selling last quarter in the $60 range was probably just profit-taking; the stock is still trading at a respectable 12 forward P/E based on fiscal year 2012 earnings, growth is projected to continue at a torrid pace going forward, and there could be additional upside going forward. The position in CSCO was opened in the mid-teens in early 2003, and the stock was sold at a profit last quarter. CSCO is trading at a forward 9 P/E, well below its historic P/E trading range. The stock has been weak, dropping almost 60% in the last six months to the $15 range. However, the company has almost $5 in net cash available and remains a leader in the networking space. Furthermore, analyst targets for the stock are in the low-$20s, making the $15 current an attractive level at which to begin accumulating the stock.

  • Basic materials sector: Buy Du Pont E I De Nemours & Co. (DD) on a pullback. Snow sold $45 million of its $235 million prior quarter position, including selling most of its big $67 million position in chemicals company Du Pont E I De Nemours & Co.. The position in DD was opened in the $40 range in early 2003 and was sold at a profit in the low-$50s last quarter. DD trades at a 12 forward P/E, near the middle to bottom of its historic P/E trading range while the company is projected to grow earnings at a respectable 15%+ rate going forward. Analyst targets are in the $60-$70 range, making DD an attractive buy on any pullback into the low- to mid-$40s to which it may correct due to the meteoric recent rise in the stock from the mid-teens to $57 in the last two years.

  • Consumer cyclical sector: Buy True Religion Apparel (TRLG). Snow added $25 million to their $20 million prior quarter position, all of it in True Religion Apparel, a marketer of high-fashion jeans, skirts, jackets, and tops via premium department stores, boutiques and specialty stores. The position in TRLG was opened in the low-$20s at the end of 2010, so Snow more than doubling on its position by buying it at slightly higher levels in the low- to mid-$20s last quarter is significant. TRLG trades at a forward 12 P/E, mid-range based on its historic P/E range. The company continues to perform well as earnings beat analyst estimates and analysts continue to upgrade it and raise their price targets, currently in the low- to mid-$30s, and is an attractive buy at these levels.





Market Value at end of March 2011 Quarter

Change in Value from Prior Quarter

Percent of Portfolio

Percent Shares Owned

New 13G 5% Ownership Filing Since End of March 2011 Quarter

None Filed

Top Buys and Sells

Agilent Technologies Inc.



$ 0 million

($73) million



Du Pont E I De Nemours & Co



$ 1 million

($66) million



Hartford Finl Svcs Group



$ 65 million

$51 million



Rehabcare Group Inc.



$ 0 million

($49) million



TCF Financial Corp.



$ 46 million

$46 million



Cisco Systems Inc.



$ 3 million

($42) million



Community Health Sys Inc.



$ 20 million

($33) million



Wesco International Inc.



$ 0 million

($29) million



International Paper Co.



$ 54 million

$29 million



Barnes Group Inc.



$ 26 million

$26 million



True Religion Apparel Inc.



$ 39 million

$22 million



Top Holdings

JPMorgan Chase & Co.



$ 121 million

($2) million



Marathon Oil Corp.



$ 103 million

($6) million



Patterson UTI Energy Inc.



$ 101 million

($9) million



Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

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