In this article, we’ll look at one pick for each of five gurus. Maybe we can see what each guru values in these companies and learn from their experience. Trust me; there is no better way to learn than with other people’s money!
George Soros added 1 million shares of Sirius XM Radio, Inc. (SIRI) to his portfolio in the second quarter. Sirius holds a virtual monopoly on satellite radio in North America. That's a great position to be in if you’re selling food, but not so much for radio. The satellite delivery system is the unique feature. The analysts rate this stock as a moderate buy. It has a price/earnings growth ratio of .84 and a beta of 2.06. That said, the stock price increased $0.15 since I began writing this!
Richard Perry acquired 5,726,911 CVRs of Sanofi (SNY) before the close of the second quarter. Now I am not the most experienced researcher on the planet, but what I could find out about this CVR (contingent value right) will fit on the back of a postage stamp!
Here’s what I know. Sanofi is a major drug manufacturer headquartered in France. It took control of Genzyme (GENZ) in early April of this year. As part of the bargain, Genzyme shareholders receive a contingent value right, or CVR, called GCVRZ; hence G((CVR))Z, for each share of Genzyme stock they own. Payments to shareholders are based upon the sales performance of several Genzyme drugs. Analyst estimates for payout range from $4.00 to $14.00 per stub. Right now, these CVRs are cheap, trading at $1.04 at this writing. Bloomberg reports that Sanofi is negotiating with Royal Bank of Scotland Group Plc (RBS), BNP Paribas SA (BNPQY.PK) and Societe Generale SA (SCGLF.PK) for a $4.12 billion line of credit to replace an expiring 5.8 billion euro revolving credit line activated in 2005. If you want to know more about this one, you’ll have to talk to Mr. Perry. The whole affair is a bit exotic for my blood.
Tom Gayner bolstered his portfolio with 50,500 shares Contango Oil & Gas Company (MCF) before the close of the second quarter. You needn’t be a guru to fall in love with this one. It boasts a return on equity of 15.79, a price to book of 2.13 and a beta of .81. The company has eight employees, each of whom added $7,931,250 to the bottom-line in the past 12 months. Oh, by the way, the company has $63.74 million in cash and zero debt, all while competing successfully with the likes of BP plc (BP). What I like about this company is its focus on natural gas and natural gas liquids. I view natural gas as our best route to energy independence. This company has consistently grown revenues over the past 5 years and there is nothing on the horizon to suggest this record will not continue.
Charles Brandes is flirting with this stock again, acquiring 14,400 shares of Cincinnati Bell, Inc. (CBB) to close his second quarter acquisitions. Mr. Brandes has bought and sold this stock previously and by all accounts, did well with it. The company name implies local, but this company has national reach. Trading at $3.04 at this moment, the stock has a beta of 1.42. Among the analysts the holds outnumber buys by more than 2 to 1. Cincinnati Bell is an aggressive competitor, as demonstrated by its recent move into voicemail to text services. Using a platform (PhoneTag) developed by Ditech Networks (DITC), Cincinnati Bell has positioned itself to offer a plethora of voice-to-text services, not the least of which is mass market automation. This platform is capable of many other business friendly solutions, which positions CBB as a leader in voice-to-text capability. The price/earnings growth metric of .6 seems a realistic projection for CBB as enterprise begins to tap the potential market represented by billions of cell phone users around the world.
Richard Aster, Jr. rounded out his second quarter with the purchase of 2,519,775 shares of Arcos Dorados Holdings, Inc. Cla (ARCO). This Argentina-based company is the world’s largest McDonald’s (MCD) franchisee. Would you like fries with that? Arcos sports a return on equity of 9.15, a price/earnings growth ratio of 1.87 and analysts favor a buy position 6 to 1 against hold. None recommends sell. Its golden goose, McDonald’s, is performing famously and one could argue that as goes MCD so goes Arcos.
About the gurus and their purchases:
George Soros’s stated philosophy is that all markets are chaotic because they are subject to emotional biases inherent in buyers and sellers. He believes that considered focus on the value and market prices will yield opportunities. Do you see that philosophy reflected in his SIRI trade?
Richard Perry is a heavy investor in private equity and real estate. He is also something of a shark, lending at high interest rates. In polite company, this is called supplying mezzanine capital. He also likes troubled investments. Would you say that elements of his philosophy are present in the GCVRZ buy?
Tom Gayner is a classic value investor. He is a firm believer in investing in what he understands and what he knows and is not afraid to concentrate his investments in such companies. He also believes in having a margin of safety in his investments. Do you regard his investment in Contango Oil & Gas Company to be true to this philosophy?
Charles Brandes is a true believer in the Benjamin Graham investment philosophy and, as such, is a value investor. He likes to identify and buy undervalued stock which he is willing to hold until the market catches up. Would you agree that this describes CBB?
Richard Aster, Jr. likes both growth and value stocks. How do you perceive ARCO, growth or value?
I hope you’ll forgive the homework questions, but let’s face facts. If you’re striving to be a successful investor, there are many questions you will need to learn to answer.