Fairpointe Capital's Top Value Stock Picks

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Includes: AKAM, BSX, HRB, NUAN, SPGI
by: Insider Monkey

Fairpointe Capital is an investment management company 100% owned by employees. Located in Chicago, Illinois, the firm has about $4 billion assets under management as of June 30, 2011. Fairpointe employs a fundamental bottom-up, valuation-based process to select companies with compelling business models, attractive valuations, financial strength and experienced management teams. The firm mainly utilizes two proprietary strategies – Mid Cap Core and Focused Equity/Private Client to manage equity and balanced separate accounts for institutional and individual clients. Fairpointe also sub-advises the Aston/Fairpointe Mid Cap Fund and the Parvest Equity USA Mid Cap Fund. The former has received two Lipper Best Fund Awards in 2011 in the Mid-Cap Core Fund category for the prior five and ten year periods ending December 31, 2010. We believe that by focusing on Fairpointe’s best stock picks, investors are more likely to outperform the market in the long term.

Below we compiled a list of top 15 positions of Fairpointe’s portfolio as of September 30, 2011.

Company

Ticker

Value (*$1000)

Boston Scientific

(NYSE:BSX)

143,130

H&R Block

(NYSE:HRB)

142,078

McGraw-Hill

(MHP)

111,240

Nuance Communications

(NASDAQ:NUAN)

97,479

Akamai Technologies

(NASDAQ:AKAM)

96,199

New York Times

(NYSE:NYT)

92,276

Lexmark

(NYSE:LXK)

90,902

Forest Labs

(NYSE:FRX)

84,733

Gannett Company

(NYSE:GCI)

84,214

Molson Coors Brewing

(NYSE:TAP)

81,126

Sigma-Aldrich

(NASDAQ:SIAL)

79,743

Itron Inc.

(NASDAQ:ITRI)

77,733

Charles River Lab Intl

(NYSE:CRL)

76,457

FMC Technologies

(NYSE:FTI)

76,358

Click to enlarge

Boston Scientific (BSX): Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical devices that are used in a range of interventional medical specialties. The company posted net earnings of $142 million, or 9 cents per share in the third quarter of 2011, compared with $190 million, or 12 cents per share in the same quarter last year. Revenue for the third quarter was $1.87 billion, down from $1.92 billion a year ago and was lower than the analysts’ expectation of $1.91 billion. Fairpointe had $143 million invested in BSX and it lost 2.37% since the end of September. BSX has a market cap of $8.50B and a P/E ratio of 15.21. Leon Cooperman’s Omega Advisors initiated a brand new $62 million in BSX over the second quarter of 2011.

H&R Block (HRB): H&R Block is a tax service provider. The company had total revenue of $268 million for the three months ended July 31 in 2011, compared with $274 million for the same period a year ago. It also reported a net loss of $175.1 million, versus a net loss of $130.7 million a year earlier. Fairpointe had $142 million invested in HRB and it returned 15.03% since the end of September. HRB has a market cap of $4.67B and a P/E ratio of 12.56. Andreas Halvorsen invested $324 million in HRB.

McGraw-Hill (MHP): The McGraw-Hill Companies, Inc. is a global information services provider serving the financial, education and business information markets. The company reported net income of $354.6 million, or $1.21 per share for the third quarter of 2011, compared with $379.9 million, or $1.23 per share a year ago. The result trailed the $1.23 average of analysts’ estimates compiled by Bloomberg. Third-quarter sales also declined 2.5% to $1.91 billion. Fairpointe had $111 million invested in the stock and it returned 3.63% since the end of September. MHP has a market cap of $12.45B and a P/E ratio of 15.29. Barry Rosenstein’s Jana Partners had over $300 million invested in MHP.

Nuance Communications (NUAN): Nuance Communications, Inc. is a provider of voice and language solutions for businesses and consumers around the world. The company will report its third quarter results on November 21. Fairpointe had $97 million invested in NUAN and it returned 29.30% since the end of third quarter. NUAN has a market cap of $7.85B and a P/E ratio of 179.34. Bill Miller’s Legg Mason Capital Management had $40+ million invested in NUAN as of June 30, 2011.

Akamai Technologies (AKAM): Akamai provides services for accelerating and improving the delivery of content and applications over the Internet. The company reported better than estimated third-quarter results. Its revenue climbed 11% to $281.9 million, topping the $279.2 million of analysts’ estimation compiled by Bloomberg. Its net income also increased to $42.3 million, or 23 cents per share, from $39.7 million, or 21 cents per share a year ago. Fairpointe invested $96 million in AKAM and the stock skyrocketed 50% since the end of September. It has a market cap of $5.24B and a P/E ratio of 28.64. Bain Capital initiated a brand new $100+ million in AKAM over the second quarter. Jim Simons also had $38 million invested in the stock.

Disclosure: I am long NYT.