Legendary Investor Michael Price's Q3 Undervalued Buys By Sector

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Includes: BAC, BPI, C, COP, GLF, JCP, JNS, KEY, LNCR, MRK, NLC, PFE, SPGI, WCBO, WFT
by: GuruFundPicks

New York-based MFP Investors LLC, founded in 1998 by Michael F. Price is a value focused hedge fund manager that has over $1 billion in assets, including $600 million in U.S. equity assets. He is worth an estimated $1.4 billion, and ranked as the 562nd richest person in the world, he has been featured on the cover of Fortune magazine and has been listed by Time magazine as one of the 25 most influential people in America. Price’s unique value-based approach to investing includes buying out-of-favor companies that are good values (for a more detailed profile of the fund, please look at the end of this article).

The following are select undervalued companies, organized by sector, that he is most bullish about as based on his most recent SEC 13-F filing for the September 2011 quarter (see Table):

Financial sector: MFP added $4 million in Q3 to its $168 million prior quarter position in the financial sector. It is bullish on asset management firm Janus Capital Group Inc. (NYSE:JNS), in which it added $5.6 million to its $2.4 million prior quarter position. JNS trades at a 6.5 P/E on a trailing twelve-month (NYSE:TTM) basis, and at discount 0.9 P/B, compared to averages of 13.7 and 4.5 respectively for the asset management industry. Furthermore, within the sector, it is bearish on bank holding company Keycorp (NYSE:KEY), in which it dropped its entire $2.6 million prior quarter position; and on Bank of America (NYSE:BAC), in which it cut $2.7 million from its $5.0 million prior quarter position.

Energy sector: MFP added $3 million in Q3 to its $44 million prior quarter position in the energy sector. It is bullish on oil and gas drilling equipment and services company Weatherford International Ltd. (NYSE:WFT), in which it added a new $1.7 million position; and is bullish on an integrated oil and gas company ConocoPhillips (NYSE:COP), in which it holds $24.2 million worth of stock, one of its largest positions in the portfolio. WFT trades at a discount forward 9.7 P/E, at 1.2 P/B and at 8.3 P/CF, compared to averages of 12.1, 2.0 and 13.6 for its oil and gas machinery and equipment group. COP trades at a discount 8.9 P/E on a TTM basis, and at 1.4 P/B, compared to averages of 11.4 and 1.94 respectively for the major integrated oil and gas group.

Healthcare sector: MFP added $13 million in Q3 to its $69 million prior quarter position in the healthcare sector. Within the sector, it is bullish on biotech Cubist Pharmaceuticals (CBST) that develops anti-infective products to treat conditions in the acute care environment, in which it added $2.8 million to its $3.9 million prior quarter position. It is also bullish on biopharmaceutical company Pfizer Inc. (NYSE:PFE) that offers prescription medicines for humans and animals worldwide, in which it added $5.4 million to its $8.3 million prior quarter position, and on Lincare Holdings Inc. (NASDAQ:LNCR), a provider of oxygen and other respiratory therapy to patients to the home healthcare market, in which it added a new $5.1 million position in Q3. PFE trades at discount 8.7 P/E on a TTM basis, and at 1.7 P/B, compared to averages of 11.6 and 4.2 respectively for large-cap pharmaceutical group. However, CBST trades at a more premium 23.5 P/E on a TTM basis, and at 3.1 P/B, compared to averages of 13.3 and 2.7 respectively for its peers in the drug manufacturing industry. LNCR trades at 12.2 P/E on a TTM basis, and at 2.3 P/B, compared to averages of 13.3 and 1.1 respectively for the home healthcare group.

Services Sector: MFP added $8 million in Q3 to its $118 million prior quarter position in the services sector. Within the sector, it is bullish on department store retailer JC Penney (NYSE:JCP), which is its largest position in the portfolio at $28.4 million, including $4.7 million added in Q3; and on Bridgepoint Education (NYSE:BPI), a provider of online and traditional post-secondary education, in which it added a new $2.7 million position in Q3. BPI trades at discount 7.7 P/E on a TTM basis, and at 4.1 P/B, compared to averages of 11.6 and 1.6 respectively for the school group. JCP trades at a more premium 19.3 P/E on a TTM basis, and at 1.3 P/B, compared to averages of 15.7 and 1.4 respectively for the department store group.

Table

Click to enlarge

Fund Profile

Price started his career when he joined Max Heine at Mutual Series in 1973, eventually taking over the firm after Heine’s death and selling it Franklin Templeton Investments. In 1998, he stepped down from day-to-day fund management activities at Templeton, and in 2001, he left to begin his own hedge fund MFP Investors LLC.

The fund holds a moderately diversified portfolio of 115 positions, with a fifth of its holdings in large-caps, a third in mid-caps, and the remaining 45%-50% in small-caps and micro-caps. Its portfolio turnover is 60%, implying an average holding period of just less than two years. Based on the most recent SEC 13-F filing for the September 2011 quarter, we determined that the portfolio is overweight financial (29%) and services (21%) sectors, and it is underweight technology (5%), energy (8%), and consumer (6%) sectors, compared to the weighting of these sectors in the overall economy.

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.

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