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Michael Saul Dell is one of the most successful business owners in the world. He became a self-made billionaire through his success with Dell (DELL). With a net worth of more than $13 billion, Michael Dell was ranked #37 on the Forbes’ 2010 Billionaire list. He started the Dell Company while he was studying medical sciences at University of Texas, Austin. Dell’s simple business model of direct sales without retailer mark-ups proved to be extremely successful. With a market cap of $27 billion, Dell’s sales reached $61.76 billion in the last twelve months.

Michael Dell is also involved in the stock market through MSD Capital. MSD Capital invests in publicly traded and private securities, and real estate markets. As of the 2011 third quarter, MSD Capital had a concentrated portfolio of 16 stocks. According to Edgar Online, service stocks constitute 53.52% of the portfolio, followed by technology companies (18.60%) and energy stocks (17.66%). In the most recent quarter, the firm made significant transactions. I have analyzed the 5 big sells and 3 big buys from a fundamental perspective, adding my O-Metrix scores, when applicable. Here is a fundamental analysis of the 5 big sells and 3 big buys by MSD Capital:

Big Sells

Company Name

Ticker

Shares Held

% Change

% of Portfolio

O-Metrix

Nalco Holding

NLC

0

Sold Out

0

5.73

Energy XXI

EXXI

0.55 million

-74.40%

2.19%

2.77

Dominos Pizza

DPZ

3.26 million

-27.90%

13.97%

2.77

Journal Communications

JRN

0

Sold Out

0

2.69

Buckeye Partners

BPL

0

Sold Out

0

1.22

Big Buys

Sunstone Hotels

SHO

3.91 million

8.21%

3.83%

1.52

Wright Express

WXS

1.78 million

9.27%

11.62%

4.60

Echostar

SATS

3.46 million

26.73%

10.27%

N/A

Data obtained from Finviz/Morningstar and is current as of November 18 close. You can download O-Metrix calculator here.

Big Sells

Nalco has been an outperformer, returning near 20% in 2011. The company is involved in the basic materials sector, providing synthetic process services to water, paper, and energy industries. Nalco has announced its merger intention with Ecolab (ECL) in July. According to the merger agreement, Nalco’s shares were priced at $38.80. Instantly the stock jumped to near $37, and it is trading near the acquisition price since. While MSD Capital sold out Nalco holdings, John Paulson was bullish on the stock, initiating a new purchase of 9.18 million shares, worth $355 million.

Energy XXI is an oil & gas equipment provider, headquartered in Bermuda. EXXI also operates several fields in Louisiana, Texas, and Gulf of Mexico. Its proven reserves are valued at near 120 million barrels of oil equivalents. Similar to other oil companies, the stock collapsed in early August, loosing almost 50% of its value. However, it bounced back in October, returning above $30. While earnings are expected to increase by 30% next year, P/FCF of 16.36 is above the industry average. Based on 10% EPS growth rate, EXXI has an O-Metrix score of 2.77.

Dominos Pizza was among the biggest winners of 2011. Those, who invested in early January made some serious profits; the stock appreciated by more than 100% in 2011. While the past 5 year EPS growth is negative, analysts estimate near 10% EPS growth for the next 5 years. MSD Capital reduced its holdings by 17.90% in the last quarter, but it still constitutes 13.97% of the portfolio. I rate DPZ as a buy after pullback. It is pretty expensive compared to its peers. I believe at some point the stock will offer a fair entry point.

Journal Communications is a Wisconsin-headquartered media and publication company. It provides published newspapers, broadcasting services, and internet portals. The stock looks pretty cheap with single digit trailing P/E ratio of 9.58, and forward P/E ratio of 8.98. It is also trading near its book value. However, it is highly volatile with a beta of 3.14. The shares which were trading near $6 in March collapsed to $2.8 in September, before bouncing to $4.3. I think the stock looks still cheap with solid fundamentals. Although MSD Capital sold out its holdings, analysts mean target price of $5.5 imply almost 30% upside potential.

Buckeye Partners is a solid dividend company with a yield of 6.43%. Texas-headquartered company operates pipelines primarily in the U.S. It also serves marine bulk storage and terminal throughout services in Puerto Rico and Bahamas. Although MSD Capital sold out its shares in the third quarter, one of the directors recently acquired 2000 shares at an average price of $63. The payout ratio of 550% is pretty high, but with a low Beta of 0.29, the stock can be a good diversifier.

Big Buys

Sunstone Hotels is a real estate investment trust with special focus on hotels. Although the stock returned 46% in the last quarter, its year to date performance of -28% is well below the market. Sunstone is highly volatile with a beta of 2.79. After showing a double-bottom pattern between September and October, it bounced back. As of the time of writing, the stock was trading 55% higher than its 52-week, but 33% lower than its 52-week high. While the fundamentals look shaky, those, following insider moves might be interested in the company. Insiders are pretty bullish on their company, boosting their shares by 54% in the last 6 months.

Wright Express is a business service provider that operates on a global scale. The company’s main product is payment processors. In the last quarter, MSD Capital increased its holdings by 9.27%, and it now constitutes 11.62% of the portfolio. The company has solid fundamentals with no long-term debt and high earnings growth. It is also highly profitable with a gross margin of above 80%. Analysts estimate 12.8% EPS growth for the next 5 years. Based on this estimate, the stock has an O-Metrix score of 4.60. At a price of $50, it is trading around 16% below the mean target price of $57.86.

Echostar, a Dish Network (DISH) spinoff, is another company that MSD Capital is bullish on. MSD Capital increased its holdings by 26.73 million, and holds 3.46 million Echostar shares. The stock has collapsed by more than 50% between July and September. Although it showed signs of recovery in October, it is still trading 40% below its 52-week high. There is a tough competition in the cable services and digital media sector. The market is expanding at a fast rate, but Echostar is lagging its peers in terms of stock performance. With a trailing P/E ratio of 10.48 and P/FCF ratio of 12.22, the stock looks pretty cheap.

Source: 5 Big Buys And 3 Big Sells For Michael Dell