Billionaire Tom Russo's 5 New Big Buys

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 |  Includes: AOL, CPB, CSX, FDX, KHC, PNC, SYBT, UNP, UPS, YHOO
by: Stock Croc

This article will examine five stocks Tom Russo added to the portfolio of Gardner Russo & Gardner in the quarter ending September 30, 2011. Russo is a partner in the firm which has more than $4.748 billion in assets under management. I can see what led to these selections by reviewing price/earnings, return on equity, dividend and payout ratio metrics as well as technicals. In this article, I conclude that SYBT, UNP, HNZ and YHOO are buys, while UPS is one to avoid. Here is my analysis of his picks:

Mr. Russo has added 1271 shares of S.Y. Bancorp, Inc. (NASDAQ:SYBT), with a market cap of $283.33 million, for a reported $18.88 per share, suggesting the stock was purchased September 26th, 2011. The price/earnings ratio of 12.15 is well below my preferred upper limit of 15. Return on equity for the company is an acceptable, if not robust, 13.28%. SYBT has a price to book of 1.52 and, in this respect, may be regarded as a value stock. The current ratio is not available. That brings us to the debt/equity ratio but is unavailable as well. SYBT pays a dividend, yielding 3.60% against a payout ratio of 43.00%. The importance of a dividend will vary with the individual investor and typically revolves around their goal. Someone investing for retirement, for example, is more apt to focus on dividend yield than, say, a day trader. SYBT’s price/earnings growth ratio is 1.19. One is the “textbook” but never forget that this fundamental relies on projections of year-to-year earnings growth. The price/earnings growth ratio can only be as accurate as the estimate. I also like to look at where the stock is trading in relation to its 52 week low. Presently, SYBT trades at 117% of its 52 week low.

Competitor PNC Financial Services Group, Inc. (NYSE:PNC) has a market cap of $41.89 billion and trades at about $52.69. The price/earnings ratio is 8.37. PNC has a return on equity of 9.72% and the price to book is 0.84. The company’s current ratio and debt/equity ratio are not available. PNC Financial Services Group, Inc. pays a 2.20% dividend yield and the payout ratio is 14.00%. The price/earnings growth ratio is 1.11. The stock trades at 123% of its 52 week low. For me, SYBT is the clear choice based upon the totality of information available.

Russo acquired 240 shares of FedEx Corporation (NYSE:FDX) for a reported $66.67 per share, suggesting a purchase date of September 23rd, 2011. This air delivery and freight services firm in the services sector trades at about $81.22. The market cap is $25.83 billion. The price/earnings ratio for FDX is 16.81 and return on equity is 4.29%. The price to book of 1.62 is consistent with a value stock. The firm’s current ratio is 1.60% and debt/equity is a very positive 10.62%. FDX pays a dividend yield of 0.50% easily supported by a 10.00% pay out ratio. The price/earnings growth ratio is 0.83. The stock is trading at 127.00% of its 52 week low. In contrast, United Parcel Service, Inc. (NYSE:UPS) with a market cap of $66.72 billion is trading at about $69.14 and has a price/earnings ratio of 16.78. The company has a mammoth return on equity of 50.13% and a price to book of 8.56. UPS’s current ratio is 1.68% and debt equity is a shocking 157.84. Dividend yield for the stock is 3.00% with a pay out ratio of 49%. The price/earnings growth ratio is 1.44. The stock is trading at 114% of its 52 week low. Analysts favor UPS and I must respectfully disagree. It is likely that Russo’s uncanny timing has already harvested the low hanging fruit, but the UPS debt/equity ratio unnerves me. Avoid it for now.

That brings us to Russo’s purchase of 1150 shares of Union Pacific Corporation (NYSE:UNP) at $81.47 per share. This railroad stock is now trading at about $102.04 per share. UPN’s market cap is $49.29 billion and its price/earnings ratio is $16.22. Return on equity is 17.24% and price to book is 2.63. UPN’s current ratio is 1.13% and debt/equity is 50.67%. The stock pays a dividend yield of 1.70% and the pay out ratio is 27.00%. The price/earnings growth ratio is 1.07. The stock is now trading at 131% of its 52 week low. Rival, CSX Corp. (NASDAQ:CSX) is trading at about $21.64 and has a market cap of $22.72 billion. Price/earnings ratio is 13.33 and the return on equity is 21.24%. Price to book is 2.73 and the current ratio is 0.90%. CSX’s debt/equity ratio is 104.67% and the stock has a dividend yield of 1.90% supported by a pay out ratio of 21.00%. The price/earnings growth ratio is 0.96. The stock is trading at 122% of the 52 week low. I can understand Russo’s choice given CSX’s dismal debt/equity ratio. This is a clear win for UNP.

Russo moves us into the major diversified foods industry with H. J. Heinz Company (HNZ). Russo purchased 600 shares at a reported $50.00 per share. HNZ has a market cap of $16.40 billion and a price/earnings ratio of 16.97. Return on equity is 36.69% and price to book is 5.40. The company’s current ratio is 1.17% and debt equity is 139.81%. The stock has a dividend yield of 3.50% supported by a pay out ratio of 61.00%. The price/earnings growth ratio is 1.92. The stock is trading at 109% of its 52 week low. Close competitor, Campbell’s Soup Co. (NYSE:CPB) trades at about $33.65 and market cap is $10.78 billion. The price/earnings ratio, return on equity and price to book are 13.90, 79.21% and 9.83 respectively. The current ratio is 0.99% and the debt/equity ratio is 281.39. The stock pays a dividend yield of 3.50 with a pay out ratio of 47.00% BMC has a price/earnings growth ratio of 3.26. The stock is trading at 113% of its 52 week low. Analyst opinion sides with HNZ and I would have to agree. The financial strength lies with H. J. Heinz Company.

Russo tested the technology waters with his purchase of 200 shares of Yahoo!, Inc. (NASDAQ:YHOO). The stock trades at about 15.38 per share and the company has a market cap of $19.08 billion. YHOO’s price/earnings, return on equity and price to book ratios are 18.82, 8.77 and 1.53 respectively. Current ratio is 2.83% and debt/equity is 0.31%. The stock pays no dividend. The price/earnings growth ratio is 1.50. The stock is trading at 139% of its 52 week low. Rival AOL, Inc. (NYSE:AOL) is trading at about $14.73 per share and the company has a market cap of $1.43 billion. AOL’s price/earnings, return on equity and price to book ratios are 27.95, 2.46% and 0.66 respectively. Current ratio is 1.75% and debt/equity is 5.00%. The stock pays no dividend. The price/earnings growth ratio is 7.28. The stock is trading at 146% of its 52 week low. The analysts favor YHOO in this match-up and I agree. Yahoo! Inc.’s growth prospects are significantly better than those of AOL as demonstrated in the price/earnings growth ratio.

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