In this article I will analyze the new additions to the Glenview Capital Management portfolio. Mr. Lawrence M. Robbins, a hands-on portfolio manager, likes medical and tech stocks. I provide for investors my analysis of Robbins' picks from a contrarian and relative valuation standpoint to see if investors should buy now.
Openwave Systems (OPWV)
Mr. Robbins, fondly known as the “L-Train”, added Openwave Systems, Inc. (OPWV), a technology stock in the software application industry. OPWV has a market cap of $136.77 million, and is trading at about $1.60 per share. The price/earnings ratio is glaringly absent due to a trailing twelve month loss of $24.09 million. Return on equity for the company is also in the negative at -40.24%. OPWV has a price to book of 2.97…a value stock? The current ratio is 1.65. That brings us to the debt/equity ratio which is unavailable for obvious reasons.
OPWV pays no dividend. OPWV’s price/earnings growth ratio is -2.91. I am stunned to see that OPWV is trading 137% above its 52 week low! I quickly turned to see what the analysts were saying and none suggested sell or buy for that matter. Some serious research is necessary here to learn the rationale for this pick. Competitor Comverse Technology, Inc. (CMVT) has a market cap of $1.35 billion and trades at about $6.56. The price/earnings ratio is not available due to a trailing twelve month loss of $117.81 million. CMVT has no available return on equity ratio and the price to book is 4.09. The company’s current ratio and debt/equity ratio are 1.08 and 142.45% respectively. CMVT pays no dividend. The price/earnings growth ratio is 0.69. The stock trades at 111% of its 52 week low.
The fundamentals fail us with OPWV. We must look elsewhere for the rationale on this stock. Far from being nothing more than the prettiest horse in the glue factory, the stock has genuine potential. Microsoft Corporation (MSFT) recently entered into a licensing agreement with Openwave for around 200 patents, several of which are primary to smart device and other technologies. Although details have not been disclosed, it is reasonable to assume this will generate a significant revenue stream. Openwave is also pursuing patent infringement litigation against Research in Motion Limited (RIMM) and Apple, Inc. (AAPL) and that has the potential to add more to the bottom line at some point in the future.
Pfizer, Inc. (PFE)
Robbins also acquired Pfizer, Inc. (PFE), a major drug manufacturer in the healthcare sector trading at about $18.96 with a market cap is $145.74 billion. The price/earnings ratio for PFE is 13.17 and return on equity is 11.45%. The price to book of 1.67 is consistent with a value stock. The firm’s current ratio is 2.25% and debt/equity is a comfortable 45.35%. PFE pays a dividend yield of 4.10% by a less than comfortable pay out ratio of 54.00%. The price/earnings growth ratio is 2.60. The stock is trading at 117.00% of its 52 week low. In contrast, Abbott Laboratories (ABT) with a market cap of $83.37 billion is trading at about $53.52 and has a price/earnings ratio of 18.46. The company has a respectable return on equity of 19.71% and a price to book of 3.39. ABT’s current ratio is 1.50% and debt equity is a bit high at 67.73. Dividend yield for the stock is 3.50% with a pay out ratio of 64% begging the question of sustainability. The price/earnings growth ratio is 1.24. The stock is trading at 114% of its 52 week low.
I think Robbin’s rationale is fairly obvious here. The Pfizer stock is cheap vis-à-vis the low price/earnings ratio. It is a value stock to the extent suggested by price to book and it pays a good dividend that is supportable by earnings growth rather than borrowing. These principal factors differentiate Pfizer from Abbott.
Liberty Global, Inc. (LBTYA)
That brings us to Robbins’s purchase of Liberty Global, Inc. (LBTYA) at about $40.16 per share. This cable television systems firm has a market cap is $11.23 billion and its price/earnings ratio, oh dear, is not available as a result of a twelve month trailing loss in excess of $300 million. Liberty Global’s return on equity is -4.65% and price to book is 3.39. LBTYA’s current ratio is 1.14% and debt/equity is 704.87% and that is not a typo. The stock pays no dividend. The price/earnings growth ratio is -3.45. Nevertheless, the stock is now trading at 127% of its 52 week low and the analysts are closer to a strong buy consensus than they are to a sell.
Rival, Dish Network Corp. (DISH) is trading at about $24.73 and has a market cap of $11.03 billion. Price/earnings ratio is 7.58 and the return on equity is unavailable, not because of a loss I might add. Price to book is 108.46 and the current ratio is 1.33%. DISH’s debt/equity ratio is 8,136.14%, also not a typo. Dish Network Corp. had a “one-time” dividend yield of 8.10% and that is in large part, the driving factor behind the massive debt/equity ratio. The price/earnings growth ratio is 1.10. The stock is now trading at 138% of its 52 week low.
Once again, Robbin’s rationale is not discernible from the fundamentals. Behind the scenes and not apparent on any balance sheet or fundamental derived from it, several positive events are in play. First, Liberty’s subscription rates have soared in all its divisions. Second, it is spinning off its 54% stake in Austar United Communications Ltd. This de-merger is expected to net Liberty close to $1 billion if it passes the Australian regulator’s scrutiny. Finally, Liberty is in the process of acquiring the third largest cable operator in Germany by year end.
Pharmaceutical Product Development, Inc. (PPDI)
Robbins moves us into the medical laboratories and research industry with Pharmaceutical Product Development, Inc. (PPDI). PPDI is trading at about $33.15 per share. PPDI has a market cap of $3.77 billion and a price/earnings ratio of 23.33. Return on equity is 13.59% and price to book is 3.16. The company’s current ratio is 1.69% and debt/equity is not available. The stock has a dividend yield of 1.80% supported by a pay out ratio of 42.00%. The price/earnings growth ratio is 1.25. The stock is trading at 138% of its 52 week low. Close competitor, Covance, Inc. (CVD) trades at about $46.98 and market cap is $2.85 billion.
The price/earnings ratio, return on equity and price to book are 20.66, 9.53% and 1.13 respectively. The current ratio is 1.88% and the debt/equity ratio is 6.27. The stock pays no dividend. CVD has a price/earnings growth ratio of 1.13. The stock is trading at 110% of its 52 week low. Yet again, the fundamentals do not suggest PPDI as a standout acquisition. Digging deeper, we learned that a deal has already been inked for a PPDI buy out by Carlyle Group LP at $33.25 per share. Talks are underway to conclude financing.
Agilent Technologies, Inc. (A)
Robbins purchased Agilent Technologies, Inc. (A). The stock trades at about $35.79 per share and the company has a market cap of $12.42 billion. Agilent’s price/earnings, return on equity and price to book ratios are 12.56, 26.80 and 2.96 respectively. Current ratio is 3.04% and debt/equity is 50.63%. The stock pays no dividend. The price/earnings growth ratio is 0.76. The stock is trading at 125% of its 52 week low. Rival Thermo Fisher Scientific, Inc. (TMO) is trading at about $45.90 per share and the company has a market cap of $17.36 billion. TMO’s price/earnings, return on equity and price to book ratios are 13.40, 6.87% and 1.14 respectively. Current ratio is 1.69% and debt/equity is 46.95%. The stock pays no dividend. The price/earnings growth ratio is 0.87. The stock is trading at 100% of its 52 week low. The case is not so difficult to make for Agilent based on the fundamentals. Agilent is a solid company poised for growth.