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James Barrow is the Executive Director and founder of Dallas based investment firm Barrow, Hanley, Mewhinney and Strauss, as well as the lead portfolio manager for the Vanguard Windsor II and Selected Value Funds. During his time at the Selected Value Funds, he has averaged a return of 9.33% a year and in many years outperformed the market.

He is a value oriented investor with a preference for seeking out companies with below market price to earnings ratios, below market price to book ratios, and above market dividend yields, regardless of market conditions. In this article I will review five recent investments made by Barrow to determine if those stocks have the ability to increase in value and deliver strong investor returns.

Marathon Petroleum Corporation (NYSE:MPC)

Marathon Petroleum has a market cap of $11.77 billion with a price to earnings ratio of 4.38. Its 52 week trading range is $26.35 to $47.43, and at the time of writing it is trading at around $33. It reported third quarter 2011 earnings of $19.29 billion a marginal decrease from second quarter earnings of $19.49 billion. The income statement showed a net income in the third quarter of $1.13 billion, an increase from the second quarter net income of $802 million. It has quarterly revenue growth of 32.60%, a return on equity of 29.07% and pays a dividend with a yield of 2.70%.

One of Marathon Petroleum´s closest competitors is Valero Energy Corporation (NYSE:VLO), which has a market cap of $12.21 billion and is trading at around $22, with a price to earnings ratio of 7.76. It has quarterly revenue growth of 61.10%, generates a return on equity of 13.91% and pays a dividend with a yield of 2.80%. This data indicates that Valero is out performing Marathon Petroleum.

Barrow holds 4,058,400 shares of Marathon Petroleum, buying the entire holding in third quarter 2011. The average purchase price per share was $37.10. Based upon the last trading price of $33.01, he has made a return of -11.02%.

Marathon Petroleum´s cash position has improved in the last quarter. Its balance sheet showed $2.96 billion in cash for the third quarter 2011, a substantial increase from $1.62 billion cash in the second quarter. Marathon Petroleum’s quarterly revenue growth of 32.60%, versus an industry average of 15.50%, and a return on equity of 6.63%, versus an industry average of 15.30%, indicates that it is out performing many of its competitors.

The earnings outlook for the oil and gas industry is very positive, primarily due to the ongoing boom in demand for resources driven by the growth of the Chinese economy. This indicates further opportunities for strong revenue growth, which when combined with a weak dollar, that should make U.S. exports more competitive, bodes well for oil and natural gas demand and producers like Marathon Petroleum.

The positive industry outlook combined with Marathons strong balance sheet, increased net income and solid performance indicators show the company is well positioned for further growth. On this basis I agree with Barrow’s investment decision and rate Marathon Petroleum as a buy.

Sonoco Products (NYSE:SON)

Sonoco has a market cap of $3.08 billion. Its 52 week trading range is $26.10 to $36.95 and it is currently trading at around $31, with a price to earnings ratio of 14.35. It reported third quarter 2011 earnings of $1.12 billion a slight decrease from second quarter earnings of $1.13 billion. Third quarter net income was reported at $77.20 million, an increase from second quarter net income of $53.41 million. It has quarterly revenue growth of 6.9%, a return on equity of 14.65% and pays a dividend with a yield of 3.8%.

One of Sonoco’s competitors is Bemis Company Inc (NYSE:BMS), which has a market cap of $2.88 billion and is trading at around $28, with a price to earnings ratio of 14.18. It has quarterly revenue growth of 4.90%, a return on equity of 12.20% and pays a dividend with a yield of 3.5%. Based on these indicators Sonoco is outperforming Bemis Company.

Barrow holds 1,506,600 shares of Sonoco, buying the entire holding in third quarter 2011. The average purchase price per share was $31.50. Based upon the last trading price of $31.02, he has made a return of -1.52%.

Sonoco’s cash position has increased with $146.29 million in cash for the third quarter 2011 an increase from $133.98 million cash in the second quarter. Net tangible assets have decreased to $581.42 million in the third quarter, from $605.59 million in the second quarter. Sonoco`s quarterly revenue growth of 6.90%, versus an industry average of 9.10%, and a return on equity of 14.65%, versus an industry average of 16.80%, indicates that it is underperforming many of its competitors.

The outlook for the paper and paper products industry is subdued primarily as demand is highly dependent on the U.S. economy, which is currently looks anything but promising. This drop in demand is the downwind effect of decreased consumer demand for paper products stemming from the poor economic outlook and poor consumer sentiment.

Despite the negative industry outlook I agree with Barrow’s decision to invest in Sonoco as it has increased its net income and strengthened its balance sheet in a difficult operating environment. I also find the company to be an attractive investment due to its solid performance indicators and dividend yield. Accordingly, I rate Sonoco as a buy.

Rent-A-Center (NASDAQ:RCII)

Rent-A-Center has a market cap of $2 billion and is currently trading at around $34, with a price to earnings ratio of 14.66. Its 52 week trading range is $21.30 to $37.37. Third quarter 2011 earnings of $704.27 million were reported, an increase from second quarter earnings of $698.25 million. Third quarter net income was $31.22 million, a decrease from second quarter net income of $39.89 million. It has quarterly revenue growth of 6%, a return on equity of 11.02% and pays a dividend with a yield of 1.80%.

One of Rent-A-Center’s closest competitors is Aaron’s Inc (NYSE:AAN), which has a market cap of $1.87 billion and is trading at around $24, with a price to earnings ratio of 17.29. It has quarterly revenue growth of 7.20%, a return on equity of 11.96% and pays a dividend with a yield of 0.2%. Based on this data Rent-A-Center is performing on a par with Aaron’s.

James Barrow holds 1,380,717 shares of Rent-A-Center, buying the entire holding in the third quarter 2011.The average purchase price per share was $27.69. Based upon the last trading price of $24.38, he has made a return of -11.95%.

Rent-A-Center’s cash position has improved with the balance sheet showing $76.03 million in cash for the third quarter 2011, an increase from $74.03 million in the second quarter. Net tangible assets have decreased significantly, to $-17.25 million in third quarter 2011, from $36.33 million in the second quarter. Rent-A-Center’s quarterly revenue growth of 6%, versus an industry average of 13%, and a return on equity of 11.02%, versus an industry average of 5.9%, indicates that it is achieving a better return on equity than many of its competitors, but is lagging in revenue growth.

The earnings outlook for the rental and leasing services industry is relatively positive given the poor economic outlook and increased economic volatility triggered by the European sovereign debt crisis. This positive outlook is predominantly being driven by the tentative signs of an economic recovery combined with increasingly positive industry participant sentiment. It is also being driven by the view that as discretionary consumer spending has dropped many consumers are seeking to lease products rather than buy them.

Given Rent-A-Center’s stronger balance sheet and increased earnings I believe it is well placed for continued growth especially when considering the positive industry outlook. In conjunction with this it has solid performance indicators and pays a moderately attractive dividend. Accordingly, I agree with Barrow’s investment decision and rate Rent-A-Center as a buy.

Target Corporation (NYSE:TGT)

Target Corporation has a market cap of $34.67 billion and is currently trading at around $52, with a price to earnings ratio of 12.02. Its 52 week trading range is $45.28 and $60.97. It reported third quarter 2011 earnings of $16.24 billion, an increase from second quarter earnings of $15.94 billion. Third quarter net income was $704 million, an increase from second quarter net income of $689 million. It has quarterly revenue growth of 4.60%, a return on equity is 19.51% and it pays a dividend with a yield of 2.30%.

One of Target´s competitors is Costco Wholesale Corporation (NASDAQ:COST), which has a market cap of $35.64 billion and is trading at around $82, with a price to earnings ratio of 24.90. It has quarterly revenue growth of 16.80%, a return on equity of 13.12% and pays a dividend with a yield of 1.20%. Based on these indicators Costco is achieving superior revenue growth than Target but I lagging in return on equity.

Barrow holds 6,740,776 shares of Target Corporation, buying 5,807,276 shares in the third quarter 2011, adding to the 933,500 shares bought in the second quarter. The average purchase price per share was $50.09. Based upon the last trading price of $51.63, he has made a return of 3.07%.

Target´s cash position has decreased. The balance sheet showed $890 million in cash for the third quarter 2011, a decrease from $1.42 billion in the second quarter. Net tangible assets have decreased slightly to $15.11 billion in the third quarter 2011, from $15.23 billion in the second quarter. Target’s quarterly revenue growth of 4.60%, versus an industry average of 6.90%, and a return on equity of 19.51%, versus an industry average of 22.20%, indicates that it is being out performed by many of its competitors.

The outlook for department stores is cautiously positive, primarily it is felt that we are seeing the early stages of an emerging economic recovery, although, this has been affected somewhat by the European sovereign debt crisis. In addition, consumer spending has not reached pre-GFC highs, due to high unemployment and negative consumer sentiment.

Despite the weaker balance sheet, I agree with Barrow’s decision to invest in Target primarily as the company has reported an increase in net income in a difficult operating environment as well as having solid performance indicators and paying a dividend with a moderately attractive yield. Accordingly, I rate Target as a buy.

Medtronic Inc (NYSE:MDT)

Medtronic has a market cap of $35.84 billion and is trading at around $35, with a price to earnings ratio of 10.96. Its 52 week trading range is $30.18 and $43.33. It reported third quarter 2011 earnings of $4.05 billion, a decrease from second quarter earnings of $4.30 billion. Third quarter net income was $821 million, an increase from the second quarter net income of $776 million. It has quarterly revenue growth of 7.30%, a return on equity of 19.95% and pays a dividend with a yield of 2.90%.

One of Medtronic’s main competitors is St Jude Medical Inc (NYSE:STJ), which has a market cap of $11.65 billion and is trading at around $36, with a price to earnings ratio of 13.10. It has quarterly revenue growth of 11.50%, a return on equity of 21.04% and pays a dividend with a yield of 2.30%. Based on these indicators, St Jude is out performing Medtronic.

Barrow holds 2,5873,363 shares of Medtronic Inc, buying 8,003,130 shares in the third quarter 2011, adding to the 12,121,320 shares purchased in the second quarter. The average purchase price per share was $37.67. Based upon the last trading price of $34.76, he has made a return of -7.72%.

Medtronic’s cash position has improved in the last quarter. The balance sheet showed $1.39 billion in cash for the third quarter 2011, an increase from $1.38 billion in the second quarter. Medtronic’s quarterly revenue growth of 7.30%, versus an industry average of 16.60%, and a return on equity of 19.95%, versus an industry average of 14.10%, indicates that it is outperforming many of its competitors return on equity but lagging in revenue growth.

The earnings outlook for the medical appliances and equipment industry is cautiously optimistic and the outlook will continue to improve as we move into 2012. This outlook is being driven by a number of revenue generating opportunities for industry participants including increasing investment in emerging markets, an aging population and glimmers of an improvement in the U.S. economy. However, U.S. heath care reforms may have an impact on the earnings of these companies as it creates a less flexible pricing environment.

Medtronic’s stronger balance sheet and increased net income have left it well positioned to take advantage of any growth opportunities that will emerge as a result of the improved industry outlook. On this basis in conjunction with its strong performance indicators and moderately attractive dividend yield I agree with Barrow’s investment decision. Accordingly, I rate Medtronic as a buy.

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