Q3 Undervalued Stock Picks By Mutual Fund Manager Arnold Schneider

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 |  Includes: ACIIQ, BAC, BTUUQ, CHK, CIM, CNX, CSCO, HBAN, RF, STI, VLO
by: GuruFundPicks

Wayne, PA-based investment adviser Schneider Capital Management, headed by Chief Investment Officer Arnold Schneider, manages over $1.7 billion in two equity mutual funds, Schneider Value Fund and Schneider Small Cap Value Fund. The firm was founded by Arnold Schneider in 1996, and it employs a disciplined, deep-value investing approach to picking its investments. The fund holds a moderately diversified portfolio of over 150 positions, and 30% of its holdings are in large caps, 40% in mid caps and the remaining 30% in small-cap equities. Their portfolio turnover is 30%-40% implying an average holding period of three years, and it is over-weight in the financial (30%) sector, and it is under-weight in healthcare (3%) and basic materials (1%) sector.

Based on a review of the most recent SEC 13-F filing for the September 2011 quarter, we determined that Schneider is bullish on the following undervalued stocks in its portfolio (see Table):

Regions Financial Corp. (NYSE:RF): RF is a holding company for the Regions Bank that provides a range of commercial, retail and mortgage banking services in the U.S. via 1,772 offices in 16 states in the South and the Midwest. Schneider added $26 million in Q3 to its $21 million prior quarter position in the company. RF earnings after falling in 2008-09 have been rebounding recently, and are expected to rise from a 46c loss in 2010 to 48c earnings in 2012. It trades at 8-9 forward P/E, and at 0.4 P/B, compared with averages of 12.8 and 0.6 respectively for the south east banks group. Besides Schneider, other major funds that accumulated RF in Q3 include Capital Research Global Investors, which added 6.4 million shares to its 12.7 million share prior quarter position, and Janus Capital Management, which added 3.1 million shares to its 0.3 million share prior quarter position.

Peabody Energy Corp. (BTU): BTU is engaged in coal production and sale through 28 operations in the U.S. and Australia. Schneider added $21 million in Q3 to its $37 million prior quarter position in the company. BTU trades at a discount 7-8 forward P/E, compared with the average of 10.7 for the coal mining group, while earnings are projected to increase at 29.4% compound growth rate from $3.09 in 2010 to $5.17 in 2012. Also, it trades at a discount 1.8 P/B and at 7.6 P/CF, compared with averages of 2.6 and 7.1 respectively for its peers in the coal mining group. Besides Schneider, other major funds that accumulated BTU in Q3 include T Rowe Price adding 5.2 million shares to its 23 million share prior quarter position, and UBS Global Asset Management adding 3.6 million shares to its 0.7 million share prior quarter position.

Arch Coal Inc. (ACI): ACI is engaged in the production of steam and metallurgical coal from surface and underground mines. Schneider added $19 million in Q3 to its $51 million prior quarter position in the company. ACI is undervalued, trading at a discount 6-7 forward P/E, compared with the average of 10.7 for the coal mining group, while earnings are projected to increase at 52.2% compound growth rate from $1.14 in 2010 to $2.64 in 2012. Also, it trades at a discount 0.9 P/B and 4.9 P/CF ratios, compared with averages of 2.6 and 11.2 respectively for the coal mining group. Besides Schneider, other major funds that accumulated ACI in Q3 include Tradewinds Global Investors adding 8.7 million shares to its 4.9 million share prior quarter position, and T Rowe Price adding 2.1 million shares to its 20.7 million share prior quarter position.

Huntington Bancshares Inc. (NASDAQ:HBAN): HBAN operates as the holding company for the Huntington National Bank that provides commercial and consumer banking services via 611 offices in OH, MI, PA, IN, WV, KY and FL. Schneider added $9 million in Q3 to its $23 million prior quarter position in the company. HBAN is undervalued, trading at a discount 8-9 forward P/E, compared with the average of 17.0 for Midwestern banks, while earnings are projected to more than double from 28c in 2010 to 61 in 2012. Also, it trades at a 0.9 P/B and 3.3 P/CF ratios, compared with averages of 0.7 and 12.9 respectively for the Midwestern banks group. Besides Schneider, other major funds that accumulated HBAN in Q3 include AllianceBernstein adding 8.3 million shares to its 1.5 million share prior quarter position, and TIAA-CREF Investment Management adding 6.4 million shares to its 13.2 million share prior quarter position.

Also, based on its Q3 filing, Schneider is bearish on the following positions in its portfolio (see Table):

Chesapeake Energy (NYSE:CHK): CHK is an independent oil and gas company, with its primary operating assets in mid-continent region of OK, western AR, southwestern KS and the TX Panhandle. Schneider cut $23 million in Q3 from its $33 million prior quarter position in the company. CHK is under-valued and trades at a discount 10 forward P/E, and at 1.2 P/B and 3.3 P/CF, compared with averages of 21.4, 5.3 and 21.8 for its peers in the U.S. oil exploration and production group.

Chimera Investment Corp. (NYSE:CIM): CIM is a REIT investing in residential mortgage loans, mortgage-backed securities and real-estate related securities. Schneider cut $3 million in Q3 from its $5 million prior quarter position in the company. CIM is under-valued and trades at a discount 5-6 forward P/E, and at 0.8 P/B and 6.6 P/CF, compared with averages of 12.2, 0.8 and 8.9 for its peers in the Mortgage REIT group.

Bank of America (NYSE:BAC): BAC is a global holding company offering banking and non-banking financial services in the U.S. and over 40 foreign countries. Schneider dropped its entire $23 million prior quarter position in the company in Q3. BAC is under-valued and trades at a discount 5-6 forward P/E, and at 0.3 P/B and 1.2 P/CF, compared with averages of 8.4, 0.8 and 8.1 for its peers in the major regional banks group.

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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.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.