By Landon Brace
James Barrow is an industry veteran who currently leads the portfolio management team of the Vanguard Windsor ll and Selected Value Funds. He also founded the Texas-based investment firm Barrow, Hanley, Mewhinney, and Strauss. Even while the S&P 500 (SPY) posted negative returns, Mr. Barrow was able to average an overall return of over 9% during the previous decade. He has a history of being a deep value investor and his recent 5 investments may prove to be worth some consideration.
Janus Capital Group, Inc. (JNS) – At the end of the third quarter of 2011 Mr. Barrow took an increasingly large stake in Janus with a purchase of 1.2 million shares at an average cost of $7.54. This latest purchase follows the pattern of investments since the third quarter of 2010 to bring total holdings of Janus to slightly over 4.1 million shares. At $6.56, $1.20 higher then its yearly low set in early November, Janus has clearly been beaten down by the overall decline in financials. Even after seeing market capitalization sliced in half it has maintained its strong dividend and currently yields 3%. The current P/E of 7 is very attractive when compared with rivals Franklin Resources (BEN), and T Rowe Price Group (TROW). Management continues to work to improve the performance of many of the firm's lagging equity funds, which have been a drain on revenue throughout the last year. Janus’ fixed income funds continue to entice investors and over the long term this company has great potential to pay off. With Janus’ 3% yield I believe most investors won’t have a problem maintaining their patience.
Gibraltar Industries, Inc. (ROCK) – Mr. Barrow made his second largest purchase of Gibraltar in the third quarter of 2011 since he began acquiring shares in 2009. His purchase of 560,993 shares at an average price of $9.46 is paying off quite well so far. At its current closing price of $14.02, Gibraltar is less then a dollar below its yearly high of $14.65 set last December. It has been steadily climbing since touching its yearly low of $7.35 in August and now the question is whether this company has run its course? Although there have been patches of good news, the housing market continues to be a grim reminder of the state of the current economy. Plus, the rising costs of raw materials are further pinching the already razor thin margins of the building material industry. Although housing will improve eventually, in the near term Gibraltar appears to be unsustainable at these levels. With the dividend on hold since early 2009, it will be hard to expect investors to wait around for the increases in material demands that will drive Gibraltar forward.
Medtronic, Inc. (MDT) – For the latest quarter, Mr. Barrow made his second largest purchase of medical device maker Medtronic since he began acquiring shares in early 2009. With slightly over 8 million shares purchased in the third quarter at an average cost of $34.80, he now holds 25.9 million shares. At $34.61, Medtronic is slightly off its yearly low of $30.18 set back in August but is nowhere near its high of $43.33 set in May. The company that specializes in cardiovascular medical devices has come under increased scrutiny from analysts due to fears of Medicare reductions driving down procedure volume. Although rival device makers Boston Scientific (BSX) and St. Jude Medical (STJ) are feeling the heat as well, Medtronic’s superior operating margin of over 27% stands out. Medtronic also boasts an impressive P/E of 10.9, and a solid quarterly dividend yield of 2.7%, leaving competitors St. Jude (STJ) and Boston Scientific (BSX) in the dust. With continued discussion of Medicare reform the medical device makers do present a higher degree of risk than your average stock. This can be seen by the nearly 6% decline in Medtronic’s share price today on an analyst’s report from Wells Fargo (WFC) regarding this exact topic. Although, if you are looking for exposure to this industry, Medtronic is a no brainer.
Sanofi (SNY) – Mr. Barrow only recently began acquiring shares of Sanofi in the first quarter of 2011. During the third quarter of the same year he made his largest purchase of Sanofi, 1.6 million shares for an average cost of $35.97, and now holds over 3.5 million shares in total. Sanofi, a diversified French pharmaceutical company, has American Depositary Shares listed on the NYSE trading right between its yearly high and low at $34.49. The shares are down since touching their yearly high of $40.75 in May, a month after they acquired Genzyme Corporation in a cash deal. Other than Pfizer, (PFE) Sanofi has the lowest P/E in the industry at 14.42 and its gross margin is almost double the industry average at 20.89%. Although it has an impressive yield of 3.8%, investors must keep in mind that they will have foreign tax taken out of the gross distribution since the company is based in France. With the wide variety of drugs for humans and animals, overall diversification of Sanofi’s product line is impressive. With the looming fear of a top seller being sold as a generic, diversification is key in the pharmaceutical industry. If you’re looking for exposure to the pharmaceutical industry without taking of a large amount of risk, I would take a second look at Sanofi.
Carnival Corporation (CCL) – Mr. Barrow has been purchasing Carnival for many years, picking it up at rock-bottom prices during the lows of 2009. During the third quarter of 2011 he acquired 3.7 million shares at an average cost of $33.16 to bring his total holdings up to 25.7 million. Carnival is well off its yearly low of $28.52 set back on October 4, but still has a ways to go before reaching that yearly high of $48.14 set in early January. Although bookings in Europe have started to slow due to the economic concerns in that part of the world, North American sales have been strong and continue to drive the company forward. A dependable 3% dividend from a travel and leisure company is certainly worth taking notice of in this environment. Plus, an operating margin of 14.67% that is above the industry average is noteworthy as well. With bargain-hungry consumers in full force, the all-inclusive nature of cruises continues to lure consumers to that style of vacationing. Carnival has proven that the dividend is dependable and with an increasingly large cash position, a higher return for shareholders shouldn’t be too far off.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.