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Brian Rogers has been the portfolio manager of the T. Rowe Price Equity Income Fund since its inception in 1985. In this article I will analyze five recent stock picks made by Rogers to determine whether they represent solid investments, with the right fundamentals to continue to grow in value in volatile markets and add value to your investment portfolio.

Yahoo Inc. (NASDAQ:YHOO)

Yahoo has a market cap of $19.91 billion with a price to earnings ratio of 19.65. Its 52 week trading range has been between $11.09 and $18.84, and at the time of writing it is trading at around $16. It reported third quarter 2011 earnings of $1.22 billion, a small decrease from second quarter earnings of $1.23 billion. The income statement shows a net income in the third quarter 2011 of $293.29 million, an increase from the second quarter net income of $236.97 million. It has quarterly revenue growth of -24% and a return on equity of 8.77%.

One of Yahoo´s closest competitors is AOL Inc. (NYSE:AOL), which has a market cap of $1.33 billion and is trading at around $13.50, with a price to earnings ratio of 27.46. It has quarterly revenue growth of -5.8% and a return on equity of 2.46%. This data indicates that AOL is outperforming Yahoo.

Brian Rogers holds 2,750,000 shares of Yahoo, buying the entire holding in third quarter 2011. The average purchase price per share was $13.86. Based upon the last trading price of $16.05, he has made a return of 15.8%.

Yahoo´s cash position has declined in the last quarter. Its balance sheet showed $1.46 billion in cash for the third quarter, a decrease from $1.58 billion cash in the second quarter. The net tangible assets have decreased to $8.51 billion in the third quarter, from $8.74 billion in the second quarter. Yahoo’s quarterly revenue growth of -24%, versus an industry average of 15.40%, and a return on equity of 8.77%, versus an industry average of 15.3%, indicates that it is underperforming many of its peers.

The earnings outlook for internet information providers is mixed primarily as competition in the industry is strong with the larger industry participants taking the lead and exerting further pressure on smaller players. In addition, growth has been somewhat stymied due to the subdued economy and decreased business and consumer demand. However, there are also large potential growth opportunities both geographically and technologically with companies focusing on technological innovation and increasingly accessing emerging markets.

At this time Yahoo does not present as a good investment opportunity because it has seen a recent decrease in net income, a weaker balance sheet and less than satisfactory performance indicators. These results would seem to indicate that Yahoo is being squeezed by other industry competitors and there are better performing investment opportunities in the industry. The only worthwhile play regarding Yahoo is speculating on whether it will become a takeover target for a larger competitor. On this basis I do not agree with Rogers’ investment decision and prefer to take a wait and see approach. Accordingly, I rate Yahoo as a hold.

Kohl’s Corporation (NYSE:KSS)

Kohl’s has a market cap of $13.33 billion with a price to earnings ratio of 11.87. Its 52 week trading range was between $42.14 and $57.39 and it is currently trading at around $55.50. It reported third quarter 2011 earnings of $4.25 billion, an increase from second quarter earnings of $4.16 billion. The third quarter net income was reported at $299 million, an increase from second quarter net income of $201 million. It has quarterly revenue growth of 3.7%, a return on equity of 16.03% and pays a dividend with a yield of 2%.

One of Kohl’s competitors is Target Corporation (NYSE:TGT), which has a market cap of $35.51 billion and is trading at around $53. It has a quarterly revenue growth of 4.6% and a price to earnings ratio of 12.31. It generates a return on equity of 19.51% and pays a dividend with a yield of 2.3%. Based on these indicators Target appears to be out performing Kohl’s.

Brian Rogers holds 2,350,000 shares of Kohl’s, buying the entire holding in third quarter 2011. The average purchase price per share was $49.51. Based upon the last trading price of $50.51, he has made a return of 2.02%.

Kohl’s cash position has declined with $1.17 billion in cash for the third quarter 2011, a decrease from $1.67 billion cash in the second quarter. The net tangible assets have also decreased, to $7.08 billion in the third quarter from $7.56 billion in the second quarter. Kohl’s quarterly revenue growth of 3.7%, versus an industry average of 0%, and a return on equity of 16.03%, versus an industry average of 12.07%, indicates that it is outperforming many of its competitors.

The short-term earnings outlook for department stores is subdued due to the current economic uncertainty, high unemployment and poor consumer sentiment, all of which are driving down discretionary spending. However, with signs of the global economic recovery commencing the outlook for the medium to long term is far more positive, although this emerging economic recovery has been derailed somewhat by the European sovereign debt crisis.

When the poor industry earnings outlook is considered in conjunction with Kohl’s weaker balance sheet, Kohl’s does not initially appear to be a good investment opportunity. However, when the company’s solid performance indicators are considered in conjunction with the reported earnings that have increased in a difficult operating environment, the company appears to have solid growth prospects. Accordingly I rate Kohl’s as a buy.

Quest Diagnostics Inc. (NYSE:DGX)

Quest Diagnostics Inc has a market cap of $9.24 billion and is currently trading at around $58.50, with a price to earnings ratio of 21.51. Its 52 week trading range is $45.13 to $61.21. Third quarter 2011 earnings of $1.91 billion were reported, a small increase from second quarter earnings of $1.90 billion. Third quarter net income was $171.85 million, an increase from the second quarter net income of $163.14 million. It has quarterly revenue growth of 2.2%, a return on equity is 13.02% and pays a dividend with a yield of 1.2%.

One of Quest Diagnostics’ competitors is Laboratory Corporation of America Holdings (NYSE:LH), which has a market cap of $8.55 billion and is trading at around $86, with a price to earnings ratio of 17.25. It has quarterly revenue growth of 10% and a return on equity of 21.21%. Based on this data Laboratory Corporation of America is out performing Quest Diagnostics.

Brian Rogers holds 2,100,000 shares of Quest Diagnostics, buying the entire holding in the third quarter 2011.The average purchase price per share was $51.97. Based upon the last trading price of $58.60, he has made a return of 12.76%.

Quest Diagnostics’ cash position has declined with the balance sheet showing $110.83 million in cash for the third quarter, a substantial decrease from $184.22 million in the second quarter. Net tangible assets have marginally increased to -$3.33 billion in the third quarter 2011, from -$3.47 billion in the second quarter. Quest Diagnostics’ quarterly revenue growth of 2.2%, versus an industry average of 15%, and a return on equity of 13.02%, versus an industry average of 1.5%, indicates that it is outperforming many of its competitors.

The earnings outlook for the medical laboratories and research industry is relatively subdued, primarily due to the poor economic climate and a less than settled medical healthcare environment. The key drivers of this outlook are, the impact the US healthcare reforms will have on providers when fully implemented, the volatile economic outlook and high unemployment that is pushing down demand and negative consumer sentiment, which has seen a substantial drop in discretionary spending.

When the negative industry outlook is considered in conjunction with Quest Diagnostics weaker balance sheet and poor performance indicators, I do not believe that the company represents a solid investment opportunity at this time. This is despite its increase in earnings and net income. I also believe that there are better investment opportunities in the industry and on this basis I do not agree with Rogers’ investment decision. Accordingly, I rate Quest Diagnostics as a hold.

Diamond Offshore Drilling Inc. (NYSE:DO)

Diamond Offshore Drilling has a market cap of $8.37 billion and is trading at around $60, with a price to earnings ratio of 8.23. Its 52 week trading range is $51.16 to $81.19. It reported third quarter 2011 earnings of $878.18 million, a decrease from second quarter earnings of $889.50 million. Third quarter net income was $256.85 million, a decrease from the second quarter net income of $266.59 million. It has quarterly revenue growth of 9.8%, a return on equity of 25.4% and it pays a dividend with a yield of 0.8%.

One of Diamond Offshore Drilling’s competitors is Noble Corporation (NYSE:NE), which has a market cap of $8.75 billion and is trading at around $35, with a price to earnings ratio of 25.72. It has quarterly revenue growth of 20.5%, a return on equity of 4.51% and pays a dividend with a yield of 1.5%. Based on these indicators Diamond Offshore Drilling is outperforming Noble.

Brian Rogers holds 2,750,000 shares of Diamond Offshore Drilling Inc, buying 1,500,000 shares in the third quarter 2011, adding to the 1,250,000 shares bought in the first quarter 2011. The average purchase price per share was $67.83. Based upon the last trading price of $60.17, he has made a return of -11.29%.

Diamond Offshore Drilling´s cash position has improved. The balance sheet showed $348 million in cash for the third quarter 2011 an increase from $279.88 million in the second quarter. The net tangible assets have decreased to $4.26 billion in the third quarter 2011 from $4.14 billion in the second quarter. Diamond Offshore Drilling’s quarterly revenue growth of 9.8%, versus an industry average of 33.1%, and a return on equity of 25.4%, versus an industry average of 11.2%, indicates that it is underperforming many of its competitors.

The earnings outlook for the oil and gas industry is quite positive 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 Diamond Offshore Drilling.

Diamond Offshore Drilling’s stronger balance sheet and solid return on equity indicate a well managed company, which is well positioned to take advantage of any further growth opportunities that may arise out of the positive industry outlook. On this basis I agree with Rogers’ investment decision and rate Diamond Offshore Drilling as a buy.

Emerson Electric Inc. (NYSE:EMR)

Emerson Electric has a market cap of $37.79 billion, it has a price to earnings ratio of 15.68. Its 52 week trading range has been between $39.50 and $62.24 and it is trading at around $51. It reported third quarter 2011 earnings of $6.55 billion, an increase from second quarter earnings of $6.29 billion. The third quarter net income was $761 million a significant increase from second quarter net income of $683 million. It has quarterly revenue growth of 24.8%, a return on equity of 24.43% and pays a dividend with a yield of 3.1%.

One of Emerson Electric’s main competitors is ABB Ltd (ABB,) which has a market cap of $42.67 billion and is trading at around $18.50, with a price to earnings ratio of 14.05. It has quarterly revenue growth of 18.1%, a return on equity of 20.59% and pays a dividend with a yield of 3.6%. Based on these indicators, Emerson Electric is outperforming ABB.

Brian Rogers holds 3,236,900 shares of Emerson Electric, buying 1,500,000 shares in the third quarter 2011, adding to the 250,000 shares purchased in the second quarter. The average purchase price per share was $48.87. Based upon the last trading price of $51.36, he has made a return of 5.1%.

Emerson Electric’s cash position has improved. The balance sheet showed $2.05 billion in cash for the third quarter 2011 an increase from $1.78 billion in the second quarter. The net tangible assets showed -$341 million in the second quarter, a decrease from -$204 million in the second quarter. Emerson Electric’s quarterly revenue growth of 24.8%, versus an industry average of 14.2%, and a return on equity of 24.43%, versus an industry average of 15.9%, indicates that it is out performing many of its competitors.

The earnings outlook for the industrial equipment and components industry is relatively negative, primarily due to the poor US and global economic climate, which has triggered a decline in demand. In addition, the emerging global economic recovery has been somewhat derailed by the European sovereign debt crisis and this has also had an impact on the industry outlook as manufacturers seek to cut costs due to subdued demand. Another driver is the industry earnings outlook is heavily dependent on US manufacturing activity, which has been quite subdued for the reasons listed. However, the devalued US dollar makes US exports more attractive for overseas consumers and this should provide some upside to the industry.

Despite the negative industry outlook and difficult operating environment Emerson Electric has delivered a substantial increased third quarter net income and strengthened its balance sheet. In addition, the company has strong performance indicators and for these reasons I agree with Rogers’ investment decision and I rate Emerson Electric as a buy.

Source: 5 New Buys From T. Rowe Price's Brian Rogers