At college, Glenn Greenberg was an English major and never thought of investing. He ended up going to Columbia business school with no real career objective. Greenberg worked for J.P. Morgan after b-school. A light bulb went off for Greenberg when he was asked to analyze a company that owned land with redwoods growing on it. He made some inquiries and discovered that the land was worth three times the price at which the company was trading. That shaped his thinking because he learned that there are situations out there where you don't need to be a genius to figure them out.
Greenberg worked for five years at J.P. Morgan but was dissatisfied because he did not think he was being trained to be a good money manager. He left and went to work for a small money management firm where he spent five years doing research. He then set up his own firm, 10 years after leaving school.
I think it is interesting to analyze Glenn Greenberg´s holdings so as to generate seed investment ideas for further research. I consider that if a stock is a top holding from a prominent portfolio manager such as Greenberg, the company must have passed rigorous research standards, so my confidence level to invest goes higher. I used whalewisdom.com to check portfolio holdings of several hedge fund managers.
I like Google because it is one of the few tech leaders that can offer a strong moat and solid growth in the future. That is not easy to obtain in this "new normal," low growth macro scenario. Google has a solid revenue growth record. Over the past five years, revenue has grown at a CAGR of 22.6%, gross profit dollars at a CAGR of 24.3% and operating profit dollars at a CAGR of 23.9%. I think part of that growth comes from GOOG's strong moat and management execution, which I think is an advantage this company has. Why am I confident in GOOG management success? It can be seen in the different acquisitions Google has made in the past years. Management successfully integrated some major acquisitions (AdMob, DoubleClick and YouTube to name a few), which provided it with the kind of technology required for sustained growth in a highly dynamic and competitive market. While the existence of operating leverage is evident from the past few year's results, 2012 will be a year of higher costs, necessary for continued growth.
Google is also exposed to another key growth area in the Internet space: video. Google is the true leader in the video space with its YouTube platform, where viewership continues to increase rapidly. Video ads on Google.com are currently limited to entertainment, movies and product demonstrations but I think that Google will expand that in the future. The company intends to expand the scope of video ads on Google.com to include other areas as well. With 50% percent of new recruitments in engineering and another chunk in sales, management clearly intends to build upon its success in video, mobile, display and search.
Another positive is that Google shows a blooming balance sheet with more than $44 billion in cash equivalents and about $4.2 billion in short-term debt and long-term debt. This will allow the company to keep growing and hire the best talent in the Industry.
I wonder how many big-cap technology stocks offer the kind of moat Google has and the future growth potential that mobile, video, display and online search offers.
In the last earnings release, Google's 1Q12 revenue was in line with expectations, and pro forma EPS above expectations. Net search revenue was modestly ahead of its expectations with strong query volume and paid clicks offsetting declining cost-per-click (CPC) rates. Google's Display business continues to increase rapidly, but the growth rate has somewhat slowed. I think that the stock performance in the future will depend on how Google monetizes both Android users and its social platforms (Google +).
I agree with Glenn Greenberg: Google is one of the few tech stocks I would keep in my portfolio.
Oracle Corporation (ORCL)
Oracle Corporation is one of the largest database and enterprise Software companies present in more than 145 countries. The company develops, manufactures, markets, distributes and services database (core product) and middleware software, as well as applications software worldwide. With the acquisition of Sun Microsystems in January 2010, Oracle started selling hardware products and services, primarily comprising computer server and storage products. The company now reports revenue under three heads: Software (67%), Hardware systems (20%) and Services (13%).
The fact that Oracle leads the enterprise database market makes me interested to invest in this Company. I like tech solid leaders. The recovery in applications spending should benefit Oracle´s database, application and middleware solutions. According to research firm Gartner this company will also benefit from the growth in the worldwide enterprise software market, which is expected to increase 6.4% year over year to $285.0 billion in calendar year 2012. This strong expansion is expected to be driven by increasing enterprise infrastructure software spending, with operating systems (OS) and database management systems as the fastest growing sectors. In addition, worldwide enterprise application software spending is expected to increase at a coherent rate from 2012 through 2015, with Enterprise resource planning (ERP) being the largest segment, which also might have called Greenberg´s attention. I expect not only Oracle to sustain its momentum in 2012 and beyond based on its superior industry offerings, middleware offerings, data quality and integration tools, master data management tools, database customer relationship management tools and supply chain management products, but also to grab further share in the database and applications software market going forward.
Another thing that I like is Oracle's growth by acquisitions strategy. ORCL management is expert in following this strategy. The acquisition of Sun was one of the best ones I have seen. Sun strengthened ORCL competitive position in the middleware business and increased its developer base in enterprise computing. In the first half of 2012, Oracle announced the acquisition of customer relationship management software provider, RightNow Technologies, its largest acquisition after Sun. This is expected to consolidate Oracle's position in the Cloud-based CRM market, primarily dominated by Salesforce.com (CRM). It is believed that acquisitions in the field of data management and cloud computing will be beneficial for Oracle over the long term.
ORCL´s Current Net Profit Margin is 23.99%, currently higher than its 2010 margin of 22.87%. I like companies that increased profit margins in comparison to other years. It is essential to know the reason why that happened. Current Return on Equity for ORCL is 24.22%. Higher than the +20% standard I look for in companies I invest and also higher than its 2010 average ROE of 21.95%.
In terms of income and revenue growth, ORCL has a 3 year average revenue growth of 16.67% and a 3 year Net Income average growth of 15.68 %. Its Current Revenue Year-over-Year growth is 32.82%, higher than its 2010 Revenue growth of 15.34%. The fact that revenue increased from last year show me that the business is performing well. The current Net income year-over-year growth is 39.32%, higher than its 2010 Net Income y/y growth of 9.69%. I like when Net Income growth is higher than the past.
In terms of Valuation Ratios, ORCL is trading at a Price/Book of 3.4x, a Price/Sales of 4.0x and a Price/Cash Flow of 11.2x in comparison to its Industry Averages of 4.1x Book, 4.0x Sales and 10.8x Cash Flow. It is essential to analyze the current valuation of ORCL and check how is trading in relation to its peer group.
The stock is trading at 12.4X the 2012 average analyst EPS estimate, a 66.5% discount to the peer group average of 37.0X, much greater than the average discount of 57.8% historically, showing the possibility of upward movement. Nevertheless, Oracle is expected to generate earnings growth of just 14.4% over the next 5 years, compared to the peer group average of 19.3%. Despite Oracle's last quarter revenue and earnings missed the estimates; I believe that the company's strong product portfolio will assist top-line growth over the long term.
As regards Financial Health, Oracle owns about $30 billion in cash and cash equivalents and nearly $15 billion in debt. The company is expected to generate more than $12 billion in annual free cash flow, excluding acquisitions, enabling it to comfortably service debt while continuing to invest in broadening the business.
Like Google, Oracle is one of the few tech big leaders that I like.
Comcast Corp (CMCSA)
Comcast Corporation is mainly committed to the development, management and operation of broadband cable networks, and to the provision of electronic commerce and programming content. Comcast's commerce and content businesses include majority ownership of QVC, Comcast-Spectacor, Comcast SportsNet, and The Golf Channel, a controlling interest in E! Networks, and other programming investments.
Why do I think Glenn Greenberg bought CMCSA? Because the core cable business is the driving force behind Comcast, providing two-thirds of consolidated revenue and more than 80% of EBITDA. It is basically a solid, cash-cow business that is quite recession-proof. To my mind, the capability of its networks, which can offer a full complement of television, Internet, and phone services, is what sets Comcast's cable business apart from its rivals. The firm has used this advantage to steal an increasing share of customer relationships from its telecom rivals, including AT&T (T) and Verizon (VZ), which cover about 80% of its territory. Comcast now provides phone service to about 18% of the homes in its territory, and the business is growing despite the secular decline in demand for fixed-line phone service. AT&T and Verizon have enhanced some of their networks to gain the ability to offer television services and fight the encroachment on their phone business. Despite the fact that both firms have achieved respectable television penetration rates in the areas they've improved, they remain small players in this market.
Wunderlitch Research wrote a bullish report about CMCSA. Basically, Wunderlich remains positive on Comcast and feels that much of the remaining equity upside resides at the 51% NBC Universal interest. A surprising element of eventual upside may be geared toward Universal Pictures and Parks beyond the familiar cable networks story - as the market congenitally undervalues studios relative to cable nets. Although NBCUniversal CEO Steve Burke has recently expressed amplified skepticism on the movie biz per reports from the CAA retreat, Universal showcased impressive product in the final presentation at CinemaCon that should afford more credibility to its top 15.3% 2012 year-to-date market share.
Another positive is that CMCSA's management remains commited to increase shareholder value. During the first quarter of 2012, the Company paid dividends totaling $304 mln and repurchased 25.9 mln of its common shares for $750 mln. As of March 31, 2012, Comcast had ~$5.8 billion available under its share repurchase authorization, which seems high over historical standards.
In terms of Valuation Ratios, CMCSK is trading at a Price/Book of 1.7x, a Price/Sales of 1.5x and a Price/Cash Flow of 5.7x in comparison to its Industry Averages of 3.7x Book, 1.3x Sales and 5.2x Cash Flow.
Laboratory Corporation of America holdings (LH)
As one of the leading independent clinical laboratory companies in the U.S., Laboratory Corporation of America Holdings provides routine and esoteric testing, which are used by a medical practitioner in monitoring and treating diseases. The most frequently requested routine tests include blood chemistry analysis, urinalyses, blood cell count, thyroid test, Pap tests and HIV tests.
I think one of the reasons Greenberg decided to invest is that the company has been using its cash balance to generate strategic acquisitions as well as reward its shareholders through share repurchases. LabCorp noted that it is interested in acquisitions in the field of pathology, including hematopathology. During the reported quarter, the company repurchased 2.1 million shares for $172.1 million and was left with $84.4 million of repurchase authorization. The Board of Directors also authorized a new $500 million share repurchase program. of The company´s cash flow trends remain robust with free cash flow for the year coming in at $759.4 million, excluding the Hunter Labs settlement of $49.5 million.
LH´s Current Net Profit Margin is 9.38%, currently lower than its 2010 margin of 11.16%. Current Return on Equity for LH is 20.91%. Higher than the +20% standard I look for in companies I invest but lower than its 2010 average ROE of 24.42%.
In terms of Valuation Ratios, LH is trading at a Price/Book of 3.5x, a Price/Sales of 1.6x and a Price/Cash Flow of 10.6x in comparison to its Industry Averages of 2.7x Book, 1.9x Sales and 13.7x Cash Flow. I think LH trades at multiples higher than its peers because the Company has a much stable business model.
In terms of future strategy, trying to spur growth and profitability, LabCorp continues to focus on strategic initiatives. It includes introduction of innovative tests in the genomic/esoteric arena, specifically in the area of cancer; greater concentration on managed care organizations in addition to aggressive penetration into the hospital market. The company is deeply involved on the high-margin esoteric testing business, which is expected to contribute 45% of total sales in the next 3-5 years.
LabCorp's current trailing annual earnings multiple is 13.7, compared with the industry average of 35.0 and 14.3 of the S&P 500. Over the last five years, LabCorp's shares have traded in a range of 11.9x to 24x trailing annual earnings.
Fiserv Inc (FISV)
Fiserv Inc. aids financial institutions and health plan administrators in managing their information systems so that they can efficiently deliver services to their customers. The company offers financial services technology solutions, including electronic commerce systems and services, such as transaction processing, electronic bill payment and presentment, business process outsourcing, document distribution services, and software and systems solutions.
Fiserv is leader in health information systems. By analyzing Greenberg holdings, it seems that he likes leaders in each segment. Fiserv is one of them.
The company has developed an efficient, cross product architecture that incorporates message protocols, security and the content rules needed to pass data or transactions between different applications. The integration helps Fiserv develop new software at a lower cost by reusing the existing technology effectively, and enables it to reduce error rates and download time during software upgrades and releases. Hence, management follows a structured format of principles aimed at diverse portfolio management, building and developing effective customer relationships, ensuring efficient capital allocation and operational management apart from adhering to research on implementing creative and innovative solutions.
Recently, FISV reported earnings that solidly beat expectations. Fiserv reported Q1 earnings of $1.20 per share, excluding non-recurring items,$0.05 better than the Capital IQ Consensus Estimate of $1.15. It was a great fact that revenue rose 5.7% year/year to $1.11 bln vs the $1.1 bln consensus. Management reafirmed EPS of $5.04-5.20, excluding non-recurring items, vs. $5.10 Capital IQ Consensus Estimate and forecast FY12 revs of growth of +4-6% to $4.5-$4.6 bln vs. $4.55 bln Capital IQ Consensus Estimate. Management highlighted in the call
We are off to a great start in 2012 with above plan performance for revenue and earnings per share in the quarter..There is continuing evidence that our broad range of technology solutions will support the needs of the evolving financial services market.
Regarding Valuation, on a P/E basis, Fiserv shares are now trading at a 2012 P/E multiple of 13.5x, compared with the industry average of 17.0x and the S&P 500 multiple of 13.6x. Historically, shares have traded in the range of 9.7x - 23.1x. Fiserv is a great company and is cheap on multiple comparison standards.
FISV is a stock that investors interested in the healthcare sector must consider.
Other Companies that Glenn Greenberg likes
VPRT management recently announced that the company is on track to deliver organic long-term targets for fiscal 2016 of at least $2 billion in revenue (20 percent CAGR) and $5.00 of GAAP net income per share, excluding the impact of acquisitions and fiscal 2012 share repurchases. I think that Greenberg analyzed that VPRT will get to that 2016 goal and that will bring an almost sure appreciation in the shares. It is not the kind of stock selection I would like to add to my portfolio but it is worth watching.
In terms of ONE, it is a stock I do not like in my portfolio right now. The company recently reported earnings that were lower than estimates and a lower guidance for both earnings and sales. The stock is highly volatile and the company operates in a sector I do not understand.
Disclosure: I am long GOOG.