Dr. John Hussman is the president and principal shareholder of Hussman Econometrics Advisors, the investment advisory firm that manages the Hussman Funds, and the President of the Hussman Investment Trust. He also manages Hussman Strategic Growth Fund, which invests primarily in U.S. stocks, and Hussman Strategic Total Return Fund, which invests mainly in U.S. Treasury and government agency securities.
From the fund inception in July 2000 to Oct. 31, 2008, his Hussman Strategic Growth Fund averaged 9.9% a year, and has a cumulative gain of 118%, while the S&P500 (SPY) lost more than 23%. For the 12 months ended Oct. 31, 2008, his fund lost 0.3%, while the S&P500 lost more than 40%.
I think it is essential to buy companies that sell products or services that are needed or desired, have no close substitute and are not regulated. I analyzed John Hussman´s portfolio via whalewisdom.com and found that he also shares those business tenets. I will detail his holdings and the reason that he could have picked that stock.
One of the most important developments from Intel came from its analyst day, delivering an upbeat and optimistic outlook for 2012-13, with expectations of continued PC-Datacenter growth and 25% growth in the Intel architecture segment into 2013. I think that while INTC has been able to capture better value and ASPs in the PC market with integration, increasing wafer costs and declining ASPs pose a different set of challenges in the smartphone-tablet market.
In that event CEO Paul Otellini and CFO Stacy Smith touted the company's large and growing manufacturing advantage. The most important part came when management expressed that it has not seen enterprise demand slowing, as CSCO noted. Intel sees healthy growth in 2013 as it remains focused on cloud data center, personal computing, mobile devices and intelligent systems. Management also expressed INTC's ability to leverage its lead across all product lines to lower costs in an increasingly competitive environment.
Intel is a tech big-cap leader and I like these kind of stocks. It has almost a monopoly in the microprocessor market.
I got encouraged to see that Intel increased the quarterly dividend 7% to $0.225/share (from $0.21/share prior dividend) beginning with the dividend that will be declared in the third quarter of 2012. Paul Otellini said:
2012 is expected to be another year of record revenues for Intel, with strong demand in our core business and significant progress in smartphones and other new growth areas,
To sum up, INTC is a stock I would include in my portfolio.
Astrazeneca Plc (AZN)
Based in London, UK, AstraZeneca plc , is one of the largest bio-pharmaceutical companies in the World, and it was founded on April 6, 1999, through the merger of Sweden´s Astra AB and UK´s Zeneca Group plc.
AstraZeneca's focus is in emerging markets. For example, In 2010, weak U.S. sales were largely mitigated by strong sales in emerging markets, which escalated 16% to $5.2 billion driven by impressive performances in China (up 28%), Russia (up 26%) and Brazil (up 17%). Emerging markets indicate significant commercial opportunities with factors like pricing pressure in the EU and intensifying generic competition affecting sales in large pharmaceutical markets. AstraZeneca is looking to enforce its presence further in China through the acquisition of privately held generics manufacturing company, BeiKang Pharmaceutical Company Ltd. Post acquisition (expected to be complete by the first quarter of 2012), the company will gain a portfolio of injectable drugs for the treatment of infections. AstraZeneca´s operations in emerging markets should stand it in good stead going forward.
Another reason why I got interested in AstraZeneca comes from its leadership in the global cardiovascular market. The cardiovascular segment was incremented by the 2011 U.S. launch of Brilinta (ticagrelor) for the reduction of the rate of heart attack and cardiovascular death in adults suffering from acute coronary syndrome (ACS). Brilinta, already approved in multiple countries worldwide, should be a major contributor to AstraZeneca´s top-line.
AZN´s Current Net Profit Margin is 24.21%, higher than its 2009 margin of 22.93%. I like companies that increased profit margins in comparison with other years. It is essential to know the reason that happened. Current Return on Equity for AZN is 36.71%. Higher than the +20% standard I look for in companies in which I invest.
One risk to consider in AZN comes from the generic market. The generic threat is expected to intensify further in the coming years. The company is after lessening the impact of the genericization by reducing its cost structure. The lack of near-term catalysts at AstraZeneca is another concern. The company is expected to look for additional partnering deals and acquisitions. AstraZeneca´s current trailing annual P/E multiple is 6.5, compared with the industry average of 12.7 and 14.2 for the S&P 500. The stock is trading at 7.7x 2012 revenue estimates
I think that undervaluation reflects that the market does not expect a potential appreciation in AZN shares.
Solid cash balances and robust cash flows offer ample fuel for acquisitions and share buybacks. The $14 billion in additional debt due to the MedImmune acquisition in 2007 still exhibits some lingering effects on the company's debt capacity.
Nustar Energy (NS)
Headquartered in San Antonio, Texas, NuStar Energy, L.P. is a master limited partnership aimed at the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico, and the U.K. The partnership is one of the largest asphalt refiners and marketers in the U.S. and the second-largest independent liquids terminal operator in the nation.
NuStar Energy distinguishes itself for its diversified asset base and solid distribution-growth prospects. A strong pipeline of organic growth projects and contribution from acquisitions provide the partnership with an above peer-group average distribution coverage ratio. Moreover, the majority of NuStar´s business derives from an attractive set of fee-based storage and transportation assets that supplies the U.S. and international energy infrastructure. During the next few quarters, NuStar expects to see a significant uptick in spending on highway enhancement projects.
Regarding Valuation, NuStar has a high quality, large and diverse asset portfolio with operations in eight different countries. It is the fourth-largest independent liquids terminal operator in the world and second-largest in the U.S., apart from being the number one asphalt producer on the East Coast and number three asphalt producer in the U.S.
Nevertheless, I remain concerned about the slowdown in demand expansion for refined products (which adversely affects pipeline and terminal throughput), as well as cost overruns on expansion projects (that leads to lower returns) and higher business risk associated with NuStar´s more volatile asphalt operations.
I think that while NS could be an interesting pick for investors interested in the Energy sector, I will pass as its business is not easy to understand and I think that oil will keep going down.
Telefonica Brasil Sa (VIV)
Telefonica Brasil SA, based in Sao Paulo, Brazil, is the Brazilian subsidiary of Spanish telecom giant Telefonica SA. With the acquisition of Vivo on June 7, Telefonica Brasil is the largest telecom operator in Brazil in terms of assets. The company merged its fixed-line operations, Telecomunicacoes de Sao Paulo S.A. (Telesp) with the mobile service provider, Vivo Participacoes S.A. Vivo's shareholders received 1.55 shares of Telesp for each Vivo share. Telefonica Brasil has complete control over Vivo with consolidated market share of about 30% as of September 2011.
Vivo is progressing well in broadening its 3G network based on CDMA EV-DO and HSPA technologies that provide significant advantage over its peers. Vivo targets to expand 3G network coverage from the current 1,557 municipalities to 2,832 by year-end 2011, implying approximately 85% of the Brazilian population. The expansion of the 3G network is expected to be an additional source for wireless data revenue increment. Vivo has invested heavily in spectrum acquisitions to reinforce its 3G network.
Recently, the company reported revenue of R$8,133.0 mln in 1Q12, which represents annual growth of 5.4%, affected by regulatory changes that reduced growth in around 1 p.p.; Mobile Services Revenue has accelerated its annual growth, recording a positive variation of 12.8%, driven by the Data and VAS revenue, which recorded + 33.9% year-over-year. In the quarter, Data already represents about 27% of the Net Services Revenue; EBITDA Margin of 34.2% in the quarter (-1.2 p.p. y-o-y); Total accesses reached 90,0 mln in 1Q12 (+16.7% y-o-y), 74.8 mln of which in the mobile business (+20.5% y-o-y) and 15.3 mln in the fixed-line business (+1.3% y-o-y); Growth in net additions in the mobile business, which totaled 3.2 mln net additions in the quarter and growth of 82.6% YoY.
In terms of Valuation, Telefonica Brasil´s current trailing annual earnings multiple is 9.6, compared with the average of 17.4 for the peer group. Over the last five years, the company´s shares have traded in a range of 5.5-12.6x trailing annual earnings. The stock is trading at a discount to the peer group as well as S&P500 benchmark, based on forward earnings estimates.
Telefonica Brasil has attractive long-term opportunities in both fixed-line and mobile businesses. I like this pick.
In spite of stiff competition, I believe the fixed-line business will benefit from the growth of video, broadband Internet and Pay TV services. Moreover, the demand for 3G in the mobile market is growing by the day, thereby minimizing the adverse affects from regulatory changes and drops in tariff rates.
Radioshack Corp (RSH)
Based in Fort Worth, Texas, RadioShack Corp. is one of the leading consumer electronics specialty retailers in the U.S., providing innovative products and services from leading brands.
In terms of Valuation Ratios, RSH is trading at a Price/Book of 0.9x, a Price/Sales of 0.2x and a Price/Cash Flow of 3.1x in comparison to its Industry Averages of 4.0x Book, 1.0x Sales and 12.2x Cash Flow. It is essential to analyze the current valuation of RSH and check how it is trading in relation to its peer group.
It is not difficult to see that RSH is trading in bargain-basement multiples. But it could be a "value trap" because the company could be on the road to bankruptcy.
Management explained in the last call that while 2012 is expected to be another challenging transition year, the company is focused on key strategic initiatives designed to build on foundational progress made last year and improve near-term sales and profitability, including: 1) an ongoing, purposeful shift to mobility; 2) reclaiming relevance and maximizing profits in the signature platform; and, 3) pursuing incremental growth opportunities.
I think the RSH business model is dead and I do not recommend the stock to our investors.
We can see a potential technical rebound but the downtrend is very clear. Recently, RSH was downgraded to Underweight from Equal Weight at Morgan Stanley
Other stocks that Hussman likes
Regarding XOM, I liked the March 8 announcement that Management plans to invest $185 bln over the next five years to develop new supplies of energy to meet expected growth in demand. To help meet that demand, XOM is anticipating an investment profile of~ $37 bln per year through the year 2016. A total of 21 major oil and gas projects will begin production between 2012 and 2014. In 2012 and 2013, the company expects to start up nine major projects and anticipates adding over 1 million net oil-equivalent barrels per day by 2016. That investment is clear evidence of the leadership of XOM in the energy sector.
I do not like his pick of PG. I prefer CL over PG. Procter's volume growth slid to zero in 3Q12 from +1% in 2Q12, while pricing moved higher to +5% from +4% in F2Q12. PG admitted its innovation is inadequate, especially in Beauty, and cited competitive pricing pressures in several areas. It plans to roll back price increases in six category/countries, including oral care, shaving, automatic dish and laundry -- four of the six are in North America. I think PG shares will take time to appreciate. While I like PG's business, its operational results are not going well and I plan to wait for a better entry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.