Joel Greenblatt made investors fortunes at his hedge fund 30 years ago by holding a highly concentrated basket - six to eight names - of deep-value stocks, but his approach today is somewhat different: Buy more than 300 high-quality stocks trading at cheap prices and short more than 300 expensive, lower-quality names. Stocks are weighted in the portfolio depending on where they rank along that spectrum.
Greenblatt: "[My partner] and I would wake up some days and lose 15% or 20% of our net worth ... now it's more like 15 or 20 basis points."
The strategy is also available in a trio of mutual funds Greenblatt's Gotham Asset Management offers, and they now account for more than half of Gotham's $7B in AUM.
A top position last year remaining a large holding after a big run higher is Apple, thanks to "huge returns on capital" and 11% earnings yield. As for Apple's future, Greenblatt will leave that for others to debate: "I don't own just Apple. I own a bucket of companies like Apple, and over time, I know my bucket is going to work."
Kennametal (KMT -7.4%) remains sharply lower after FQ2 results revealed higher sales but lower profits compared to the previous year.
Revenues rose 9% to $690M, but just 2% was an organic increase and 7% came from the acquisition of Allegheny Technologies' tungsten materials business.
KMT also issued downside guidance for FY 2014, lowering EPS to $2.60-$2.75 from a prior forecast of $2.90-$3.05 and $2.97 analyst consensus; expects total sales growth of 12%-13% vs. prior 5%-7%, and organic sales growth of 2%-4% vs. prior 4%-6%.
Related to the acquisition, KMT plans restructuring actions and expects to incur $40M-$50M in pretax charges within the next three years.
By purchasing one of the biggest tungsten businesses in the world, KMT will be able to expand in the aerospace and energy sectors and reduce its raw material costs; tungsten, which is harder than steel and titanium, is very difficult to recycle but ATI has learned how to do it, KMT CEO Carlos Cardoso says.
"These are very specialized businesses, and there aren't huge numbers of competitors," Bradford Research says.
For ATI, the sale will allow it to focus more on high-performance metals and flat-rolled items; in the short term, the sale strengthens ATI's balance sheet, KeyBanc says.
Kennametal Inc is engaged in developing and manufacturing metalworking tools and wear-resistant engineered components and coatings. It supplies its products for transportation, general engineering, aerospace, defence, energy and earthworks sectors.