Billionaire Tom Russo's 5 New Big Buys

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Includes: AABA, AOL, CPB, CSX, FDX, KHC, PNC, SYBT, UNP, UPS
by: Stock Croc

This article will examine five stocks Tom Russo added to the portfolio of Gardner Russo & Gardner in the quarter ending September 30, 2011. Russo is a partner in the firm which has more than $4.748 billion in assets under management. I can see what led to these selections by reviewing price/earnings, return on equity, dividend and payout ratio metrics as well as technicals. In this article, I conclude that SYBT, UNP, HNZ and YHOO are buys, while UPS is one to avoid. Here is my analysis of his picks:

Mr. Russo has added 1271 shares of S.Y. Bancorp, Inc. (NASDAQ:SYBT), with a market cap of $283.33 million, for a reported $18.88 per share, suggesting the stock was purchased September 26th, 2011. The price/earnings ratio of 12.15 is well below my preferred upper limit of 15. Return on equity for the company is an acceptable, if not robust, 13.28%. SYBT has a price to book of 1.52 and, in this respect, may be regarded as a value stock. The current ratio is not available. That brings us to the debt/equity ratio but is unavailable as well. SYBT pays a dividend, yielding 3.60% against a payout ratio of 43.00%. The importance of a dividend will vary with the individual investor and typically revolves around their goal. Someone investing for retirement, for example, is more apt to focus on dividend yield than, say, a day trader. SYBT’s price/earnings growth ratio is 1.19. One is the “textbook” but never forget that this fundamental relies on projections of year-to-year earnings growth. The price/earnings growth ratio can only be as accurate as the estimate. I also like to look at where the stock is trading in relation to its 52 week low. Presently, SYBT trades at 117% of its 52 week low.

Competitor PNC Financial Services Group, Inc. (NYSE:PNC) has a market cap of $41.89 billion and trades at about $52.69. The price/earnings ratio is 8.37. PNC has a return on equity of 9.72% and the price to book is 0.84. The company’s current ratio and debt/equity ratio are not available. PNC Financial Services Group, Inc. pays a 2.20% dividend yield and the payout ratio is 14.00%. The price/earnings growth ratio is 1.11. The stock trades at 123% of its 52 week low. For me, SYBT is the clear choice based upon the totality of information available.

Russo acquired 240 shares of FedEx Corporation (NYSE:FDX) for a reported $66.67 per share, suggesting a purchase date of September 23rd, 2011. This air delivery and freight services firm in the services sector trades at about $81.22. The market cap is $25.83 billion. The price/earnings ratio for FDX is 16.81 and return on equity is 4.29%. The price to book of 1.62 is consistent with a value stock. The firm’s current ratio is 1.60% and debt/equity is a very positive 10.62%. FDX pays a dividend yield of 0.50% easily supported by a 10.00% pay out ratio. The price/earnings growth ratio is 0.83. The stock is trading at 127.00% of its 52 week low. In contrast, United Parcel Service, Inc. (NYSE:UPS) with a market cap of $66.72 billion is trading at about $69.14 and has a price/earnings ratio of 16.78. The company has a mammoth return on equity of 50.13% and a price to book of 8.56. UPS’s current ratio is 1.68% and debt equity is a shocking 157.84. Dividend yield for the stock is 3.00% with a pay out ratio of 49%. The price/earnings growth ratio is 1.44. The stock is trading at 114% of its 52 week low. Analysts favor UPS and I must respectfully disagree. It is likely that Russo’s uncanny timing has already harvested the low hanging fruit, but the UPS debt/equity ratio unnerves me. Avoid it for now.

That brings us to Russo’s purchase of 1150 shares of Union Pacific Corporation (NYSE:UNP) at $81.47 per share. This railroad stock is now trading at about $102.04 per share. UPN’s market cap is $49.29 billion and its price/earnings ratio is $16.22. Return on equity is 17.24% and price to book is 2.63. UPN’s current ratio is 1.13% and debt/equity is 50.67%. The stock pays a dividend yield of 1.70% and the pay out ratio is 27.00%. The price/earnings growth ratio is 1.07. The stock is now trading at 131% of its 52 week low. Rival, CSX Corp. (NYSE:CSX) is trading at about $21.64 and has a market cap of $22.72 billion. Price/earnings ratio is 13.33 and the return on equity is 21.24%. Price to book is 2.73 and the current ratio is 0.90%. CSX’s debt/equity ratio is 104.67% and the stock has a dividend yield of 1.90% supported by a pay out ratio of 21.00%. The price/earnings growth ratio is 0.96. The stock is trading at 122% of the 52 week low. I can understand Russo’s choice given CSX’s dismal debt/equity ratio. This is a clear win for UNP.

Russo moves us into the major diversified foods industry with H. J. Heinz Company (HNZ). Russo purchased 600 shares at a reported $50.00 per share. HNZ has a market cap of $16.40 billion and a price/earnings ratio of 16.97. Return on equity is 36.69% and price to book is 5.40. The company’s current ratio is 1.17% and debt equity is 139.81%. The stock has a dividend yield of 3.50% supported by a pay out ratio of 61.00%. The price/earnings growth ratio is 1.92. The stock is trading at 109% of its 52 week low. Close competitor, Campbell’s Soup Co. (NYSE:CPB) trades at about $33.65 and market cap is $10.78 billion. The price/earnings ratio, return on equity and price to book are 13.90, 79.21% and 9.83 respectively. The current ratio is 0.99% and the debt/equity ratio is 281.39. The stock pays a dividend yield of 3.50 with a pay out ratio of 47.00% BMC has a price/earnings growth ratio of 3.26. The stock is trading at 113% of its 52 week low. Analyst opinion sides with HNZ and I would have to agree. The financial strength lies with H. J. Heinz Company.

Russo tested the technology waters with his purchase of 200 shares of Yahoo!, Inc. (YHOO). The stock trades at about 15.38 per share and the company has a market cap of $19.08 billion. YHOO’s price/earnings, return on equity and price to book ratios are 18.82, 8.77 and 1.53 respectively. Current ratio is 2.83% and debt/equity is 0.31%. The stock pays no dividend. The price/earnings growth ratio is 1.50. The stock is trading at 139% of its 52 week low. Rival AOL, Inc. (NYSE:AOL) is trading at about $14.73 per share and the company has a market cap of $1.43 billion. AOL’s price/earnings, return on equity and price to book ratios are 27.95, 2.46% and 0.66 respectively. Current ratio is 1.75% and debt/equity is 5.00%. The stock pays no dividend. The price/earnings growth ratio is 7.28. The stock is trading at 146% of its 52 week low. The analysts favor YHOO in this match-up and I agree. Yahoo! Inc.’s growth prospects are significantly better than those of AOL as demonstrated in the price/earnings growth ratio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.