Bob Burnstine of Kovitz Investment Group has long followed a “high-conviction” strategy of buying shares of companies that appear to be trading at big discounts to his estimates of fair value.
Potential bargain stocks During an interview on March 29, Burnstine said he focuses on “purchasing securities at a significant discount to fair value, based on private transaction multiples, comparable public company valuations and historical financial valuation metrics,” along with a commitment to hold and add to investments through periods of market volatility.
He said the companies are “very attractively valued” for investors who can commit for three to five years. All four have “solid” balance sheets with “strong capital allocation,” he said. Carnival’s shares are down significantly from their 52-week high because of recession concerns, but fuel prices have been another worry for investors, as the price of West Texas crude oil CL1, +2.64% rose 32% during the first quarter.
The shares are trading for 11.2 times the consensus forward earnings estimate. “If I can buy a company with great brands and the dominant market share in the industry, when it has historically traded for 16 to 17 times earnings, I am happy to do it,” Burnstine said.Burnstine cited the dividend as a major attraction for investors who are prepared to wait. He said his long-term investment time frame of two to five years is an important advantage to the market, which is fixated on one-year returns.
“The 50% to 60% correction is what created the opportunity for me. It also is trading for 11 times earnings. Historically it has traded at an average of 16 times earnings and could even trade higher,” he said. Burnstine likes Qurate’s “very loyal customer base.” He applauded the company buying back 10% of its stock during 2018, effectively “retiring” the shares Liberty issued when it acquired HSN. From the end of 2006 through the end of 2018, Qurate and its predecessor companies “shrunk the ownership” by about 50% through buybacks, Burnstine said. He expects this activity to continue to boost earnings per share. “It is almost a going-private transaction in the public sphere,” he said.
Molson Coors Molson Coors’ TAP, -0.43% forward P/E ratio of 12.7 compares to a 17.7 for arch-rival Anheuser-Busch InBev SA BUD, +0.75% and 20.4 for Heineken NV HEINY, +0.47% “So the top line isn’t growing great, but the bottom line should grow significantly through all the cost cutting they are doing,” he said. Meanwhile, investors who buy in at these levels enjoy a dividend yield of 2.75% while they wait.
Walmart Shares of Walmart closed at $97.50 on March 29, for a total return of 48% from Dec. 27, 2016. Burnstine said he “trimmed” his position in the stock at $103 in November, but that it remains a top 10 holding in the portfolio he manages.
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