Of the $20 billion FPA Capital has in assets under management,
manages $9.9 billion in its Crescent Fund, none of which he saw
fit to invest in new stocks for the second consecutive quarter.
The contrarian value investor instead added the most to
Interpublic Group (
), Microsoft Corp. (
) and American International Group Inc. (
His large cash holding right now, however, indicates he is not
finding anything new that is attractively priced. Romick
described his investing philosophy in his
October interview with GuruFocus
: "Well, we are primarily bottoms-up analysts," he said. "If a
business is cheap or an asset trades at a discount we're
interested. But we always have an eye to protecting capital.
That's where our macro considerations come in."
His macro views were postponed until his fourth quarter letter,
he said in his
third quarter letter
. He noted in several
interviews in October
, however, that he believes perpetual money printing by the Fed
is eroding confidence in currencies, and he cannot predict how it
will all end.
Uncertainty surrounding inflation or deflation has left him in an
investing "purgatory," so he is not positioning his portfolio too
strongly for one scenario or another, but buying shares of good
companies with strong balance sheets.
Romick added 2,532,300 shares of Interpublic Group of Cos. Inc. (
) for $11 per share on average in the fourth quarter. Romick
initiated this position in the first quarter of 2012 at the
average price of $11 per share, and added to it one other time,
in the third quarter of 2012. The total share count of his
position at the end of the fourth quarter is 9,532,300.
Interpublic Group is a global marketing provider specializing in
consumer advertising, digital marketing, communications planning
and media buying, public relations and specialty marketing. Its
stock has gained 13.5 percent over the past year.
Interpublic's stock plunged temporarily in October when it issued
weak third quarter operating results. The company's revenue
slipped 0.09 percent year over year, due to industry-wide client
caution, account losses in 2011 and a particularly strong quarter
the year previously.
Net income also tumbled to $68.7 million, or $0.15 per diluted
share, from $208.1 million, or $0.40 per diluted share, a year
The company is expecting an increase in full-year profitability
Interpublic's balance sheet reflects $1.2 billion in cash, down
from $2.32 billion at Dec. 31, 2011, along with total debt of
$1.68 billion, compared to $1.77 billion at Dec. 31, 2011.
It spent $83.2 million repurchasing 7.6 million shares of its
stock for $10.94 per share on average in the third quarter. It
also paid a dividend of $0.06 per share, which cost $25.8 million
In November, IPG sold a remaining Facebook Inc. (
) investment for net cash proceeds of $95 million. It acquired
the stake in 2006.
The same month, IPG increased its share repurchase program to
$400 million from $300 million "reflecting the confidence we have
in our company," Chairman and CEO Michael I. Roth said in a
IPG has a P/E of 12.8, P/B of 2.1 and P/S of 0.66, close to a
Romick added 2, 315,000 shares to his Microsoft Corp. (
) in the third quarter, his largest-ever purchase of the company.
He paid approximately $28 per share, the price slumping more than
10 percent that quarter. Since initiating the position in the
third quarter of 2010, Romick has built the position to a total
of 11.265 million shares, or 4.8 percent of his portfolio.
Romick likes Microsoft as an out-of-favor stock. In a recent CNBC
interview, he commented:
"Microsoft, there was a point in time in 2011 there was bad news
everywhere. Everyone wanted Ballmer out, windows, their lunch was
being eaten by every other tech company... people don't realize
some of the value they get, whether it be patents they get that
different android manufacturers are paying them. So there's a lot
of hidden value there. We actually felt that if anything happened
good, it was going to drive the stock a lot higher, which is
The software maker's stock has lost 17.5 percent of its market
value over the past five years. Over the same period, it has
increased revenue at an annual average rate of 9.9 percent,
EBITDA at a rate of 10.2 percent, free cash flow at 13.3 percent
and book value at 19.6 percent.
In the third quarter, Microsoft pulled in $16.01 in revenue, an 8
percent year-over-year decline. Earnings per share of $0.53
reflected a 22 percent year-over-year decline.
CFO Peter Klein attributed the 26 percent year-over-year
operating income loss to a slowdown in PC demand ahead of its
Windown 8 launch. Other divisions' multi-year licensing revenue
increased, however, in several divisions: Windows, Server &
Tools and Microsoft Business.
Microsoft's cash in the third quarter amounted to $76.52 billion,
from $67.56 billion the previous year. Long-term liabilities and
debt amounted to $21.6 billion, virtually unchanged from the
Romick added 847,800 to his AIG (
) stake for $34 per share in the fourth quarter. The purchase
brought his total position to 5,168,800 shares since initiating
it in the second quarter of 2012 at $31 per share on average.
The insurance company's stock has gained almost 37 percent in
market value over the past year.
AIG in the third quarter finished easing off of its reliance on
the U.S. government by paying back the $182 the country lent it
during the financial crisis four years ago. It highlighted its
financial strength by repurchasing $13 billion of its stock year
In addition, it paid down the entire $8.6 billion in remaining
preferred interests in a special purpose vehicle of AIA, the U.S.
Department of the Treasury held.
Its results for the quarter included a 39 percent year-over-year
increase in total revenues to $17.65 billion, and net income of
$1.86 billion compared to a loss of $3.99 billion the previous
year, and marking its fourth consecutive quarter of
AIG has a P/E of 2.4, P/B of 0.6 and P/S of 0.9.
Romick also expanded his holdings of Oracle Corp. (
), AvalonBay Communities Inc. (
), Owens-Illinois Inc. (
) and others. See a complete record of his long and short equity
moves in the fourth quarter by going here.
Also check out Steven Romick's Undervalued Stocks, Top Growth
Companies and High Yield stocks.About GuruFocus: GuruFocus.com
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