The Top Companies Steven Romick Is Shorting
, who manages the FPA Crescent Fund at $20 billion
First Pacific Advisors
, is one of the few investors who discloses his short positions.
As a value investor, Romick researches for stocks that are
trading at discounts and usually in out-of-favor industries, with
an eye to the macro environment. Romick
just updated his fourth quarter portfolio
. The biggest portfolio stocks he is expecting to move downward
are: Express Scripts (
), AvalonBay Communities (
) and Essex Property Trust (
Express Scripts ( ESRX )
The value of Romick's Express Scripts short is $20.8 million. He began shorting the stock in the first quarter of 2011 at an average price of $56 per share and took some profit when the price fell in the third quarter. Since then, he has increased the position as the price has trended upward, to $57 on average in the fourth quarter.
Express Scripts is the largest pharmacy benefit management company in the U.S., handling over 1 million prescripts every day.
The company has been embroiled in several contract disputes in recent years. For instance, after splitting from Walgreens ( WAG ) on Jan. 1, it negotiated a new deal with the pharmacy to include it in its network beginning Sept. 15, 2012. The details of the contract were not disclosed.
A long position of Romick's, CVS ( CVS ), gained significant upside from these developments: CVS in July estimated that it would receive an additional $0.05 per share from the stalemate for 2012.
Express Scripts' third quarter 2012 revenue leapt to $27 billion, compared to $11.57 billion, and net income increased to $391.4 million, compared to $324.7 million, both from the previous year. The results were affected by the acquisition of Medco in the second quarter.
Regarding outlook for 2013, Express Scripts EXPR expects to grow EPS and EBITDA, but said that claims losses from a UnitedHealthcare book of business, weak business climate and unemployment outlook will lead to in-group member attrition, continued low utilization rates and increased client demands and expectations. Thus, it believes current consensus estimates for 2013 are "overly aggressive."
AvalonBay Communities ( AVB )
Romick has a short position in AvalonBay valued at $13.6 million. He established the position in the fourth quarter of 2009 and since then, the price has increased 87%.
AvalonBay Communities develops, redevelops, acquires and manages upscale apartments in high barrier-to-entry markets around the U.S.
AVB's revenue has an annual five-year growth rate of 0.4%, free cash flow growth rate of 0.1% and book value growth rate of 4%. Its EBITDA declined at a five-year rate of 8.3%.
AVB for the first nine months of 2012 increased earnings per share year over year 135.3% to $3.13, primarily due to increased real estate sales and related gains, an increase NOI from existing, newly developed and acquired communities, and decreased net interest expense.
Revenue in the same period increased by 7.4% to $788.3 million, with growth led by established communities, which increased 8.1%.
For the full year, the company is expecting EPS in the range of $4.47 to $4.52, significantly increased from EPS of $1.47 in 2011.
Essex Property Trust ( ESS )
Romick's Essex Property Trust short is valued at $12.9 million. He started shorting the company in the fourth quarter of 2009 when its stock was $80, and slightly increased the position in the fourth quarter of 2011 when it was $133. The share price is $153.52 in afternoon trading.
Essex is a REIT that develops multifamily apartment communities in supply-constrained markets. It currently owns a portfolio of 161 apartment communities primarily along the West Coast.
The company's revenue has a five-year annual decline rate of 1.7%. Its EBITDA has grown at a five-year rate of 9.1% and book value at 9.7%.
Third quarter results showed the company's net income totaled $16.2 million, or $0.45 per diluted share, up from $7.7 million, or $0.23 per diluted share the previous year. Revenue in its same-property portfolio also prospered 9.5% from the previous year.
Michael J. Schall, Essex's president and CEO, attributed the strong operating results to strong housing fundamentals.
Long-term liabilities and debt on its balance sheet stands at $1.7 billion, and its cash holdings amount to $194 million.
The REIT on Dec. 6 declared a quarterly cash dividend of $1.10 per common share. It has paid the same quarterly dividend rate since March 2012.
For more of Steven Romick 's long and short positions, see his portfolio here. Also check out his Undervalued Stocks, Top Growth Companies and High Yield stocks.About GuruFocus: GuruFocus.com tracks the stocks picks and portfolio holdings of the world's best investors. This value investing site offers stock screeners and valuation tools. And publishes daily articles tracking the latest moves of the world's best investors. GuruFocus also provides promising stock ideas in 3 monthly newsletters sent to Premium Members .