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Investing the Richard Rainwater Way: 8 Picks

Investing legend Richard Rainwater passed away on Sunday at his Forth Worth, Texas home. Around five years ago, Rainwater was diagnosed with a rare, terminal brain disease. With an estimated net worth of $3 billion he had been listed on the Forbes 400 for quite some time.

But would Rainwater's investing style work today? Philanthropic interests and later a brain disease meant that he was easing out of day to day deal making with the dawn of the new century. It seems that with a few tweaks, his favorite sectors of healthcare, oil and real estate could still deliver considerable returns at excellent value.

Formidable Reputation

Rainwater's exploits include installing Michael Eisner as CEO of The Walt Disney Company DIS and getting George W. Bush to purchase a stake in the Texas Rangers baseball team. However, his key achievement would possibly be an early one, increasing the Bass family's oil fortunes by an incredible amount.

Rainwater moved on in 1986 to create Rainwater, Inc. with shares worth $75 million. At his new firm he set up a young team of investors which created drilling major Ensco plc ESV and merged distressed hospitals into massive hospital chain HCA Holdings, Inc. HCA . Raintree also merged Parker & Parsley Petroleum and Mesa into Pioneer Natural Resources Co. PXD

Investing Style

In his own words, Rainwater's genius was "picking a good business and then picking good people to run that business." His favorite investment areas were healthcare, oil and real estate investment trusts. By end of the nineties, all of them had run into trouble. But he didn't give up on them, choosing instead to turn things around at companies where he had large stakes.

Eventually, his day to day investments were managed by others, including his wife Darla Moore. She already had a formidable reputation for takeovers and brought a ruthless edge to Rainwater's game.

But his style was best described by David Bonderman, an employee of the Bass family. Rainwater would essentially buy low and sell high, entering an arena when everyone was staying away and moving out when the crow was rushing in. Bonderman described him as the "one of the best value investors of all time."

Our Choices

According to an article in the Institutional Investor Magazine, in 1992, 40% of Rainwater's portfolio consisted of healthcare stocks, 15% was made up by energy companies while real estate accounted for 10%. Cash holdings came in at 20% while other holdings made up 15% of his holdings. We have created a bunch of eight choices with four healthcare picks and two each from oil and real estate investment trusts.

Healthcare picks reflect today's realities. Health insurance and clinical research have become important and hospital partnerships a necessity. Meanwhile, refining and marketing and pipeline companies continue to be good choices from the oil sector. Real estate has turned the corner and is now driving economic growth. Our selection in also backed by good Zacks Value Score and Zacks Rank.

We narrowed down our choices with the help of our new style score system .

Our research shows that stocks with Value Style Scores of 'A' or 'B' when combined Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the value investing space.

Healthcare

Molina Healthcare, Inc.MOH is a multi-state managed care organization participating exclusively in government-sponsored healthcare programs such as the Medicaid program and the State Children's Health Insurance Program (SCHIP), catering to low-income persons.

Molina Healthcare holds a Zacks Rank #2 (Buy) and has a Value Style Score of 'A.' Molina Healthcare has a favorable Price/Sales ratio of 0.36 as compared to industry average of 0.44. The company has expected earnings growth of more than 100% for the current year.

Premier, Inc.PINC is a healthcare improvement company which operates like a healthcare alliance. It helps partner healthcare service providers to improve efficiency and lower operating costs.

Premier holds a Zacks Rank #2 (Buy) and has a Value Style Score of 'A.' Premier has a forward price to earnings ratio of (P/E) of 24.70 as compared to industry average of 25.38. Price/Sales of 1.35 compares favorably with industry average of 1.93. The company has expected earnings growth of 62.1% for the current year.

PDL BioPharma, Inc.PDLI is the pioneer in the field of humanization of monoclonal antibodies. The company focuses on investments in new assets which will bring in royalties.

PDL BioPharma holds a Zacks Rank #2 (Buy) and has a Value Style Score of 'A'. It has a Price/Sales of 1.57 as compared to industry average of over 10. The company has expected earnings growth of 34.4% for the current year.

Kindred Healthcare Inc.KND is a healthcare service provider. The company has four operating divisions: Hospital, Rehabilitation, Nursing Center and Care Management.

Kindred Healthcare holds a Zacks Rank #2 (Buy) and has a Value Style Score of 'B.' It has a P/E of 13.43 as compared to industry average of 19.63. The company has expected earnings growth of 29.4% for the current year.

Oil

Tesoro CorporationTSO is an independent refiner and marketer of refined petroleum products in the western U.S.

Tesoro Corporation holds a Zacks Rank #1 (Strong Buy) and has a Value Style Score of 'A.' It has a P/E of 8.12 as compared to industry average of 10.15. The company has expected earnings growth of 82% for the current year.

PBF Logistics LPPBFX engages in owning, leasing, operating, developing and acquiring crude oil and refined petroleum products terminals, pipelines, storage facilities and similar logistics assets.

PBF Logistics holds a Zacks Rank #1 (Strong Buy) and has a Value Style Score of 'B.' It has a P/E of 8.19 as compared to industry average of 19.17. The company has expected earnings growth of more than 100% for the current year.

REIT

RAIT Financial TrustRAS is an internally-managed REIT. It provides debt financing options to owners of commercial real estate and invests directly into commercial real estate properties located throughout the United States.

RAIT Financial Trust holds a Zacks Rank #2 (Buy) and has a Value Style Score of 'B.' It has a P/E of 5.25 as compared to industry average of 12.56. The company has expected earnings growth of 49.3% for the current year.

Ashford Hospitality Prime, Inc.AHP is an REIT focused on investing in high RevPAR full-service and urban select-service hotels and resorts.

Ashford Hospitality Prime holds a Zacks Rank #2 (Buy) and has a Value Style Score of 'B.' It has a P/E of 8.61 as compared to industry average of 12.56. The company has expected earnings growth of 33.3% for the current year.

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PIONEER NAT RES (PXD): Free Stock Analysis Report

MOLINA HLTHCR (MOH): Free Stock Analysis Report

TESORO CORP (TSO): Free Stock Analysis Report

ENSCO PLC (ESV): Free Stock Analysis Report

DISNEY WALT (DIS): Free Stock Analysis Report

PDL BIOPHARMA (PDLI): Free Stock Analysis Report

RAIT FINL TRUST (RAS): Free Stock Analysis Report

HCA HOLDINGS (HCA): Free Stock Analysis Report

KINDRED HLTHCR (KND): Free Stock Analysis Report

PREMIER INC-A (PINC): Free Stock Analysis Report

PBF LOGISTICS (PBFX): Free Stock Analysis Report

ASHFORD HOSP PR (AHP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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