Author: Yale Bock, Y H & C Investments
Covestor model: Long Term GARP
Disclosure: Long all stocks named
In the Long Term GARP model, nearly 85% of the market value of the portfolio is held in five holdings, including Liberty Interactive (LINTA), Intuit (INTU), Direct TV (DTV). The management team at Liberty decided to break LINTA up into two tracking stocks, and that should take place by July 4, 2012, according to the transcript of a recent conference call.
LINTA has moved steadily higher, as has DTV, which I will assume has been buying back their shares. Not much has changed with rest of the portfolio, nor will it change on my end. Moneygram (MGI) continues to disappoint with the company’s stock performance. However, I still want to own the stock because it is majority owned by the private equity group Thomas Lee Partners, and eventually this group may want to cash out when the growth rate improves and the stock goes higher. Quidel (QDEL) had a nice earnings report as well and might be on track for a good few years of revenue growth.
Here is an update on some key holdings:
Liberty Interactive: The company owns QVC, Provide Commerce, Bodybuilding.com, Evite.com, Gifts.com, 40% of Lockerz.com, 34% of Home Shopping Network, 26% of Expedia.com, 26% of TripAdvisor.com, 30% of Interval Leisure Group, and 25% of Lending Tree. Lots of great assets here, and the company generates approximately $1.5 billion dollars per year of EBITDA, and its debt is at low rates with some of it maturing in 2029 and 2030. The business is not capital intensive and generates a great deal of free cash flow. Management has indicated over the next three years it will have about $5 billion dollars of cash to find places to allocate, either through buying back shares, buying other companies, or adding to existing ownership positions, according to a recent company presentation. LINTA reported earnings on February 23, 2012.
Direct TV: The company has 20 million subscribers in the U.S. and 10 million in South America, and is the largest satellite television provider in both markets. South America is a growth market, where DTV is adding 1.5-2 million subscribers per year. The company generated $5 billion dollars of operating cash flow last year and bought back over $5 billion dollars of the company stock as well. The balance sheet has manageable debt at 2.5 times EBITDA and it is financed at low interest rates. There is speculation DTV will institute a dividend in 2012, but we will see how that plays out.
Quest Diagnostics: The company is the largest health care diagnostic testing company in the United States, and Quest’s most recent earnings release was better than expected. Quest will be hiring a new CEO in the next few months, and also acquired three companies in the last couple of years. The company generates over a billion dollars per year in cash and has a non-capital intensive business which allows for management to search for acquisitions, make share repurchases, and raise the dividend. DGX recently increased its dividend by 70% in the last quarter.
Intuit: The company owns Quickbooks, Turbotax, Mint.com, and GoPayment businesses, and generates over a billion dollars per year in cash, most of it is free cash flow. The company is expanding its different businesses into the U.K., India, Canada, and Asia. Intuit instituted a 15 cents per quarter dividend in the third quarter of 2011. The balance sheet is strong with debt and cash of about one billion each. Here is a link to its latest earnings report.
Starbucks (SBUX): The largest coffee and tea company in the world is expanding into juice drinks and into in China. In the most recent earnings report revenues were up 16% and net profit advanced 10% versus a year ago. The company just announced it is entering India. Starbucks pays a 17 per cent a share dividend each quarter, which was increased 30% in each of the last two years.
Other holdings include oil giant BP Plc. (BP) and Unilever (UNLYF). BP and Unilever are massive companies and have pretty good dividends. BP is trying to recover from the whole gulf coast mess and recently raised their dividend by 14%.
