Not much movement in Bill Ackman‘s portfolio according to guru website gurufocus.com. According to their website, Bill Ackman purchased Automatic Data Processing (ADP) and Citigroup (C). Below are the rest of the purchases along with the other positions he reduced to or added to.
- New Purchases: ADP, C,
- Added Positions: KFT,
- Reduced Positions: YUM
Automatic Data Processing (ADP) has been on the magic formula screen for large caps for a while now. It’s a company with a competitive advantage due to the high switching costs its clients face from switching to their competition but one of the things that worries me is growth. In the past 10 years, its growth has gone from being negative in 2007, to seeing 3%-9% in the past decade. Also, it currently trades at a 10% earnings yield when other companies on the magic formula screen are trading at higher earnings yield, are growing at a much faster rate and have little to no debt.
Citigroup (C) is a stock that I highlighted back in March, coincidentally? it was the market lows, and I had the following to say:
First and foremost, if you are a conservative investor, this stock is not for you. It carries a significant amount of risk with it. While things look like they are turning around, CEO Vikram Pandit still has a long way to go to turn the ship around. The stock should fluctuate like crazy as traders buy and sell this stock like crazy and the government hopes to rid of its share. Citigroup will continue to write down bad assets and sell off assets in order to shore up its balance sheet and slim down its operations to a manageable level. This will take years (who said it was easy turning around a trillion dollar balance sheet) but investors should see a nice return assuming they are patient. ValueLine expects Citigroup to earn .75/share in 2012-2014 citing, “the restructuring process will likely take several years, and the Citigroup that emerges may look very different from its present configuration. Consequently, this risky, untimely stock is only suited for venturesome investors.” The .75/share Valueline expects is similar to 20 Billion Pandit is “as much” as Pandit expects to make by 2012. So, putting it together, Citigroup could earn somewhere between .60-.75 per share. using a simple 10 multiple we have a $6-$7.50 stock trading at about $4. But, keep in mind, a lot could go wrong and a lot could go write. Normally, I wouldn’t write about a stock like this. Its balance sheet is complicated and its report is long but I believe it has the loan reserves (36 Billion) to provide rest at night. In addition, the government is backing it up so you have a safety net already in there. Finally, Gurus have been jumping all over Citigroup. According to Gurufocus.com, George Soros, Bruce berkowitz, Michael Price, John Paulson, Chris Davis and others established a position recently. Finally, I would definitely do more homework and spend reading their reports and other individuals research. But, I’m comfortable recommending it at these levels considering the odds.
My opinion has not changed. Although, the restructuring appears to be going smoothly and CEO Vikram Pandit is starting to get some recognition for the job he has done, so far.
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Sun, Aug 22, 2010
Bill Ackman, Value Investing