Update 8/16/11: Adib Motiwala no longer manages a Covestor model
Author: Adib Motiwala
Disclosure: Adib is long ESV, BOLT and GME in his Covestor Dividend Value Plus model.
November 3, 2010: I added three new companies to the Dividend Value Plus model in Oct 2010. All companies have excellent balance sheets and are currently out of favor with investors and analysts.
Ensco International (ESV) is leading provider of offshore contract drilling services to the international oil and gas industry. Its offshore rig fleet includes 38 premium jackup rigs, 8 ultra-deepwater semisubmersible rigs (4 under construction in Singapore) and one barge rig. ESV has a market cap of $6.8 billion and trades at a P/E ratio of 11.4. It pays a dividend yield of 3% and has $650 million in net cash on its balance sheet. It has the lowest leverage in the industry with a debt/equity ratio of only 4% (all figures as of November 3, 2010) (http://finance.yahoo.com/q?s=ESV).
Bolt Technology (BOLT) engages in the manufacture and sale of marine seismic data acquisition equipment to the oil and gas industry worldwide. Bolt is a micro cap stock with a market cap of only $100 million. Remarkably, it has $39 million cash on its balance sheet giving us an enterprise value of $60 million. If you back out the cash, Bolt trades at a P/E of 12.5. While Bolt does not currently pay a dividend, it recently bought back about 100,000 shares as part of a $10 million share buyback program. Raymond Soto who is the CEO himself bought 10,000 shares on May 5, 2010 at $9.5 (all figures as of November 3, 2010) (http://finance.yahoo.com/q?s=BOLT).
Gamestop (GME) is the largest video game retailer in the world that sells new and used video game software, hardware and accessories for video game systems from Sony, Nintendo, and Microsoft. Gamestop operates about 6,500 stores in the US, Canada, Australia and Europe. GME has a market cap of $2.9 billon with sales over $9 billion. GME sports a no growth P/E of 8.4 and trades even cheaper on an EV / FCF multiple of 7. GME has been buying back even more shares. Early this year, GME announced and bought back $300 million of shares (http://finance.yahoo.com/news/GameStop-to-buy-back-300-apf-3652383679.html?x=0&.v=1). Recently, GME announced another buy back worth $500 million made up of debt reduction of $200 million and $300 million in shares. Analysts think that GME is the next Blockbuster in the making. GME produced around $480 million in free cash flow last year and is aggressively investing in the business to address the digital gaming market opportunity (all figures as of November 3, 2010) (http://finance.yahoo.com/q?s=GME)
The investment objective of the Dividend Value Plus model is to seek maximum total return through a combination of long-term capital appreciation and dividend income. The model primarily invests in common stocks of U.S. companies that I believe are undervalued. I employ a value investing approach using bottom up fundamental research.