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Harold Singleton, senior vice president of Metropolitan West Capital Management, says there is value in any market if you know where to look. His firm, which manages $2.2 billion in total assets for institutional clients and high net worth individuals, adheres to the investment philosophy of intrinsic value. (Intrinsic value focuses on tangible worth, such as the current net assets of a stock.) “We’re looking to buy stocks that are selling at a discount of their intrinsic value.”
Singleton had 10 years’ experience prospecting for value stocks at Brinson Partners in Chicago, and Fifth Third Bank of Northwestern Ohio, before joining the four-person team of money managers at Metropolitan West in August 2000. He stresses that he and his colleagues are not interested in short-term trading opportunities. They look at the long-term prospects of companies, reflected by the turnover rate of the firm’s portfolio — about 30% per year.
“The companies that we buy are financially strong, have capable management that holds significant ownership of its stock, and show improving business fundamentals,” says Singleton. “And they definitely have a catalyst to unlock their hidden value.” By “catalyst,” Singleton means something that will get the investment community excited about the stock. It could include major events like a cost restructuring, significant improvement in industry fundamentals, or a new product.
Clear Channel Communications (NYSE: CCU) was a clear choice for Singleton. Owners of 1,200 radio stations with presence in 48 of the top 50 markets in the United States, it has suffered advertising losses like most media companies. But Singleton says Clear Channel will benefit when the economy recovers because “radio has been gaining advertising share at the expense of newspapers, and we expect that trend to continue.” Selling at $48.47 in December, he predicts it will move to $57 in 12 months, $69 in three years.
Washington Mutual (NYSE: WM) is the nation’s leading residential mortgage lender and the 7th largest bank in the United States “This company is flat out undervalued,” says Singleton. “Credit losses are a worry, but Washington Mutual is very conservative in their lending practices. We don’t think that they will incur significant write-offs in their loan portfolio.” Selling at $31.65 in December, he sees the stock at $43 in 12 months, $52 in three years.
Wells Fargo Bank (NYSE: WFC) serves 11 million households in 23 states, and Singleton says it has realized above-average growth by broadening its relationship with current and new customers. “If they increase the number of products per household, that allows them to gain market share and it increases the profit per relationship exponentially.” Selling at $43.44 in December, he believes the stock can climb to $52 in 12 months, $62 in three years.
Conoco (NYSE: COC), an oil company, is promising because it is in merger talks with Philips Petroleum. “We think Conoco will be worth $31,” Singleton says confidently. “Even if the Philips merger doesn’t go through, someone else could attempt to buy the company.” Lower oil prices had Conoco at $26.21 in December, a discount