Joel Greenblatt is well known in the value investing community, having penned a number of books on investing, including You Can Be A Stock Market Genius, in addition to developing his famous “Magic Formula” strategy. Greenblatt focuses primarily on special situations, and some of his investing activity is reported to the SEC via 13F filings. Outlined below are five of Gotham Asset Management's most important bets heading into the new year (check out Joel Greenblatt's latest picks).
Express, Inc. (NYSE:EXPR) saw Gotham increase its stake almost 90% last quarter. The clothing retailer posted 3Q results of $0.20 compared to $0.37 year over year. The decline was on the back of 5% lower comp sales and 4% lower sales due to a weak global economy and consumer spending. The retailer recently revised 4Q earnings downward and now expects comp sales to decrease in the low-single digits. With the weakness, the retailer is now the cheapest in the industry at 9x earnings, compared to Rue 21 (16x), Aeropostale (16x) and Gap (15x). Although the stock has seen pressure of late, we believe it could be a solid value opportunity trading at a PEG of only 0.5; its long-term expected EPS growth rate is a whopping 19%. A number of billionaires were invested in Express last quarter, including Jim Simons, Ken Griffin and D.E. Shaw (check out D.E. Shaw's big bets here).
Deluxe Corporation (NYSE:DLX), meanwhile, saw Gotham up its stake 50% last quarter. Deluxe should manage to see positive performance as economic activity improves in the interim, but a longer-term headwind is the rise of online storage and payment processing, which is decreasing the need for printing. We remain cautious on the printing industry's prospects given the rise in digital and electronic technologies. Deluxe's potential, then, remains limited and its 5-year expected EPS growth rate is a low 6%.
Nu Skin Enterprises, Inc. (NYSE:NUS) saw Gotham increase its stake 150% last quarter. Nu Skin sells personal care products in a space that has been seeing pressure lately, due to a continually elevated unemployment rate. Additional issues will come from lower-priced competitors, but the majority of problems over the interim may be related to the Herbalife fallout, which we'll discuss below. Still, the company's long-term growth prospects look robust, as exhibited by its 5-year expected earnings growth rate of 17%. Nu Skin calls billionaire Jim Simons as one of its big name investors (see all of Jim Simons' top picks).
What are the remaining two?