Limited Brands, Inc. (LTD), Total System Services, Inc. (TSS): Mega-Investor Is Bullish, Should You Be?

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James Barrow has been quite a successful investor, delivering an annualized return of 4.1%, beating the S&P 500’s annualized gain of only 1.5% in the past five years. He is currently managing around $55.5 billion, with a diversified portfolio of 159 stocks.

In a previous article I talked about one of his new buys, Delphi Automotive PLC (NYSE:DLPH). In this article, I will cover three more companies that he bought in the first quarter of 2013: Total System Services, Inc. (NYSE:TSS), City National Corp (NYSE:CYN) and Limited Brands, Inc. (NYSE:LTD). Should investors follow James Barrow into those three companies? Let’s find out.

A global leading payment solutions provider with consistent growth

In the first quarter 2013, James Barrow bought nearly 2.7 million shares in Total System Services, Inc. (NYSE:TSS). The company is considered one of the global leading payment solutions providers, operating in three main business segments: North America Services, International Services and Merchant Services. The majority of its revenue, $965.4 million, or 51.6% of the total 2012 revenue, was generated from the North America Services segment. The Merchant Services segment ranked second with $512.6 million in revenue, while International Services contributed more than $413.5 million in revenue in 2012.

What makes me interested in the business is its consistent growth over time. Revenue increased from $1 billion in 2003 to $1.87 billion in 2012, while net income rose from $141 million, or $0.71 EPS, to $244 million, or $1.29 EPS, in the same period. Moreover, Total System Services, Inc. (NYSE:TSS) is really a cash cow. Its operating cash flow grew from $266 million to $456 million in the past ten years while the free cash flow followed the same rising trend, climbing from $76 million to $338 million. The company is trading at nearly $24 per share, with a total market cap of around $4.5 billion. The market does not value the company cheaply, at 9.45 times EV/EBITDA.

City National – decent net interest margin with focus on commercial loans

City National Corp (NYSE:CYN) has gotten into James Barrow’s portfolio with more than 1 million shares. City National is a bank holding company that operates in three main business segments: Commercial and Private Banking, Wealth Management and Other. The majority of its deposits, $5.9 billion, or 64.3% of total deposits, were money market accounts, while the interest checking account ranked second, with $1.98 billion in deposits. Its net interest margin is quite decent at 4.61% in 2012.

What makes me excited is its loan portfolio, focusing mainly on commercial activities. The commercial loan balance was more than $6.95 billion, accounting for around 43.8% of the total loans. Residential mortgage loans ranked second with nearly $4 billion in loans, while the loan balance of the commercial real estate mortgages stayed at $2.8 billion. City National is trading nearly $57 per share, with a total market cap of around $3.1 billion. City National is not cheaply valued at as much as 14.24 times its forward earnings and 1.27 times its book value.

Limited Brands – decent yield but weak balance sheet

James Barrow also got excited about women’s specialty retailer Limited Brands, Inc. (NYSE:LTD). In the first quarter of 2013 he bought nearly 2.2 million shares in the company. The company, founded in 1963, is the owner of famous women’s brands Victoria’s Secret, Bath & Body Works and La Senza, operating 2,876 stores globally. In the past three years, Limited Brands, Inc. (NYSE:LTD) has experienced consistent positive comparable store sales growth. In 2012, the comparable store sales increased by 6%. Even with the decent operating performance, I am worried about its weak balance sheet. As of Jan. 2013, it had more than $1 billion in total stockholders’ equity, $773 million in cash and as much as $4.5 billion in long-term debt. Interestingly, since Jan. 2012, the company has spent $625 million to buy back its shares on the market. Limited Brands is trading at nearly $51 per share, with a total market cap of $14.7 billion. The market values Limited Brands, Inc. (NYSE:LTD) at 8.72 times EV/EBITDA. At the current price, the company offers investors a decent dividend yield at 2.4%.

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