Ingram Micro: Owned By The Best
One of the best investment managers in the U.S. is Artisan Partners, an independent firm based in Milwaukee. Its mid-cap value fund (ARTQX) is closed to new investors. However, that doesn't mean you can't benefit from Lipper's top-ranked multi-cap value fund over the past 10 years. That's right, out of 108 funds Artisan Partners' fund is number one. The fund's fourth-largest holding as of September 30 is Ingram Micro (NYSE:IM), the largest wholesale distributor of technology products in the world. What began 32 years ago with two teachers distributing computer products has become so much more. Artisan obviously feels its stock is undervalued, and so do I.
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At its recent 2011 analyst and investor presentation, Ingram Micro highlighted 15 things investors should know about its company as it celebrates 15 years as a public company. I won't bore you with all 15, but there were several points that illustrated its financial soundness and winning business model.
- The most impressive being the generation of more than $2.2 billion in cumulative operating cash flow over the past decade. In terms of free cash flow, 2011 will be the fifth consecutive year over $100 million. As of September, its trailing 12 month free cash flow was $261 million for a yield of 9.4%. That's more than respectable. (To know more about cash flow, read: Analyze Cash Flow The Easy Way.)
- Its tangible book value per share has grown to $20.19 as of the third quarter compared to less than $10.76 in 2002. Based on a November 21 closing price of $18, its market value/book value is about 89 cents, which is less than competitors Tech Data (Nasdaq:TECD), Avnet (NYSE:AVT) and Arrow Electronics (NYSE:ARW).
- In the past five years, it's repurchased more than 36 million of its shares. Since it announced its latest repurchase program Oct. 28, 2010, it's bought back 12.5 million shares at an average price of $18.07. The average trading price of its stock between then and now is about $18.50 a share. Companies often overpay when buying back their shares, so anything below the average trading price in a given period should be considered a success.
- It's a responsible company. According to Newsweek's 2011 Green Rankings, Ingram Micro was ranked 33 out of 500 of the largest companies in the U.S. It might not be reflected in the stock price at the moment, but eventually investors will figure out it's a company you can trust.
As part of its plan to deliver sustainable growth, management unveiled several operational and financial goals that it expects to achieve by 2015. The most important will be growing operating income at a rate faster than sales. Further, it wants to do so generating an operating margin between 155 and 175 basis points. It's currently around 1.1%. Additionally, it seeks to grow revenues at the same rate of overall technology spending, which is expected to grow between 4.5 and 6.5% through 2015. Both of these seem like realistic and attainable goals. The big test for Ingram Micro is delivering higher profits from its Asia-Pacific and Europe, Middle East and Africa segments, which accounted for 53% of overall revenue in the first nine months of the year but only 38% of operating profits. It will have to do better in those two regions if it wants to deliver sustainable growth. (To know more about income statement, read: Understanding The Income Statement.)
Ingram Micro's stock is down 3.8% year to date. That's slightly worse than both the S&P 500 and its computer distribution peers. Over the past decade, its stock's never been too high or too low, suggesting there's little volatility. In 2008, while the index was down 37%, it was down just 25.8%. You probably won't hit a home run with this stock, but you'll definitely hit a double over time. Where Ingram Micro seems to have come to life is in recent months. Over the past three months, its stock is up 10.5% compared to 7.2% for the index, and in the past month it's up 5.6% compared to -0.6% for the index. It will never be confused for a growth stock but it does appear to be gaining momentum. If ever it was to go on a run, now appears to be the time.
The Bottom Line
Admittedly, this is a tough stock to get excited about. However, knowing that one of the top value funds anywhere has it in its top 10 holdings, I'll give it the benefit of the doubt.