Aetna (AET) has improved margins after having grown and taken market share from competitors, correcting an underpricing of its business and becoming one of the larger holdings in the contrarian value portfolio of J. Dale Harvey, Founder, CEO and CIO at Poplar Forest Capital LLC.
“Aetna is an interesting story. We have owned it for a few years, and there was a period where they were out trying to grow and take market share. In doing so, especially in businesses like that, sometimes if you take market share, you’re doing it because you mispriced the business. They had big chunks of business that they had underpriced. When we looked at it we said, ‘OK, the opportunity here is, they’ve grown too fast, they’ve underpriced business; the results are depressed as a result. As they reprice that and rework their book, margins should improve.’ And they have,” Harvey said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Harvey invests in companies that have temporary short-term issues that represent opportunities for investors with a longer-term horizon, and he starts with the assumption that he will be invested for at least three years.
“When everyone is worried about the short-term and we see long-term opportunity, that provides an opportunity for us to invest. We look for financially strong companies. We prefer companies that have a history of paying dividends. We focus on normalized earnings and normalized free cash flow and ask what the business should be worth when things are going well again. We have a 30-stock portfolio, so it’s reasonably concentrated, focused on our high-conviction ideas,” Harvey said.
ViewPoint Financial Group (VPFG) More Fully Valued After Gaining Market Share in Texas and Second-Step Conversion
March 04, 2013
Cigna (CI) and Aetna (AET) Create, Acquire and Develop Businesses to Meet Growing Health Care Needs
October 26, 2012
Microchip Technology Inc. (MCHP) Expects Spike in Margins After Meeting Inventory Goals
May 30, 2013
Microsemi Corporation’s (MSCC) Model Gaining Leverage
June 03, 2014
NXP Semiconductors NV (NXPI) Gaining Scale Through Acquisition
May 28, 2015
