A Sharp Eye For Value
For Eileen Rominger, being a value investor is not just about picking cheap stocks. The manager of the Goldman Sachs Mid-Cap Value Fund (GCMAX ) wants to buy shares of companies that are changing for the better. That requires a lot of hands-on research. "We conducted 1,200 meetings with company managers over the past year," she says.
Needless to say, Rominger is not a solo act. As CIO of Goldman's U.S. Value Team, she oversees 14 portfolio managers and analysts who are constantly scouring the market for investment opportunities. The results are impressive. The fund's 17.5% five-year annualized return easily beats the 12.1% average for mid-cap value funds.
How she values a company changes depending on the industry. So rather than simply looking for every company with a low price-earnings ratio, she uses different valuation measures for different industries. For instance, in the media industry she uses free cash flow, but in the energy sector she looks at oil or gas reserves. Why? Cash flow can be quite high for an energy company, even though it has low reserves. "If the company runs down its reserves, that cash flow is unsustainable," Rominger says. That's not the case in the media business, where cash flows tend to be more predictable.
A favorite is EOG Resources (EOG ), a natural gas company with enough reserves to last its customer base 13 years, and a price-to-reserves ratio lower than its peers. Here Rominger sees several catalysts for improvement. "The rate at which North American producers are running out of reserves is accelerating," she says. That bodes well for natural gas prices. And EOG is more efficient at finding and producing natural gas than its peers. Finally because gas reserves are falling, several mergers are in the works. EOG could be a target.
MOTHER OF FOUR
Rominger keeps a well-diversified portfolio -- currently 83 stocks -- and tries not to let her industry weightings stray too far from her benchmark, the Russell Midcap Value Index. That diversity helps keep volatility down and has led to better risk-adjusted returns.
Rominger is not only a busy fund manager, overseeing $2.5 billion in the fund and $14 billion at Goldman overall. She's the mother of four children, including twins in the seventh grade. Small wonder she has little time for hobbies. "Reading stock reports makes for an entertaining activity for me," she says. Lucky for her fund's shareholders.
By Lewis Braham