Categories Finance, Interviews

Interview: Pzena continues to be bullish on General Electric

The deep value investment management firm believes the huge market shifts are creating a spread between high priced and undervalued stocks

Even as investors are scrambling for momentum stocks en masse, Pzena Investment Management (NYSE:PZN), which preaches deep value investing, remains rock-solid on the prospects of General Electric (NYSE:GE).

In fact, GE is a good fit to the New York-based portfolio manager’s seemingly simple market strategy –  identifying value stocks before they turn momentum stocks. According to the firm’s founder Richard Pzena, value stocks see a quick recovery at the beginning of the value cycle, when these undervalued firms start posting strong earnings growth.

In an interview with AlphaStreet, Pzena Investment President William (Bill) Lipsey said the team follows a rigid and disciplined practice of understanding and evaluating businesses like its owners, rather than relying on stock screens.

 If you think about General Electric, it has three big businesses where they are leaders – power generation, medical services, as well as jet engine manufacturing, where it’s an early adopter. So our earnings expectation, in the long run, have not changed.

Lipsey expects the post-COVID air travel demand to materially spur jet engine business,  which is one of the key reasons why the firm holds a significant stake in GE.

Pzena Investment Q4 2020

Finding deep value

Building on the deep value strategy, Pzena Investment Management offers multiple mutual funds to investors. According to Lipsey, the long-term horizon of these funds, besides the unswerving focus on identifying quality businesses, makes up the value offered by Pzena funds.

As an investor, it is a giant advantage to have a long-time horizon because almost nobody does. When investors can’t see beyond the next order, they tend to discard really good businesses that drive prices lower. And that gives us an enormous opportunity.

Lipsey added that the COVID crisis has made data gathering easier as everyone, including the executives of target companies, were working from home, leading to an uptick in the amount of research completed during the year.  

Meanwhile, pointing to the strong quarterly results reported last week, Pzena CFO Jessica Doran said the company has been following the same disciplined research and investment method for the past 25 years, and the recent market volatility is presenting numerous opportunities for the advisory business and the mutual funds.     

Interestingly, Pzena is also among the few providers of deep value strategy in emerging markets.

Financials

As of December 31, 2020, Pzena had $43.3 billion in Assets Under Management, a 5% increase from a year earlier.  The company also recently reported an adjusted EPS of $0.22 in the latest quarter, compared to $0.20 during the same quarter last year.  Revenue rose 4% on the increased interest in Pzena funds.

Pzena Investment Management has offices in New York, London and Melbourne.

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For more insights on Pzena Investment Management, read the latest earnings call transcript.

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