Richard Pzena is a legend in the value investing world. He managed through his long career to spot so many undervalued companies with a potential for major growth. He has a detailed plan for identifying and investing in companies that bring solid returns. In 1996 he founded Pzena Investment Management. Richard Pzena portfolio stocks are valued at $27.3 billion and are divided among 163 holdings.
The largest holdings are Cognizant Technology Solutions Corp (NASDAQ:CTSH), Capital One (NYSE:COF), Dow Inc. (NYSE:DOW), and Citigroup Inc. (NYSE:C). Recent new holdings are CVS Health Corp (NYSE:CVS) and Korn Ferry (NYSE:KFY). In the last quarter of 2023, he exited Amgen Inc. (NASDAQ:AMGN).
In the last year, Pzena’s fund saw an increase in AUM from $22 to $27 billion and has delivered strong returns. In the article below we will shed light on Richard Pzena’s long and fruitful career, and his funds portfolio and strategy.
Key Takeaway
- Richard Pzena is one of the best-known names in the deep value investing world
- He founded Pzena Investment Management in 1996
- In the best ten years of funds performance it annualized a gain of 17.1% beating the Russell 1000 (15.4%) and S&P 500 Indexes (16.7%)
- His strategy is to find stocks with a 25% to 40% discount
- Companies that he picks must have a strong conviction of a rebound from a downfall
- Like when he buys when the stock is cheap he sells when it becomes too expensive.
Key Holdings
Cognizant Technology Solutions Corp (NASDAQ:CTSH) with 4.52% of the portfolio
Cognizant Technology Solutions is a company that offers information technology services and consulting, and Pzena invested in it almost a decade ago. The company is an integral part of the NASDAQ 100. Penza invested $1.11 billion into this holding, while its current value is $1.23 billion. The holding generated an 11% gain. The company gained value since the beginning of 2023 when the stock price was $55. The current value of the stocks is at $71.
Capital One (NYSE:COF) with 4.09% of the portfolio
Capital One investment goes back to 2016 when Pzena bought a big stake of 3.19 million shares at the company at $68. Today, he owns 7.75 million shares valued at $1.12 billion. His investment is about $684 million which means that the holding generated a 63% gain so far. The stock price is on the rise, and since last October it jumped from $90 to $143.
Dow Inc. (NYSE:DOW) with 4.05% of the portfolio
Pzena first bought Dow stocks in 2020. He started big and acquired 4.57 million shares at $42. The price fluctuated and resulted in rather modest returns. His investment of $918 million is now at $1.1 billion, with a gain of 20%. In the meantime, he increased his stake to 18.6 million shares making him the biggest stakeholder in the company.
Citigroup Inc. (NYSE:C) with 3.81% of the portfolio
Citigroup is a decade-long investment that always had a big role in Pzena’s portfolio. Currently, he owns 16.9 million shares which are valued at $1.04 billion. He invested $828 since 2013, which resulted in a gain of 20%. Citigroup stock struggled in 2023 reaching a $38 low. In 2024 the stock price is on the rise and is currently at $61.
Wells Fargo & Co. (NYSE:WFC) with 3.80% of the portfolio
Wells Fargo & Co. is another long-term investment in which Pzena has the third largest stake. Currently, he owns 18 million shares with a value of $1.04 billion. Since 2013 the firm invested $705 million and netted a gain of 47% so far. The stock has gone through a significant value jump since the beginning of 2024 moving from $50 to $58.
Baxter International (NYSE:BAX) with 3.76% of the portfolio
Baxter is a new addition to the portfolio with trading commenced in Q3 2023. By the end of 2023, the company acquired 24.3 million shares becoming the largest stakeowner. Total investment is measured at $900, while the value rose to $1.03 billion, generating a gain of 14% so far. The stock went through a major downturn at the end of 2023 going as low as $30. In 2024 it is slowly gaining some of its former value jumping to $42.
Equitable Holdings Inc. (NYSE:EQH) with 3.68% of the portfolio
Pzena bought a massive 22.1 million stake in the company in 2020 for $21 per share. Over time he increased his stake to 26.6 million making him the largest stake owner. His investment is valued at $625 million, while it grew 61% and reached $1 billion. The stock is showing good potential for 2024 moving from $32 to $37.
Edison International (NYSE:EIX) with 3.44% of the portfolio
In a decade of trading Edison International stock, Pzena invested $811 million. The company owns 13.3 million shares that are currently valued at $940 million, generating a gain of 16%. He is the single largest stake owner owning 3.5% of all Edison’s outstanding stocks.
UBS Group Ag (SWX:UBSG) with 3.44% of the portfolio
Like with so many other holdings Pzena started trading with UBS Group taking a large 15.7 million shares position. Over time he did more buying than selling, increasing his stake to 30.1 million shares. His investment was estimated at $769 million, while its current value is $939 million. For a long time, the stock price moved between $15 and $20, and in 2024 we are seeing an increase above the $30 mark.
SS&C Technologies Holdings Inc. (NASDAQ:SSNC) with 3.32% of the portfolio
Pzena since he started trading SSNC stock has been only buying. Between 2018 and the present, he bought 14.5 million stocks for $943 million. For now, it generated 12% losses while its current value is $907 million. During 2023 the stock lost a lot of value and in that period Pzena bought almost three million shares. In 2024 it has shown some promise on the comeback of the value but we will have to wait and see it through.
Sector Allocation
Pzena has a portfolio of stock holdings in all crucial industry sectors, while the focus is on Finance. Other important sectors are Industrial, Technology, and healthcare. This diversified approach protects against sector-oriented downturns, besides his geographical diversification. His current sector allocation is:
- Finance with 34.4% of the portfolio valued at $9.38 billion
- Industrials with 16% of the portfolio valued at $4.37 billion
- Technology with 15.2% of the portfolio valued at $4.16 billion
- Healthcare with 8.5% of the portfolio valued at $2.32 billion
- Materials with 5.5% of the portfolio valued at $1.50 billion
- Consumer Discretionary with 4.8% of the portfolio valued at $1.31 billion
- Utilities with 3.6% of the portfolio valued at $974 million
- Consumer Cyclical with 2.5% of the portfolio valued at $694 million
- Consumer Staples with 2.1% of the portfolio valued at $572 million
- Energy with 1.6% of the portfolio valued at $441 million
- Telecommunication with 1.5% of the portfolio valued at $396 million
- Real Estate with 0.8% of the portfolio valued at $208 million
- Other with 3.6% of the portfolio valued at $981 million.
Biography of Richard Pzena
Richard Pzena was born in 1959 in New York. He graduated in 1976 from Livingston High School. He got his BS and MBA from Wharton School of Business in 1980.
He started his career as an oil industry analyst for Amoco Production Company. Later he moved to Sanford C. Bernstein & Co. a well-known investment research firm. There his career blossomed and he reached the position of Chief Research Officer. Besides that he was the Director of the U.S. Equity Investment fund.
He gathered experience and developed a strong business network with the aim of founding his company. He did just that in 1996 when he established Pzena Investment management.
He is today known as one of the biggest names in the deep value investing industry following the footsteps of Benjamin Graham.
Richard Pzena Investment Philosophy & Strategies
Richard Pzena is an old school deep value investor that focuses on buying good companies at discounts. The first criteria a company has to pass is that its price is low compared to its normal earnings.
Normal earnings represent what the business earns in normal conditions, depending on several factors. The most important ones are its history, performance, industry structure, competitors margins, and its management team and plan. Also, all is encompassed by companies’ individual set of strengths and weaknesses.
The right moment to invest in these companies is not when they are earning their normal norm, but when it falls below it. That is when the discount to the actual price provides additional benefits in the long run.
When choosing stocks in the past the goal is to find those at 5 times worth at what is determined to be their normal earnings. Today, the majority of their portfolio is made of stocks that are bought at discounts between 25% and 40%.
What makes this strategy tricky is the ability to identify the norm for the company, and that the current lagging behind is only temporary. There comes the management team. They must have a strong and viable plan to restore the company to its former glory.
Then the analysts in the fund must determine if the company in its core is a good company. They must identify the reasons that made the company good and strong. Only a good company can come back after a major malfunction.
The final piece of the puzzle is securing against the risk. If the company is not strong enough to come back from the downturn, the investment must have a protection. It can be in the form of a company’s physical assets, or that the franchise of the business has an established revenue. Brand names can bring a lot of benefits in that sense.
Richard Pzena Performance Analysis
Historical Performance
Pzena’s pinnacle fund generated an annual return of 8.3% between 2010 and 2020. Compared to Russel’s 1000 Value Index 10.4%, and S&P 500 Index 14.0% returns, it did underperform. In the last three years, the fund generated a 15% return, while in the last year, it hit the 24% mark.
Notable Success
- Super Micro Computer (NASDAQ: SMCI) Holding
During 2021 Pzena bought on several occasions for prices varying between $25 and $40. In 2022 he offloaded the entire stake at prices between $60 and $76. Fun fact, SMCI stock skyrocketed in 2024 from $300 to over $1000.
- Microsoft (NASDAQ: MSFT) Holding
Pzena in 2013 acquired 13.3 million shares at $27. He bought an additional 2 million stocks at $44. He later sold the majority of the stake for between $70 and $140.
- Murphy USA (NYSE: MUSA) stocks
The company owned a bit over a million stock stake at the company in 2013. They bought it for $40 and later sold it for $50 to $70.
Notable Failure
- Jakks Pacific (NASDAQ:JAKK) stock.
In 2013 Pzena bought 155 thousand shares at $121. Later in the year, he exited from the holding for $65 in stock. The company never managed to get back, while its stock price in the last couple of years is between $8 and $20.
- Pediatrix Medical Group (NYSE:MD) stock.
Pzena in 2017 thought that MD was a good stock pick. The company bought a massive stake for prices between $45 and $55. Two years later they exited from this position with significant losses at prices between $25 and $30.
Final Thoughts
Pzena’s long and productive position moved him through the whole industry. He was an analyst, and got to understand how the market works, and on what basis to pick a stock. In 1996 he decided to start his company and never looked back.
There were both bad and good years, higher returns, and underperformance. But, all in all, his investors can in the long term count on solid returns. In the last year, it delivered a 24% gain, while most of its biggest players in the portfolio have a high potential for outperformance.