For Don Wordell and his family, a weekend getaway often means piling into their Cirrus SR22 single-engine airplane. “It opens up your world,” says Wordell, who took up flying about a decade ago. The plane’s whole-body parachute, which carries the plane and its passengers, gives the father of two extra peace of mind, though he takes every precaution to make sure he never has to deploy it. “Whether you’re flying on a beautiful day or in a rainstorm, you stick with your objective and follow a checklist to get you there,” says Wordell, 48.
He applies the same philosophy to piloting the $3.1 billion Virtus Ceredex Mid-Cap Value Equity fund (SAMVX), which he has managed since its 2001 inception. Over that time, the fund has returned an average of 10.8% a year even after factoring in a relatively high 1.38% expense ratio for A shares, which also come with a 5.75% front-end load.
Its returns by calendar year—which, admittedly, are just a construct—can be jarring. For instance, in 2010 the fund returned 27.2%, beating 94% of its category peers. The next year, it reported a total return of negative 7.5%, besting only 16% of peers, though in 2012 it rebounded with a 21.4% return and ranked in the group’s top decile. Over the past three years, the fund is up 10.8% annually, better than 93% of its Morningstar peers.
Wordell’s investment checklist is straightforward. “It’s dividends, valuation, and fundamentals,” he says. “All three of those have to come together for a stock to be eligible to be purchased, and if any one of those three criteria is violated, the stock is sold.”
That process is consistent across the three funds managed by Ceredex, where Wordell is one of three managers—one for each fund. The funds draw on research from a team of eight sector analysts. “I love the mid-cap space because it’s the information opportunity of small-cap investing, but the liquidity of large,” says Wordell, who started his investment career in 1996 as an analyst at the Orlando, Fla.–based firm.
While central Florida isn’t exactly a hub of asset management, Orlando’s massive convention center and nearby theme parks make Ceredex a popular stop for company chiefs in town for conferences and family vacations. Before a company gets to that stage, however, it must fit Wordell’s criteria.
“Every stock in the portfolio pays a dividend, not because we’re yield investors but because we like the characteristics of dividend payers,” Wordell says. From a roster of about 1,200 medium-size companies that pay dividends, Wordell and his colleagues look for stocks trading at low valuations, compared with their peers and their own history. They further cull that list to names whose upside potential they think is twice that of downside risk.
One of Wordell’s favorite stories is Energizer Holdings (ENR), which has seen its shares tumble over concerns that two major acquisitions—Rayovac and a Global Auto Care portfolio that includes Armor All—will be a drain on earnings. Wordell sees an excellent management team building a consumer-staples platform. Plus, the stock, at around $40, has a 3% dividend yield and trades at 12 times fiscal-2020 earnings, which ends in September. “We think the fundamentals will be much better than what the market is discounting now,” says Wordell, who thinks the stock deserves to trade at $70 within two years.
Motorola Solutions (MSI) is also a misunderstood stock, Wordell says. The company, which split from Motorola in 2011, focuses on mission-critical communications, such as hand-held radios for first responders. Wordell added the holding in 2017, when it traded at 10 times earnings before interest, depreciation, taxes, and amortization, or Ebitda, as investors assumed that LTE cellular networks would make many of its products obsolete.
Wordell thought those fears were naive. Search-and-rescue workers venture into places without cellular coverage, crowded stadiums don’t have reliable signals, and cell coverage is often the first to go in natural disasters. The U.S. government is increasing its spending on first-responder networks that use Motorola Solutions services and devices, Wordell says. Also, the company has “made some very savvy acquisitions” that allow it to do everything from video surveillance to data storage. Although the stock now trades about 16 times 2020 earnings, Wordell still thinks that it’s a bargain.
It’s a similar story for managed-care company Humana (HUM), which the fund first bought in April 2016. Wordell saw a great company that derives most of its revenue from its Medicare Advantage plans. “You have this huge demographic tailwind for Humana, with 10,000 people a day turning 65 for the next 15 years,” he says.
The stock slipped in late 2018 as the 2020 presidential election cycle kicked off, and fell further this spring when Sen. Bernie Sanders proposed ending all private health insurance. So Wordell doubled the fund’s position in Humana, recently its largest holding.
The stock has since recovered to around $280, but is still inexpensive to Wordell at 15 times earnings. While he isn’t counting on it, he says that Humana could become a takeover target—similar to CVS Health (CVS) taking over Aetna. In the meantime, it’s on track to improve earnings 20% this year, he says, and should continue growing at a double-digit pace for “as far as the eye can see.”
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