Breen: In the Ariel fund, you just added Dell, which is an interesting name. Maybe you can let us know about your interest in that and your thesis. I know some of the folks you named before, Longleaf Partners, they own the name, and you're getting it quite a bit cheaper than they got in on it at. So maybe you could fill us in on that name.
Rogers: Well we love to explore what other managers own. We have always gone through the Morningstar books over the years and research reports, always looking to see the top holdings of people we respect and admire. That's something I do religiously every time a new set of mutual fund reports comes out. Nine times out of 10 you'll see someone who owns an idea, you'll look at it, and you'll do the research and you'll decide to reject it. It just doesn't fit.
We were talking about this earlier today about CarMax, where some of my respected peers own CarMax. We did the homework. It just didn't fit us.
Breen: Buffett owns that, and Lou Simpson, I think as well.
Rogers: Yeah. And the people at Markel Insurance own it. Some really smart people own it, but we couldn't get there. On the other hand, as we read and studied the work that Southeastern had done on Dell, we felt there was a compelling argument there that the stock was so, so cheap when you looked at the cash they had on the balance sheet, the brand and franchise that Michael Dell had built, the international opportunities that are out there literally worldwide for people to be able to utilize their products, it just seemed to be such a steal. And it didn't seem to have the kind of obsolescence risk that a lot of other technology companies have.
Breen: There's an interesting thing where the opposite process is sort of happening a little bit. You own Gannett and consider it to be more than just the newspaper. Buffett has had some comments lately about the headwinds that they are facing in the industry. It's a very interesting case. You've got 65% free cash flow yield, some ridiculously high level, and a forward P/E of four. So obviously the company's not dying, but folks think it is. Maybe you can kind of elaborate on your comfort level where others don't want to touch that name.
Rogers: We met before and you understood the cash flow very well. Very few analysts get to the detail that you do in your work. At that point it was selling at two times earnings. So even if you didn't really believe a lot in the future for Gannett, at two times earnings it looked to be a steal. But then when you looked at the fact that they diversify. They have television stations. They have Captivate, the advertising vehicle for elevators. They own over 50% of CareerBuilder. They have other Internet properties.
You looked at all of their assets and the stock just seemed extraordinarily cheap if you were to break up the company. And then you look at the management team. We thought that Craig Dubow and his CFO Gracia really know what they're doing. They're real pros.
We've talked to other people on the board and other people in Washington that know the culture that's there. You get the sense that Gannett has a very strong culture. They're conservative people. They aren't going to bet the company and then it's going to go out of business.
Because you're right, the stock was trading as if they were going out of business. And I think people are putting them all together and lumping them with some of the companies that is a peer group that had too much debt and had made one too many acquisitions.
Breen: So sort of like the Tribune here in Chicago where they had almost an LBO with Sam Zell. They had the assets but maybe were forced by the liquidity crisis to not have the time to unravel the assets and sell things off. Gannett, you think, maybe has a lot more flexibility to do things?
Rogers: Much more. The other similar problem stock has been McClatchy that bought Knight-Ridder at exactly the wrong time and levered up to do it. Even though they did some thoughtful things like selling off Philadelphia and Minneapolis, it wasn't enough to stop that stock from totally cratering. And again, I think Gannett has been painted with the same brush of those problem stocks.
Breen: You had a big bounce recently, but it looks to me as if there is potential for a continued upside. Interestingly, we look at a lot of funds. Every single stock in your portfolio has a forward P/E. It's expected to make money. A lot of the other folks we'll look at, they'll have a third of the names losing money or are expected to. So you have profitable companies with pretty low P/E's. Is this kind of an extraordinary time where things fell so far that, even though they made a big percentage bounce back up, there's still no reason they can't continue to go quite a ways?
Rogers: That's our belief set. It's a temptation when you had a stock double or triple from the bottom to take profits. And sometimes we've taken some modest profits to invest in a better bargain. But the core of the portfolio is staying in place, and those core names, we think, still have a ways to run, quite a ways to run, after what was a difficult year last year.
Breen: OK. Great. Thank you for your time. Take care.
Rogers: Thank you.