Limited Brands, Inc. (LTD), Total System Services, Inc. (TSS): Mega-Investor Is Bullish, Should You Be?

James Barrow has been quite a successful investor, delivering an annualized return of 4.1%, beating the S&P 500’s annualized gain of only 1.5% in the past five years. He is currently managing around $55.5 billion, with a diversified portfolio of 159 stocks.

In a previous article I talked about one of his new buys, Delphi Automotive PLC (NYSE:DLPH). In this article, I will cover three more companies that he bought in the first quarter of 2013: Total System Services, Inc. (NYSE:TSS), City National Corp (NYSE:CYN) and Limited Brands, Inc. (NYSE:LTD). Should investors follow James Barrow into those three companies? Let’s find out.

A global leading payment solutions provider with consistent growth

In the first quarter 2013, James Barrow bought nearly 2.7 million shares in Total System Services, Inc. (NYSE:TSS). The company is considered one of the global leading payment solutions providers, operating in three main business segments: North America Services, International Services and Merchant Services. The majority of its revenue, $965.4 million, or 51.6% of the total 2012 revenue, was generated from the North America Services segment. The Merchant Services segment ranked second with $512.6 million in revenue, while International Services contributed more than $413.5 million in revenue in 2012.

What makes me interested in the business is its consistent growth over time. Revenue increased from $1 billion in 2003 to $1.87 billion in 2012, while net income rose from $141 million, or $0.71 EPS, to $244 million, or $1.29 EPS, in the same period. Moreover, Total System Services, Inc. (NYSE:TSS) is really a cash cow. Its operating cash flow grew from $266 million to $456 million in the past ten years while the free cash flow followed the same rising trend, climbing from $76 million to $338 million. The company is trading at nearly $24 per share, with a total market cap of around $4.5 billion. The market does not value the company cheaply, at 9.45 times EV/EBITDA.

City National – decent net interest margin with focus on commercial loans

City National Corp (NYSE:CYN) has gotten into James Barrow’s portfolio with more than 1 million shares. City National is a bank holding company that operates in three main business segments: Commercial and Private Banking, Wealth Management and Other. The majority of its deposits, $5.9 billion, or 64.3% of total deposits, were money market accounts, while the interest checking account ranked second, with $1.98 billion in deposits. Its net interest margin is quite decent at 4.61% in 2012.

What makes me excited is its loan portfolio, focusing mainly on commercial activities. The commercial loan balance was more than $6.95 billion, accounting for around 43.8% of the total loans. Residential mortgage loans ranked second with nearly $4 billion in loans, while the loan balance of the commercial real estate mortgages stayed at $2.8 billion. City National is trading nearly $57 per share, with a total market cap of around $3.1 billion. City National is not cheaply valued at as much as 14.24 times its forward earnings and 1.27 times its book value.

Limited Brands – decent yield but weak balance sheet

James Barrow also got excited about women’s specialty retailer Limited Brands, Inc. (NYSE:LTD). In the first quarter of 2013 he bought nearly 2.2 million shares in the company. The company, founded in 1963, is the owner of famous women’s brands Victoria’s Secret, Bath & Body Works and La Senza, operating 2,876 stores globally. In the past three years, Limited Brands, Inc. (NYSE:LTD) has experienced consistent positive comparable store sales growth. In 2012, the comparable store sales increased by 6%. Even with the decent operating performance, I am worried about its weak balance sheet. As of Jan. 2013, it had more than $1 billion in total stockholders’ equity, $773 million in cash and as much as $4.5 billion in long-term debt. Interestingly, since Jan. 2012, the company has spent $625 million to buy back its shares on the market. Limited Brands is trading at nearly $51 per share, with a total market cap of $14.7 billion. The market values Limited Brands, Inc. (NYSE:LTD) at 8.72 times EV/EBITDA. At the current price, the company offers investors a decent dividend yield at 2.4%.

My Foolish take

Investors should dig deeper to see whether or not those three stocks are suitable for their own portfolios. Total System Services, Inc. (NYSE:TSS) seem to be the best pick among those three companies due to its consistent growth in top line, bottom line and cash flow. However it is not cheaply valued on the market. Personally, I think all of those three companies are not screaming bargains.

The article The Successful Investor is Bullish on These Three Stocks originally appeared on Fool.com and is written by Anh HOANG.

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