The FPA Capital Fund (Trades, Portfolio), part of Los Angeles-based First Pacific Advisors (Trades, Portfolio), disclosed this week that although it established a new holding in Change Healthcare Inc. (CHNG, Financial), its top transactions during the second quarter in terms of portfolio impact were position reductions in Noble Energy Inc. (NBL, Financial), Investors Bancorp Inc. (ISBC, Financial), Aaron’s Inc. (AAN, Financial) and Ambarella Inc. (AMBA, Financial).
Fund manager Arik Ahitov seeks long-term capital appreciation through a fundamental, bottom-up investing approach. The fund primarily invests in small and mid-cap companies with strong balance sheets, free cash flow, understandable business, capable management and unique business characteristics.
As of June quarter's end, the $101-million equity portfolio contains 22 holdings with a turnover ratio of 3%. The top-three sectors in terms of portfolio weight are communication services, technology and consumer discretionary.
Change Healthcare
The fund purchased 187,358 shares of Change Healthcare, giving the position 2.08% weight in the equity portfolio. Shares averaged $11.22 during the second quarter.
The Nashville, Tennessee-based company began operations in March 2017 following the completion of joint-venture transactions with McKesson Corp. (MCK, Financial). The company completed its IPO on July 1, 2019.
On March 10, the joint venture with McKesson merged into Change Healthcare. According to GuruFocus, the company’s cash-to-debt and debt-to-equity ratios underperform over 80% of global competitors, suggesting low financial strength.
Noble Energy
The fund sold 575,278 shares of Noble Energy, reducing the position 48.89% and impacting the equity portfolio by -3.57%. Shares averaged $8.89 during the second quarter.
The Houston-based company produces oil and natural gas primarily in the U.S., Israel and West Africa. GuruFocus ranks the company’s financial strength 2 out of 10 on several warning signs, which include a weak Piotroski F-score of 3 and a debt-to-equity ratio that underperforms 86.05% of global competitors.
Investors Bancorp
The fund sold 345,004 shares of Investors Bancorp, reducing the position 44.10% and impacting the equity portfolio by -2.84%. Shares averaged $8.41 during the second quarter.
The Short Hills, New Jersey-based company operates a savings bank primarily in the New York and New Jersey areas. GuruFocus ranks the bank’s financial strength 4 out of 10. Although the company’s debt-to-equity ratio of 0.07 outperforms 92.99% of global competitors, Investors Bancorp’s equity-to-asset ratio of 0.10 outperforms just 51.09% of global banks.
Aaron’s
The fund sold 70,294 shares of Aaron’s, reducing the position 51.52% and impacting the equity portfolio by -1.64%. Shares averaged $33.69 during the second quarter.
The Atlanta-based company provides lease-purchase solutions for a wide range of furniture, appliances, electronics and jewelry. GuruFocus ranks the company’s profitability 8 out of 10 on the back of consistent revenue growth as evidenced by its 4.5-star business predictability rank. Despite this, operating margins have contracted over the past five years while net margins and returns are underperforming over 80% of global competitors.
Ambarella
The fund sold 31,439 shares of Ambarella, reducing the position 47.43% and impacting the equity portfolio by -1.57%. Shares averaged $51.50 during the second quarter.
The Santa Clara, California-based company develops semiconductor processing solutions for high-definition video capture, sharing and display. GuruFocus ranks the company’s financial strength 7 out of 10 on robust Altman Z-scores and debt ratios outperforming 90% of global competitors, offset by a weak Piotroski F-score of 3.
Disclosure: No positions.
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