The Oakmark International Small Cap Fund recently disclosed its portfolio updates for the first quarter of 2021, which ended on March 31.
Founded in 1995 and managed by portfolio managers David Herro (Trades, Portfolio), Michael Manelli and Justin Hance, the Oakmark International Small Cap Fund invests in a relatively small number of non-U.S. small cap stocks (approximately 50 to 60). The fund aims to invest in securities that are trading at a discount to intrinsic value and show strong potential to increase value for shareholders.
Based on these criteria, the fund's top buys for the quarter were Software AG (XTER:SOW, Financial) and TIS Inc. (TSE:3626, Financial), while its most notable sells were BlackBerry Ltd. (TSX:BB, Financial) and Controladora Vuela Compania de Aviacion SAB de CV (VLRS, Financial).
Software
The fund added 506,000 shares, or 80.57%, to its investment in Software (XTER:SOW, Financial) for a total of 1,134,000 shares. The trade had a 1.45% impact on the equity portfolio. During the quarter, shares traded for an average price of 34.82 euros ($42.55).
Software is the second-largest software vendor in Germany. It is a leader in platform integration and internet of things applications for enterprises, connecting applications on the ground and in the cloud.
On June 1, shares of Software AG traded around 36.56 euros for a market cap of 2.71 billion euros. According to the GuruFocus Value chart, the stock is modestly overvalued.
The company has a financial strength rating of 7 out of 10 and a profitability rating of 7 out of 10. It has an interest coverage ratio of 38.61 and a strong Piotroski F-Score of 7 out of 9. The operating margin of 16.91% and net margin of 11.46% are outperforming their respective industry medians but have been in decline recently.
TIS
The fund also upped its stake in TIS (TSE:3626, Financial) by 688,000 shares, or 430%, for a total of 848,000 shares. The trade had a 1.12% impact on the equity portfolio. Shares traded for an average price of 2,315.64 Japanese yen ($21.15) during the quarter.
TIS is a Japanese technology company whose subsidiary groups are involved in outsourcing business and cloud services related to information technology, software development, solution business, real estate leasing and management.
On June 1, shares of TIS traded around 2,817.00 yen for a market cap of 705.71 billion yen. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 7 out of 10 and a profitability rating of 7 out of 10. The Piotroski F-Score of 8 out of 9 and Altman Z-Score of 5.44 suggest the balance sheet is strong. The return on invested capital is consistently outperforming the weighted average cost of capital, indicating the company is creating value as it grows.
BlackBerry
The fund sold out of its 3,208,000-share BlackBerry (TSX:BB, Financial) investment, impacting the portfolio by -1.56%. During the quarter, shares traded for an average price of 14.17 Canadian dollars ($11.74).
The Canada-based enterprise software company was once famous for its smartphones, but after falling behind in the smartphones market, it now primarily focuses on cybersecurity, communications software and IoT applications.
On June 1, shares of BlackBerry traded around CA$12.40 for a market cap of CA$7.02 billion. According to the GF Value chart, the stock is modestly overvalued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 2 out of 10. The Piotroski F-Score of 4 out of 9 and Altman Z-Score of 1.07 indicate the company may not have the best financials, but is still in a stable situation. The operating margin of -10.97% and net margin of -123.63% indicate that operations are not profitable.
Controladora Vuela Compania de Aviacion
The fund reduced its position in Controladora Vuela Compania de Aviacion (VLRS, Financial) by 1,173,000 shares, or 41.82%, leaving a remaining holding of 1,632,000 shares. The trade had a -1.07% impact on the equity portfolio. Shares traded for an average price of $13.54 during the quarter.
Controladora Vuela Compania de Aviacion, commonly called Volaris, is a low-cost Mexican airline carrier with hubs in Guadalajara, Mexico City and Tijuana. It operates routes throughout Central America and the U.S.
On June 1, shares of Volaris traded around $17.82 for a market cap of $2.04 billion. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 2 out of 10 and a profitability rating of 5 out of 10. The Altman Z-Score of 0.31 and current ratio of 0.60 indicate the company will need to raise additional liquidity to avoid bankruptcy. The three-year revenue growth rate is -3.4%, while the three-year Ebitda growth rate is -22.7%.
Portfolio overview
As of the quarter’s end, the fund held shares in 55 common stocks valued at a total of $1.47 billion. The top holdings were Konecranes Oyj (OHEL:KCR) with 4.16% of the equity portfolio, Julius Baer Gruppe AG (XSWX:BAER) with 3.76% and Duerr AG (XTER:DUE) with 3.42%
In terms of sector weighting, the fund was most invested in industrials, followed distantly by financial services and consumer cyclical.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.
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