Steven Romick (Trades, Portfolio) recently released the latest portfolio updates for the FPA Crescent Fund for the second quarter of 2022, which ended on June 30.
The FPA Crescent Fund operates under First Pacific Advisors (Trades, Portfolio) and is managed by Steven Romick (Trades, Portfolio), Brian A. Selmo and Mark Landecker. The fund’s objective is to seek returns with less risk than the market while avoiding permanent loss of capital. Its strategy combines deep research with a focus on strong fundamentals, attractive risk-reward and diversification across geographies, market caps, sectors and capital structure.
As many stocks prices continued to decline during the quarter, the FPA Crescent Fund’s top five trades were all buys; it established new positions in Safran SA (XPAR:SAF, Financial), CarMax Inc. (KMX, Financial), Ferguson PLC (FERG, Financial) and Nintendo Co. Ltd. (TSE:7974, Financial) and added to its investment in Amazon.com Inc. (AMZN, Financial).
Investors should be aware that portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Safran
The fund established a holding worth 938,989 shares in Safran (XPAR:SAF, Financial), giving it a 1.56% weight in the equity portfolio at the quarter’s average price of 98.12 euros ($99.88).
Safran is a French multinational company that designs, develops and manufactures rocket and aircraft engines and equipment. It also manufactures aerospace and defense-related equipment and components and makes avionics and navigation systems.
Safran has a GuruFocus financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10. Positive signs include a Piotroski F-Score of 6 out of 9 and a gross margin of 48.09%, which is higher than 75% of industry peers. Warning signs include weighted average cost of capital being higher than return on invested capital, indicating the company is not creating value.
On July 20, shares of Safran traded around 104.22 euros for a market cap of 44.49 billion euros. The GF Value chart rates the stock as fairly valued.
CarMax
The fund purchased 927,390 shares of CarMax (KMX, Financial), giving the stock a 1.40% equity portfolio weight. During the quarter, shares averaged $94.08 apiece.
Headquartered in Richmond, Virginia, CarMax is an American used-car company with approximately 195 stores across the U.S. It offers upfront prices, nationwide availability and online shopping.
GuruFocus rates CarMax’s financial strength at 4 out of 10, with an interest coverage ratio of 0.97 indicating issues making payments on debt despite a current ratio of 2.72. Its profitability is rated 8 out of 10 with a three-year revenue per share growth rate of 23.2% and a three-year Ebitda per share growth rate of 10.2%.
CarMax shares traded around $96.50 on July 20 for a market cap of $15.36 billion. The GF Value chart rates the stock as a possible value trap.
Ferguson
The fund picked up 460,486 shares of Ferguson (FERG, Financial), which now make up 0.85% of the equity portfolio. Shares changed hands for an average price of $121.31 during the quarter.
Ferguson is a British-American value-added distributor of products for a variety of industries, including infrastructure, plumbing, appliances, HVAC, fire, fabrication and more.
Ferguson has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 7 out of 10. Positive signs include a return on capital of 57.51% and an earnings yield of 9.82%, while warning signs include days inventory building up.
On July 20, shares of Ferguson traded around $116.28 each for a market cap of $24.58 billion. Based on the Peter Lynch chart, the stock is trading below both its fair value and its median historical valuation.
Nintendo
The fund took a 97,120-share position in Nintendo (TSE:7974, Financial). At the quarter’s average share price of 59,681.67 Japanese yen ($431.65), the position has a 0.70% weight in the equity portfolio.
Nintendo is a Japanese video game company that develops video games and portable video game consoles. Its current-generation console is the Nintendo Switch.
Nintendo gets a 10 out of 10 rating on financial strength from GuruFocus thanks to having no debt on its balance sheet and capital lease obligations that are covered many times over by operating income. Its profitability is rated 9 out of 10 with an operating margin of 34.96% and a net margin of 28.18%.
On July 20, Nintendo’s shares changed hands for 62,240 yen apiece, giving it a market cap of 7.04 trillion yen. The Peter Lynch chart shows the stock trading near its fair value and far below its median historical valuation.
Amazon.com
The fund increased its investment in Amazon.com (AMZN, Financial) by 31.02% for a total of 1,422,300 shares, adding 0.60% to the equity portfolio. Shares averaged $125.73 apiece for the quarter.
Amazon is a multinational e-commerce giant based in Seattle. Its vast network allows it to deliver an incredible variety of products to customers within one or two days. The company also has cloud computing, digital streaming, artificial intelligence and other tech operations.
GuruFocus gives Amazon a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. Positive signs include a three-year revenue per share growth rate of 25.1% and a three-year Ebitda per share growth rate of 37%, while warning signs include assets growing faster than revenue and a gross margin of 13.41%, which is lower than 88% of industry peers.
Amazon’s shares traded around $122.75 on July 20 for a market cap of $1.25 trillion. The GF Value chart rates the stock as significantly undervalued.
Portfolio overview
As of the quarter’s end, the fund consisted of 133 common stock positions valued at $5.98 billion. The top holdings were Comcast Corp. (CMCSA, Financial) with 4.65% of the equity portfolio, Alphabet Inc. Class A voting shares (GOOGL, Financial) with 4.39% and Holcim Ltd. (XSWX:HOLN, Financial) with 3.99%.
In terms of sector weighting, the fund was most invested in communication services, financial services and technology. There were no significant changes in sector weighting during the quarter.
