|Additions to Current Shares||10|
|Reductions to Current Shares||17|
Donald Smith follows a strict bottom-up investment approach, investing in stocks that are out of favor, “that sell in the bottom decile of price-to-tangible book value ratios, and that have significant earnings potential over the next 2-4 years,” according to Donaldsmithandco.com. The stocks in the firm’s portfolio have an average investment holding period of approximately three years.
The firm also offers five long-only funds: All Cap Value Equity, Large Cap Concentrated Value Equity, Midcap Value Equity, Small Cap Value Equity and Micro Cap Value Equity.
As of the end of the third quarter, Donald Smith’s portfolio had a total of 95 stocks, with a total value of $3.3 billion and quarter-over-quarter turnover rate of 5%.
The firm’s top five holdings are:
1. Ingram Micro Inc. (IM) at 4.9% ownership
2. Dillards Inc. (DDS) at 4.5% ownership
3. Granite Real Estate Inc. (GRP) at 4.5% ownership
4. Micron Technology Inc. (MU) at 4.2% ownership
5. JetBlue Airways Corp. (JBLU) at 4.2% ownership
The fund’s sector weightings are as follows:
|Oil & Gas||14.70%|
In summary, Donald Smith targets stocks that are out of favor, and have a large margin of safety as well as attractive pricing and valuations, while trying to minimize absolute risks. For the third quarter, he had only two new buys: StanCorp Financial Group Inc. (SFG) and Nabors Industries Ltd. (NBR), stocks that belong in the first and third largest sectors represented in Donald Smith’s portfolio.
StanCorp Financial Inc. (SFG)
Donald Smith’s new holding of financial services provider StanCorp Financial (SFG) amounts to 245,856 shares.
Headquartered in Portland, Ore., StanCorp is parent to several subsidiaries that offer an array of insurance coverage, marketed as Standard Insurance Company, Standard Retirement Services, StanCorp Mortgage Investors, StanCorp Investment Advisers and StanCorp Real Estate, to name a few.
The company has a market cap of $1.48 billion, and is currently trading at $33.09 per share.
Ranking in the bottom half of Business Predictability, its revenue growth percentage trends positively at a rate of 9.2 percent in a 10-year time frame, while its operating margin, though having experienced an unstable trend in the last five years, suffers a negative growth trend at a rate of 4.37 percent.
Despite its growth margin, along with its operating margin, in a five-year decline, shareholders are seeing growing returns, as well as low P/E and P/B ratios in its trading activity; its P/E ratio is close to its 10-year low and its P/B ratio is close to its 1-year low.
GuruFocus ranks StanCorp Financial a 5 out of 10 in Financial Strength and 6 out of 10 in Profitability and Growth. View the company’s 10-Year Financials to see where it stands financially.
Nabors Industries Ltd. (NBR)
Donald Smith’s new holding of oil and gas drilling company Nabors Industries (NBR) totaled 70,000 shares.
A company worth $3.81 billion, Bermuda-based Nabors Industries provides land and platform drilling contract services for the purposes of exploration and development of oil, gas and geothermal wells, expanding its services worldwide.
Nabors is trading at a one-year low of $13.29; it has traded at a minimum price of $13.01 and a maximum price of $16.70.
Similar to Smith’s StanCorp Financial stock, Nabors shows a rising revenue within a 10-year time frame, at a rate of 12.6 percent, while its operating margin shows less stability with a negatively tilted trend line.
In turn, Nabors has a 1-star Business Predictability, as well as a mediocre Financial Strength of 5 out of 10 and a Profitability and Growth Rank of 4 out of 10. View the rest of the company’s 10-Year Financials to see where else it stands financially.
View the rest of Donald Smith’s portfolio updates here. Also view the portfolio’s undervalued stocks, top growth companies and high yield stocks.