Led by principles Andrew J. Knuth and Edmund H. Nicklin Jr., Westport combines classic value investing with forward-looking business analysis. It focuses on companies with potential for increased capital appreciation that will affect their stock price, particularly those temporarily out of favor with Wall Street.
In Westport’s fourth quarter letter, it commented on the investing environment heading into 2013:
With the arrival of 2013 investors continue to face uncertainties in the form of Congressional battles over the federal budget, Europe's debt crisis, and slowing corporate earnings. However, with the recovery in the housing and auto industries coupled with the rapidly expanding domestic energy exploration and production, the U.S. economy appears to have the potential to grow above 2.0% in 2013.
New Buy: Copart Inc. (CPRT)
Copart sells vehicles through its two-stage Internet sales technology, for cosignors such as finance companies and banks, for the public and for auto dealers, with more than 50,000 vehicles up for auction daily. Westport purchased 170,100 shares of this company for $29 per share on average in the fourth quarter, giving it a 0.53% weighting in its portfolio.
Since Westport’s purchase, the company’s market value has increased approximately 26%. Trading for $36.66 per share on midday Wednesday, it has a $4.57 billion market cap.
The price surged on news reported by Bloomberg that hedge fund Jana Partners bought Copart shares in a bet that the company would become a real estate investment trust (REIT), under which it would not have to pay federal income taxes but would be required to return at least 90% of taxable earnings as dividends to shareholders.
“We see an attractive asset trading at a reasonable price with the potential for significant value to be unlocked were CPRT to convert to a REIT,” Jana said in the letter obtained by Bloomberg. “Our research suggests that the vast majority of CPRT’s earnings can be classified as qualifying real estate income.”
In fiscal year 2012, Copart earned $182 million in net come on $924 million in revenue, along with $146 million in free cash flow. Revenue, EBITDA and free cash flow have been growing at the average annual rates of 12.8%, 13% and 29.7%, respectively, over the past five years, according to its 10-year financials.
The company is also pursuing growth through a variety of other means, including acquisitions. In November, it acquired Central de Leilões Ltda. located in Brazil, WOM Wreck Online Marketing Aktiengesellschaft, an auction platform in Germany, and four parcels of land located in Estrada Muranaka, a municipality of Itaquaquecetuba, São Paulo State, Brazil.
Copart currently has a P/E of 24.6, P/B of 7.4 and P/S of 5.1.
New Buy: Core Laboratories N.V. (CLB)
Westport funds commented in its fourth quarter letter about this company: “Finally, a new position was established in Core Laboratories N.V., a unique oil service company that provides reservoir management services and production enhancement when it experienced an earnings shortfall relative to expectations for third quarter results. The company's capabilities in reserve modeling are highly valued in the shale areas of the U.S.”
Core Laboratories’ stock price also jumped recently, with its market value gaining more than 25% in the last three months. Trading for $129.50 per share in midday, the company has a market cap of $6.04 billion.
Westport purchased 40,000 shares of Core Laboratories for $104 per share on average in the fourth quarter.
A robust fourth quarter earnings report fueled the company’s January stock gain. It posted its the most profitable quarter in its history, with a year-over-year net income increase to $54.8 million, and 7% earnings per share increase to $1.17. Revenue increased to a quarterly record of $254.46 million.
The improvements were driven by international crude-oil developments, particularly deepwater unconventional oil plays in North America and high-grading international unconventional plays. International revenue increased 13%, leading the industry.
The results came after Core Laboratories significantly raised its expectations for the fourth quarter on Oct. 17. Actual revenue for the quarter topped its estimate, while earnings per share came in at the top of the updated expected range.
Read more about Core Laboratories’ history in its 10-year financials page.
For 2013, Core Laboratories is expecting robust Brent crude pricing and delivery of more deepwater drilling rigs that will enable it to further its existing work, branch out into new projects and offer new technologies and services related to deepwater fields and liquids-related unconventional reservoir developments.
The company has a P/E of 28.8, P/B of 27 and P/S of 6.5.
Westport Funds made increases to four other holdings during the quarter, which were Nordson Corp. (NDSN), Abbott Laboratories (ABT), Air Products & Chemicals international Inc. (CRL) and Charles River Laboratories International Inc.
Read more about the investing activities at Westport Funds in its portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Westport Asset Management.