Texas Investor Arnold Van Den Berg's Top New Q3 Stock Buys
To determine which stocks to buy, Van Den Berg applies value-investing principles to assign intrinsic value. He then buys at a substantial margin of safety and typically holds for three to five years.
The following new stocks merited the largest allocation in his portfolio: Fidelity National Financial Inc. (FNF), POSCO (PKX), Great Lakes Dredge & Dock Corp (GLDD) and UCP Inc. (UCP).
Fidelity National Financial Inc. (FNF)
Van Den Berg purchased 650,605 shares of Fidelity National Financial Inc. in the third quarter when the stock averaged $25 per share, in a new position constituting 1.7% of his portfolio.
Shares of Fidelity National have traded up 13% over the past 12 months and are priced around $25.80 on Tuesday – near a 10-year high.
Fidelity National Financial is the largest title insurance company in the U.S. by number of insurance policies written, and owns minority interests in Ceridian Corp., Remy International Inc. and American Blue Ribbon Holdings LLC.
The company reported its strongest first quarter title results since 2004 in May, with an adjusted pre-tax title margin of 12.3%, a 16% increase from the prior-year quarter. Its second quarter pre-tax title margin was also a record at 16.5%, the widest since 2003, due to a strengthening residential purchase market and strong refinance orders.
Financial growth has occurred consistently at the company this year, with two consecutive quarters of revenue growth over the corresponding previous year quarter. Second quarter consolidated revenue jumped roughly 32% and net earnings declined 5.4%. To increase and diversify its recurring revenue base, Fidelity National Financial purchased Lender Processing Services for $2.9 billion in the second quarter.
Fidelity National Financial 10-year revenue and earnings history:
Van Den Berg purchased 171,465 shares of POSCO in the third quarter when the price averaged $73 per share. The new position constitutes 1.2% of his portfolio.
In the past 12 months POSCO shares slid 10% to around $72.23 Tuesday afternoon.
A Korea-based company, POSCO manufactures steels products and has a $22.32 billion market cap.
POSCO’s revenue and earnings had been in decline for at least two consecutive quarters, but revenue picked up in the second quarter of 2013, increasing 7% quarter over quarter to $16.45 billion. Net profit continued to decline sequentially in the second quarter but increased 17.5% year-over-year to $466 million.
Weak steal prices in the first half of the year continued due to over-inventory even though demand increased 7%. Balance between supply and demand should increase in the third quarter as inventory destocking is completed and steelmakers reduce production, POSCO said in its July earnings statement. The company is expecting a 5% increase in global demand for full-year 2013, according to data from the World Steel Association, led by India and South East Asia.
POSCO’s 10-year revenue and earnings history:
POSCO has a P/E of 13.5, P/B of 0.6 and P/S of 0.39.
Great Lakes Dredge & Dock Corp (GLDD)
Van Den Berg purchased 857,707 shares of Great Lakes Dredge & Dock Corporation in the third quarter when the stock averaged $7 per share. The position constitutes 0.63% of his portfolio.
In the past 12 months, Great Lakes Dredge & Dock Corp. shares fell almost 9%. The price is around $7.05 Tuesday.
Great Lakes Dredge & Dock Corp is a dredging contractor that maintains harbors, beaches and wetlands, and creates new land masses.
GLDD revenue increased 22% year over year in the company’s first quarter and declined 6.3% year over year in the second quarter. Earnings also fell to $0.04 in the first quarter from $1.1 million in the year-ago quarter, and then to a net loss of $25.2 million in the second quarter compared to earnings of $1.3 million in the prior-year quarter. The company holds $271.6 million in cash on its balance sheet with $4420 million in long-term liabilities and debt.
GLDD’s 10-year revenue and earnings history:
The company has a P/B of 1.7 and P/S of 0.60.
UCP Inc. (UCP)
Van Den Berg purchased 301,726 shares of UCP at an average third-quarter price of $14 per share, for a 0.44% portfolio weighting.
Shares are up 5% since July, for a UCP share price around $14.71 on Tuesday.
A West-Coast home builder and land developer, UCP builds homes or sells lots primarily in Northern California and around Puget Sound in Washington State.
UCP held its initial public offering on July 17, 2013, listing shares at $15. In its second quarter, the company announced $1.1 million in net losses, decreased from $2.2 million in the corresponding year-ago quarter, driven by revenue growth and undercut by gross margin decline and increased SG&A, as well as $0.9 million in IPO costs. Revenue increased to $27.7 million from $1.4 million in the corresponding year-ago quarter, as homebuilding revenue increased to $20.9 million from $1.4 million. UCP delivered 57 homes to an average of seven communities, compared to six homes to two communities a year previously. It also increased the average home price by 53.6%.
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