Donald Smith (Trades, Portfolio) began his career as an analyst with Capital Research Company. He then worked his way up to becoming the director, vice president and then portfolio manager of Capital Guardian Trust Co. In 1980, Smith became the CEO of Home Insurance Company, and President of Home Portfolio Advisors Inc. He then purchased the company and changed the name to Donald Smith (Trades, Portfolio) & Co Inc. Smith has over 35 years of experience in the investment industry. He likes to look for hidden value when he conducts his research looking at underappreciated earnings, and holdings with the lowest price to tangible book value.
In the third quarter of 2015, Smith sold out his holdings in Bassett Furniture Industries Inc. (BSET, Financial), Peabody Energy Corp. (BTU, Financial), and Tecumseh Products Co. (TECU, Financial).
Below is the price movement for Bassett Furniture Industries Inc.
Bassett manufactures and imports high quality home furnishings. The company has been producing hand-crafted furniture for over 100 years. It was originally founded in 1902 by John David Bassett, Charles C. Bassett, Samuel H. Bassett, and Reed L. Stone. Today Bassett offers a wide range of furniture products including living room, dining room, bedroom, storage and office as well as customized furniture.
Bassett has a market cap of $258.59 million, a P/E ratio of 13.77, an enterprise value of $229.7 million, a quick ratio of 1.12 and a dividend yield of 1.44%.
Smith sold his remaining 44,734 shares in Bassett and had been consistently reducing his position in the company since the first quarter of 2014.
Below is a Peter Lynch Chart for Bassett Furniture Industries Inc.
The graph below shows the price movement for Peabody Energy Corp.
Peabody is one of the world’s largest private sector coal company and a global leader in sustainable mining and clean coal solutions. The company serves metallurgical and thermal coal customers in nearly 25 countries on six continents. The company's stock has been plummeting, dropping 92% year to date.
Peabody Energy has a market cap of $178.35 million, an enterprise value of $6.15 billion, a P/S ratio of 0.03 and a dividend yield of 0.87%.
In the third quarter of 2015, Smith sold out 116,360 shares in Peabody Energy.
GuruFocus has issuedfour severe warning signs for Peabody Energy:
- Piotroski F-Score of 1 is low, which usually implies poor business operation.
- Revenue has been in decline over the past three years.
- Gross margin has been in long-term decline. The average rate of decline per year is 11%.
- Short interest is high. 39.96% of the float is shorted.
In retrospect, Peabody Energy would have been a fantastic company to short sell back in 2008 when their holding price was high.
Below is a Peter Lynch chart for Peabody Energy.
Below is the price movement for Tecumseh Products.
Tecumseh Products manufactures products from four continents for customers in countries around the globe. Their company philosophy is “make the highest quality compressors and keep costs low. As a result, citizens everywhere enjoy a better quality of life.”
Tecumseh Products has a market cap of $92.63 million, an enterprise value of $125.03 million, a P/S ratio of 0.14 and a quick ratio of 0.76.
Smith sold out his 1,553,908 shares in Tecumseh Products. The company has been declining since it peaked at $31.11 per share in June 2008. This would have been another great company to short sell in retrospect.
Tecumseh Products has three severe warning signs according to GuruFocus:
- Piotroski F-Score of 3 is low, which usually implies poor business operation.
- Revenue has been in decline for the last five years.
- Tecumseh Products keeps issuing new debt. Over the past three years, it issued $9.3 million of debt.
Below is a Peter Lynch chart for Tecumseh Products.
It is noteworthy that Smith would be taking action selling these three holdings. There is definitely a lot of opportunity in short selling, as we can see from Peabody Energy and Tecumseh Products, they have both dropped significantly in price since 2008.
Cheers to your investment success.
