Charles Brandes Bets on Aaron's, Small-Cap ETF

Brandes re-opens stake in Aaron's after selling out in 3rd quarter

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Feb 12, 2016
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Charles Brandes (Trades, Portfolio) is the portfolio manager for the US Equity and Global Equity strategies at Brandes Investment Partners, the firm he founded in 1974. During the fourth quarter, he initiated new positions in 13 new stocks, according to data reported by GuruFocus Real Time Picks.

Aaron’s Inc. (AAN, Financial)

Brandes purchased a new holding in Aaron’s after selling out a previous stake in the third quarter. The fund bought 323,957 shares at an average price of $28.20 per share, lower than the average $37.25 for which it sold the previous holding.

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Aaron’s provides rental and leasing services for furniture, electronics and other household appliances. GuruFocuc rates its business predictability as a perfect 5 stars. The stock, however, has declined 33% over the past year and is down 7% year-to-date.

One reason may be that Aaron’s EPS has been declining since FY 2012 — from $2.25 to $1.08 in 2014. The sharp decline has followed a consistent rise in EPS through the prior years.

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The trailing dividend yield of 0.43% is close to the 10-year high, and the payout ratio is a low 5%.

iShares MSCI ACWI Index Fund (ACWI, Financial)

Brandes purchased 34,281 shares of the MSCI ACWI Index ETF for an average price of $56.60 per share. The ETF tracks large and mid-cap companies in both developed and emerging markets.

SPDR S&P International Small Cap (ETF) (GWX, Financial)

The fund also bought 25,071 shares of SPDR S&P International Small-cap ETF for an average price of $28.21 per share.

TopBuild Corp. (BLD, Financial)

Brandes bought 21,496 shares of TopBuild, which traded for an average price of $30.03 during the quarter. The stock has held steady over the past year, increasing just 2%. TopBuild currently trades at 38x earnings.

The company installs and distributes insulation products for the construction industry. Net income for the trailing 12 months is $25 million, up from $9 million in FY 2014.

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Jim Simons (Trades, Portfolio) also purchased a new holding in TopBuild during the fourth quarter, while Jeremy Grantham (Trades, Portfolio) added to his stake.

Utah Medical Products Inc. (UTMD, Financial)

The fund’s fifth-largest new buy was 14,193 shares in Utah Medical Products, which produces medical devices that are mainly proprietary, disposable and for hospital use. Brandes purchased the holding for an average of $56.73 per share.

Utah Medical’s preliminary EPS for FY 2015 is $3.14, up from $3.02 in 2014. Annual EPS has increased steadily over time.

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One warning sign is that the trailing dividend yield of 1.75% is close to the 10-year low. The dividend payout ratio is 33%.

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