The FPA Capital Fund (Trades, Portfolio) increased its positions in five holdings in the third quarter. The top three expansions were in Babcock and Wilcox Enterprises Inc. (BW, Financial), Avnet Inc. (AVT, Financial) and Rowan Companies PLC (RDC, Financial).
The FPA Capital Fund (Trades, Portfolio) was established in 1984 by FPA Capital. Robert Rodriguez serves as portfolio manager. The fund has a concentrated portfolio and invests primarily in undervalued small to mid-cap companies.
Babcock and Wilcox Enterprises
In Babcock and Wilcox, FPA increased its stake by 45.6%. It purchased 501,360 shares for an average price of $16.03 per share. The transaction had an impact of 1.5% on the portfolio.
Babcock and Wilcox is a computer hardware company headquartered in Charlotte, North Carolina. The company has a market cap of $835.4 million with an enterprise value of $573.6 million. It has a forward price-earnings (P/E) ratio of 11.6, a price-book (P/B) ratio of 1.2 and a price-sales (P/S) ratio of 0.53.
GuruFocus ranked the company’s financial strength 6 of 10. Its Altman Z-Score of 1.7 places it in the distress zone with the possibility of bankruptcy in the near future, but its cash-debt ratio of 83.4 is far above the industry median and ranks above 79% of other companies in the industry.
GuruFocus ranked the company’s profitability and growth 3 of 10. It has an operating margin of -3.3% and a net margin of -3%. Its return on equity (ROE) of -7.1% and return on assets (ROA) of -3.3% rank below 81% and 78% of other companies in the global electronic components industry. Its return on capital (ROC) of -22.6% ranks below 87% of its competitors.
Mariko Gordon (Trades, Portfolio) is the largest shareholder among the gurus with 5.1% of the company's outstanding shares, which is 2.4% of her total assets managed. Other gurus with a position include First Pacific Advisors (Trades, Portfolio), Charles Brandes (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
The DCF Calculator gives the stock a fair value of $-11.13; it was trading at $16.43 on Monday.
Avnet
In Avnet, FPA increased its position by 12.2%. The fund purchased 83,430 shares for an average price of $40.78 per share. The transaction had an impact of 0.63% on the portfolio.
Avnet is a distributor of electronic components, computer products and embedded technology. It is headquartered in Phoenix. It has a market cap of $5.3 billion with an enterprise value of $6.7 billion. It has a P/E of 11.2, a forward P/E of 10.2, a P/B of 1.2 and a P/S of 0.22.
GuruFocus ranked Avnet’s financial strength 7 of 10. Its Piotroski F-Score of 5 indicates the company has a stable financial condition. The Altman Z-Score of 3.9 places it in the safe zone. The Beneish M-Score of -2.4 suggests the company does not manipulate its financial records. The cash-debt ratio of 0.4 is below the industry median of 1.5.
GuruFocus ranked the company’s profitability and growth 6 of 10. It has an operating margin of 3% and a net margin of 1.9%. Its ROE of 10.8% ranks above 71% of other companies in the global electronics distribution industry. Its ROA of 4.6% ranks above 62% of other companies in the industry. Its ROC of 16.8% ranks above 64% of its competitors.
Richard Pzena (Trades, Portfolio) is the largest shareholder among the gurus with 3.4% of outstanding shares, which is 1.1% of his total assets managed. Other gurus invested in Avnet include Jeremy Grantham (Trades, Portfolio), Richard Snow (Trades, Portfolio), Tweedy Browne (Trades, Portfolio), Brandes,Ă‚ Bernard Horn (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Scott Black (Trades, Portfolio) and David Dreman (Trades, Portfolio).
The DCF Calculator gives the stock a fair value of $40.77 with a -5% margin of safety; it was trading at $42.73 on Monday.
Rowan Companies
In Rowan Companies, the fund increased its holding by 18.3%. The fund purchased 222,480 shares for an average price of $14.64 per share. The transaction had an impact of 0.62% on the portfolio.
Rowan provides offshore oil and gas contract drilling services and is headquartered in Houston. It has a market cap of $1.9 billion with an enterprise value of $3.8 billion. It has a P/E of 8.4, a P/B of 0.4 and a P/S of 0.8.
GuruFocus ranked Rowan’s financial strength 5 of 10. Its Piotroski F-Score of 8 indicates the company has a healthy financial condition. However, its Altman Z-Score of 1.5 is in the distress zone, which suggests the company is in danger of bankruptcy in the near future. The Beneish M-Score of -2.9 implies the company does not manipulate its financial records. The cash to debt ratio of 0.29 is even with the industry median.
GuruFocus ranked the company’s profitability and growth 9 of 10. It has an operating margin of 20.6% and a net margin of 10.23%. Its ROE of 4.6% and ROA of 2.6% rank above 79% of other companies in the global oil and gas drilling industry. Its ROC of 5.8% ranks above 77% of other companies.
First Pacific Advisors (Trades, Portfolio) is the largest shareholder among the gurus with 2.01% of outstanding shares, which is 0.4% of its total assets managed. Other gurus invested in Rowan include Greenblatt, Pzena, Simons, Mario Gabelli (Trades, Portfolio), Grantham, Steven Cohen (Trades, Portfolio) and Jones.
The DCF Calculator gives the stock a fair value of $19.05 with a 20% margin of safety; the stock was trading at $15.28 on Monday.
The other two stocks the fund increased their positions in are Houghton Mifflin Harcourt Co. (HMHC, Financial) and Veeco Instruments Inc. (VECO, Financial). The fund did not acquire any new holdings in the third quarter.
Disclosure: I do not own stock in any companies mentioned in the article.
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