Donald Smith (Trades, Portfolio) of Donald Smith & Co. gained a new holding in Verso Corp. (VRS, Financial) in the third quarter.
Smith’s investment firm was established in 1975 as Home Portfolio Advisors. He took over the firm and changed the name in 1983. It is a deep value manager and employs a bottom-up approach. The investment team seeks out-of-favor stocks that sell at the lowest decile of price-to-tangible book values and have significant earnings potential over the next several years.
The guru purchased 1,084,294 shares for an average price of $8.43 per share. The transaction had an impact of 0.19% on the portfolio.
Verso produces printing paper, specialty paper and pulp for commercial printing, media and marketing applications. The paper producer has a market cap of $172.6 million with an enterprise value of $640.5 million. It has a forward price-earnings (P/E) ratio of 2.3 and a price-sales (P/S) ratio of 0.2.
GuruFocus ranked Verso’s financial strength 3 of 10. The low Piotroski F-Score of 3 and Altman Z-Score of 0.1 suggest the company is in poor financial condition and has a chance of facing bankruptcy in the near future. The cash-debt ratio of 0.06 is well below the industry median of 0.33.
GuruFocus ranked the company’s profitability and growth 4 of 10. The operating margin and net margin are both negative. Similarly, Verso’s return on assets (ROA) and return on capital (ROC) underperform 92% and 86% of other companies in the global paper and paper products industry. In contrast, its three-year revenue growth of 11.2% outperformed 80% of competitors.
Smith is the only guru with a position in Verso. He holds 3.2% of outstanding shares, which is 0.2% of his total assets managed.
The stock is one of two positions Smith holds in paper products. The other is Resolute Forest Products (RFP, Financial). Basic materials stocks have a 19.3% weight on the portfolio.
The DCF Calculator gives the stock a fair value of $-47.19; it was trading at $4.97 on Wednesday.
Disclosure: I do not own stock in any companies mentioned in the article.
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