Arnold Van Den Berg (Trades, Portfolio), founder of Century Management, invests in companies that trade 40% to 65% below the company’s intrinsic value. During the fourth quarter, Van Den Berg eliminated his positions in General Motors Inc. (GM, Financial), US Bancorp (USB, Financial) and Avid Technology Inc. (AVID, Financial) as these companies have low value potential in early 2017.
General Motors
Van Den Berg sold his 812,918-share stake in General Motors, trimming 4.17% of his portfolio. The auto manufacturing company’s share price averaged $33.61 during the fourth quarter.
With a financial strength rank of 5, GM has a modest business operation. The company’s cash-debt ratio of 0.31 underperforms 62% of global competitors, and its Altman Z-score of 1.26 suggests moderate financial distress. Since 2011, GM’s Altman score seldom exceeded 1.6, suggesting that the company languished in “distressed zones” during the past six years.
Although the company reported an expected increase in 2017 earnings per share from the 2016 outlook, the company has five medium warning signs including a price close to a 10-year high. GM’s long-term debt steadily increased during the past six years. Additionally, the company’s forward price-earnings (P/E) ratio of 6.47 exceeds the trailing 12-month P/E by approximately 2.00.
Warren Buffett (Trades, Portfolio) owns 50 million shares of GM, the highest among gurus that own GM. As the company has a moderate debt burden, Martin Whitman (Trades, Portfolio) also axed his GM stake during fourth-quarter 2016.
US Bancorp
The guru closed his position in US Bancorp, selling 356,124 shares at an average price of $47.55 per share. With this transaction, Van Den Berg trimmed his portfolio 2.47%.
The regional U.S. bank has a weak Piotroski F-score of 3, suggesting poor business operation. US Bancorp also has a moderate debt burden. The bank’s cash-debt ratio of 0.44 underperforms 76% of competitors while the equity-asset ratio only ranks higher than 57% of competitors. Likely due to these financial metrics, US Bancorp has a financial strength rank of 5.
Like GM, US Bancorp also has several warning signs including high valuation ratios. The company’s price-book (P/B) ratio of 2.10 ranks lower than 85% of U.S. regional banks. Additionally, 66% of regional banks have a lower price-sales (P/S) ratio than does US Bancorp.
As of Sept. 30, 2016, Buffett had 85,063,167 shares of US Bancorp, the largest stake among gurus owning shares of the company.
Avid Technology
Van Den Berg sold his remaining 1,398,542 shares of Avid Technology after reducing his position during each of the past three quarters. The company’s stock price averaged $5.57 during fourth-quarter 2016, and the portfolio manager lost approximately 46% on the stock based on GuruFocus estimates.
The multimedia company has a financial strength rank of 3 and a profitability rank of 3, both suggesting low value potential. Avid Technology’s Altman Z-score of -4.31 implies severe financial distress, and the company’s Beneish M-score suggests high earnings manipulation. While the company’s F and M scores remained steady during the past six years, Avid Technology’s Z scores dropped below zero during the second half of 2012.
Avid Technology reduced its full-year 2016 guidance for bookings, non-GAAP revenue, adjusted EBITDA and adjusted free cash flow likely due to weak third-quarter performance. The company’s revenues declined about $18.4 million year over year while gross margins declined about 0.6%. Bookings and non-GAAP revenue fell short of guidance “primarily due to the transition of the storage product line,” according to CEO Louis Hernandez.
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Disclosure: The author has no position in the stocks mentioned in this article.
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