FPA Capital Fund Buys Federated Investors, Exits 4 Other Positions

The fund divested one of its largest holdings in 3rd quarter

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Oct 09, 2017
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The FPA Capital Fund (Trades, Portfolio) established one new holding and exited four others during the third quarter.

The fund seeks long-term growth of capital through investing in small and medium-sized companies. Using fundamental analysis and bottom-up research, the fund looks for strong balance sheets, free cash flow, a clear business strategy, strong management and unique business characteristics. The current portfolio of 19 stocks is composed largely of companies in the technology and energy sectors.

Federated Investors

The fund’s sole new purchase for the quarter was Federated Investors Inc. (FII, Financial). Having previously exited the stock in the fourth quarter of 2015, the fund invested in 139,440 shares for an average price of $28.08 per share, giving it 1.35% portfolio space.

The asset management company has a market cap of $3.08 billion; its shares were trading around $30.33 per share on Monday with a price-earnings (P/E) ratio of 14.37, a price-book (P/B) ratio of 4.87 and a price-sales (P/S) ratio of 2.63.

The Peter Lynch chart below shows the stock is trading slightly below its fair value.

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GuruFocus ranked Federated Investors’ financial strength 5 of 10 and its profitability and growth 5 of 10. The company’s trailing dividend yield and forward dividend yield are both 3.3%. The dividend payout ratio is 48%.

Among the 10 gurus invested in Federated Investors, Chuck Royce (Trades, Portfolio) has the largest holding with 3.1% of outstanding shares. During the second quarter, First Pacific Advisors (Trades, Portfolio) and David Dreman (Trades, Portfolio) established positions in the stock.

The four positions the fund divested from its portfolio during the quarter are Babcock & Wilcox Enterprises Inc. (BW, Financial), Rowan Companies PLC (RDC, Financial), Vista Outdoor Inc. (VSTO, Financial) and Oshkosh Corp. (OSK, Financial).

Babcock & Wilcox

The fund sold its remaining 2.18 million shares of Babcock & Wilcox for an average price of $6.18 per share, impacting the portfolio 7.14%. According to GuruFocus estimates, the fund has lost 63% on the stock since establishing its stake in second-quarter 2015. The company was formerly one of the fund’s top 10 holdings.

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The power generation company has a market cap of $163.75 million; its shares were trading around $3.79 on Monday with a forward P/E ratio of 9.29, a P/B ratio of 0.41 and a P/S ratio of 0.11.

GuruFocus ranked the company’s financial strength 5 of 10 and its profitability and growth 3 of 10. The company does not pay a dividend.

Since First Pacific exited the stock during the quarter, Charles Brandes (Trades, Portfolio) is now the company’s largest guru shareholder with 2.45% of outstanding shares. Michael Price (Trades, Portfolio) also owns the stock.

Rowan Companies

The fund sold its remaining 1.2 million shares of Rowan Companies for an average price of $10.70 per share. The trade had an impact of 3.43% on the portfolio. Since first-quarter 2011, the fund has lost 44% on the stock.

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The offshore oil and gas producer has a market cap of $1.65 billion; its shares were trading around $13.10 on Monday with a P/B ratio of 0.31 and a P/S ratio of 1.16.

GuruFocus ranked the company’s financial strength 5 of 10 and its profitability and growth 7 of 10. The company does not currently pay a dividend.

With 2.01% of outstanding shares, First Pacific is the company’s largest guru shareholder. During the second quarter, Steven Cohen (Trades, Portfolio) and Jim Simons (Trades, Portfolio) established positions in the stock.

Vista Outdoor

After establishing a position in Vista Outdoor in the first quarter of 2017, the fund sold its remaining 366,510 shares for an average price of $22.48 per share. The trade had an impact of 2.29% on the portfolio. The fund lost 11% on the stock according to GuruFocus estimates.

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The company, which manufactures outdoor sports and recreation products, has a market cap of $1.24 billion; its shares were trading around $21.66 on Monday with a forward P/E ratio of 18.15, a P/B ratio of 0.99 and a P/S ratio of 0.53.

GuruFocus ranked the company’s financial strength 4 of 10 and its profitability and growth 5 of 10. The company does not pay a dividend.

Keeley Asset Management Corp (Trades, Portfolio) has the largest holding of Vista Outdoor among the gurus with 1.37% of outstanding shares. First Pacific also owns the stock but is reducing its holding.

Oshkosh

The fund sold its remaining 38,320 shares of Oshkosh for an average price of $73.25 per share, impacting the portfolio 0.73%. According to GuruFocus estimates, the fund has gained 82% on the stock since establishing the holding in the second quarter of 2011.

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The truck and specialty vehicle manufacturer has a market cap of $6.29 billion; its shares were trading around $84.10 on Monday with a P/E ratio of 25.03, a P/B ratio of 2.88 and a P/S ratio of 0.96.

GuruFocus ranked the company’s financial strength 6 of 10 and its profitability and growth 5 of 10. The company’s trailing dividend yield and forward dividend yield are both 1%. The dividend payout ratio is 24%.

Among the eight gurus invested in Oshkosh, Columbia Wanger (Trades, Portfolio) has the largest holding with 1.59% of outstanding shares. During the second quarter, Cohen and Ray Dalio (Trades, Portfolio) established positions in the stock.

During the quarter, the fund also added to its holdings of Allegiant Travel Co. (ALGT, Financial), Helmerich & Payne Inc. (HP, Financial), Veeco Instruments Inc. (VECO, Financial) and several others. It reduced its positions in Aaron’s Inc. (AAN, Financial), Dana Inc. (DAN, Financial) and several others.

Disclosure: I do not own any stocks mentioned in the article.