The private investment management firm established more than three decades ago by guru investor Martin Whitman (Trades, Portfolio), has added three new stocks to its $966 million Third Avenue Value Fund portfolio.
The new holdings include Tidewater Inc. (TDW, Financial), a company that provides offshore service vessels to the global energy industry. It underwent a financial restructuring last summer after emerging from bankruptcy.
Third Avenue’s portfolio also includes Interfor Corp. (TSX:IFP, Financial), a manufacturer of lumber products. Lastly, Warrior Met Coal Inc. (HCC, Financial), a metallurgical coal mining company, is also part of the mix.
Third Avenue bought more than 584,000 shares of Tidewater stock at $27.04 a share. It bought 709,000 shares of Interfor at $22.13 a share. And the purchase of Warrior Met Coal drew $27.06 a share for more than 408,400 shares.
In a Sept. 30 letter to shareholders, the fund’s managers expressed confidence in their deliberate and well-researched stock selections. They anticipate growth in the U.S. home building industry. They also expect the energy industries to recover cyclically over time.
“We believe the U.S. home building industry remains materially below normalized levels of single-family home starts, which is one of the biggest factors associated with our investments in timber, wood products and home building companies,’’ fund managers wrote.
The letter also dedicated significant real estate to what it called “its newest addition,” Tidewater, explaining the company, like virtually all of its competitors, saw its income erode and its debt become unsustainable during the industry downturn.
Fund managers, however, said they were at ease with the restructuring. “It is a net cash company by virtue of nearly all of its debt having been converted into equity pursuant to the restructuring.”
It attributed some of that confidence to Tidewater's “largest and youngest” fleet of offshore service vehicles in the world that are “well in excess of the current market valuation of the business.”
Historical value investor
Third Avenue’s approach to value investing is rooted in the legacy of Whitman, who retired from active management in 2012. Whitman often referred to himself as a “cheap and safe” investor and the company has stayed true to his mission. He is also known as a turnaround specialist for bankrupt companies.
Third Avenue’s management team says it consistently aims to pursue a bottom-up approach to deep value and distressed investing.
Just like its founder, Whitman, the company emphasizes the balance sheet, the value of its underlying assets and the discounted price of its securities. In other words, it has earned a reputation for investing in companies with strong finances and competent management, where the nitty-gritty of the business can be understood.
The Third Avenue Value Fund was established in 1990. Matthew Fine and Michael Fineman are its lead portfolio managers. In 2016, the fund had a 13.39% rate of return, outperforming the S&P 500’s return of 11.96%.
At this time, one-third of the fund’s holdings are in the financial services sector, which is expected to produce healthy returns in 2018, in part, thanks to Congress and President Donald Trump’s tax overhaul effort.
Roughly another third of the portfolio is distributed among stocks of companies that are in the business of basic materials and industrials. More than 20% are in energy and real estate. About 4.5% is in health care and 2.6% in technology.
Tidewater
The New Orleans-based company emerged from Chapter 11 bankruptcy in July 2017 after a financial restructuring.
In that bankruptcy proceeding, Tidewater shed about $1.6 billion in principal of outstanding debt, according to statements it made on its website. The company said it believed it had substantially deleveraged balance sheet positions for long-term success. A July 31 statement by former President and CEO Jeffrey M. Platt stated: “Today marks the completion of a restructuring and recapitalization that allows the company to move forward with a solid financial foundation from which we expect to continue to strengthen our business and grow.”
On Friday, shares for Tidewater were trading for $27.20 a share. It has a market cap of $596.1 million. Its price-book (P/B) ratio is 0.48.
The stock price has been rising since Dec. 29 when it was at $24.40 a share, according to GuruFocus.
It also is traded in Germany.
The company does not have enough historical data to display the Peter Lynch chart.
But GuruFocus has ranked its financial strength 4 out of 10 and its profitability and growth 2 out of 10.
Interfor
The lumber producer has operations in the U.S. and Canada. On Friday, its shares were going for $22.13 a share. The company’s market cap is $1.55 billion.
Its price-earnings (P/E) ratio is 17.62; it has a P/B ratio of 1.89. According to the Peter Lynch chart, the stock is trading at about fair value based on its median earnings.
GuruFocus has ranked the company’s financial strength 7 out of 10 and its profitability and growth 6 out of 10.
Warrior Met Coal
The company produces metallurgical coal for the global steel industry. It produces its coal from underground mines in Alabama, southwest of Birmingham.
Its shares were trading at $26.96 on Friday. It has a P/E ratio of 3.46 and a P/B ratio of 1.58.
GuruFocus ranked its financial strength 9 out of 10. Meanwhile, its profitability and growth was ranked 3 out of 10.
According to its website, the company has the operational capacity to mine about 8 million tons of coal per year from more than 300 million tons of recoverable reserves. It also extracts methane gas from the Blue Creek coal seam.
