Howard Marks (Trades, Portfolio)’ Oaktree Capital Management released its fourth-quarter portfolio last week, listing five new holdings.
The alternative investment management company, which was founded in 1995, says on its website it focuses on delivering superior results while observing its six-tenet investment philosophy: risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing.
Oaktree’s top three buys for the quarter were Rayonier Advanced Materials Inc. (RYAM, Financial), Grupo Televisa SAB (TV, Financial) and NextEra Energy Inc. (NEEPRQ, Financial). The firm also took positions in two companies it manages, Oaktree Specialty Lending Corp. (OCSL, Financial) and Oaktree Strategic Income Corp. (OCSI, Financial).
Rayonier Advanced Materials
The firm invested in 1.56 million shares of Rayonier for an average price of $16.77 per share, giving it 0.76% portfolio space.
The Jacksonville, Florida-based chemical company, which specializes in cellulose-based products, has a market cap of $1.06 billion; its shares were trading around $20.17 on Wednesday morning with a price-earnings (P/E) ratio of 32.63, a price-book (P/B) ratio of 3.80 and a price-sales (P/S) ratio of 1.18.
The Peter Lynch chart below shows the stock is trading higher than its fair value, suggesting it is overpriced.
GuruFocus rated Rayonier Advanced Materials’ financial strength 4 out of 10, spurred by the company’s low level of interest coverage and low Altman Z-score of 1.52, which suggests the possibility of bankruptcy in the near future. Despite having declining margins and a moderate Piotroski F-score of 4, the company’s profitability and growth was rated 6 of 10.
Of the gurus invested in Rayonier, Jim Simons (Trades, Portfolio) has the largest stake with 7.69% of outstanding shares. While Hotchkis & Wiley and Chuck Royce (Trades, Portfolio) boosted their holdings in the most recent quarter, Murray Stahl (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) reduced their positions.
Grupo Televisa
Having previously closed a position in Grupo Televisa in fourth-quarter 2015, Oaktree established a new stake of 1.53 million shares, expanding the portfolio 0.69%. The firm paid an average price of $20.73 per share.
Headquartered in Mexico, the company operates a number of broadcast and pay-TV channels. The entertainment company has a market cap of $11.34 billion; its shares were trading around $19.28 on Wednesday morning with a price-earnings ratio of 53.57, a price-book ratio of 2.36 and a price-sales ratio of 2.21.
According to the Peter Lynch chart below, the stock is overpriced as it is trading above its fair value.
Grupo Televisa’s financial strength was rated 5 out of 10 by GuruFocus. While the company’s interest coverage fails to meet Benjamin Graham’s threshold of 5, its Altman Z-score of 1.67 suggests the company is under financial stress and could face bankruptcy within the next two years. In addition, its revenue growth has slowed over the past year. Despite recording operating margin decline for the past five years, the company’s profitability and growth was rated 7 of 10 due to its moderate Piotroski F-score of 4 and its high business predictability rating of four stars.
With 8.03% of outstanding shares, Dodge & Cox is the company’s largest guru shareholder. Mason Hawkins (Trades, Portfolio) also established a position during the quarter, while Ken Fisher (Trades, Portfolio) added to his holding. Steve Mandel (Trades, Portfolio) and Bill Gates (Trades, Portfolio) are also shareholders.
NextEra Energy
The firm purchased 181,500 preferred shares of NextEra for an average price of $69.31 per share. The trade had an impact of 0.3% on the portfolio.
The Florida-based power company, which focuses on renewable energy like wind and solar, has a market cap of $72.74 billion; its regular shares (NEE, Financial) were trading around $154.51 on Wednesday morning with a price-earnings ratio of 13.56, a price-book ratio of 2.57 and a price-sales ratio of 4.52.
Based on the Peter Lynch chart below, the stock appears to be undervalued as it is trading below its fair value.
GuruFocus rated NextEra’s financial strength 4 out of 10 as it continues to issue new debt. In addition, its Altman Z-score of 1.24 indicates it is under some financial stress. The company's profitability and growth was rated 7 of 10 as its operating margins are expanding and its Piotroski F-score ranks a moderate 5.
NWQ Managers (Trades, Portfolio) also owns NextEra’s preferred shares.
Oaktree Specialty Lending
The firm bought 276,000 shares of Oaktree Specialty Lending for an average price of $5.35 per share, giving it 0.03% portfolio space.
The Los Angeles-based specialty finance company, which is managed by Marks’ Oaktree Capital, provides lending services and invests in small and mid-cap companies. It has a market cap of $610.36 million; its shares were trading around $4.33 on Wednesday morning with a forward price-earnings ratio of 12.11, a price-book ratio of 0.75 and a price-earnings ratio of 5.37.
The Peter Lynch chart below shows the stock is overpriced as it is trading above its fair value.
Oaktree Specialty Lending’s financial strength was rated 4 out of 10 by GuruFocus as it has poor earnings quality and insufficient interest coverage. Its profitability and growth was rated 3 of 10 as its operating margin has been declining over the past five years, although it still ranks higher than 83% of competitors.
Of the seven gurus invested in the company, First Eagle Investment (Trades, Portfolio) has the largest holding with 0.3% of outstanding shares. Royce, Hotchkis & Wiley, Michael Price (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Manning & Napier Advisors are also shareholders.
Oaktree Strategic Income
Oaktree invested in 57,600 shares of Oaktree Strategic Income for an average price of $8.66 per share, expanding the portfolio 0.01%.
Also managed by Oaktree Capital, the specialty finance company provides customized capital solutions to middle-market companies. The LA-based company has a market cap of $228.66 million; its shares were trading around $7.78 on Wednesday morning with a forward price-earnings ratio of 12.53, a price-book ratio of 0.78 and a price-sales ratio of 4.98.
According to the Peter Lynch chart below, the stock is trading close to its fair value.
The company’s low Altman Z-score of 0.03 suggests it is in financial distress. As it continues to issue new long-term debt, Oaktree Strategic Income’s financial strength was rated 4 out of 10 by GuruFocus. Its profitability and growth was rated 6 of 10 as it has a moderate Piotroski F-score of 5 and its operating margins outperform 60% of competitors.
The firm has the largest position in the company with 0.2% of outstanding shares. Hotchkis & Wiley also holds the stock.
Other trades
During the quarter, Oaktree also added to many other holdings, including Infosys Ltd. (INFY, Financial), SunOpta Inc. (STKL, Financial) and Ctrip.com International Ltd. (CTRP, Financial).
The current portfolio of 72 stocks is largely composed of securities in the utilities and financial services sectors.
Disclosure: No positions.
