Mason Hawkins (Trades, Portfolio)’ Southeastern Asset Management released its fourth-quarter portfolio last week, listing six new positions.
The Memphis, Tennessee-based investment firm, which manages the Longleaf Partners Fund, says on its website it strives to achieve long-term growth of capital by investing in a concentrated number of undervalued companies with strong balance sheets and good management teams.
During the quarter, Southeastern invested in CenturyLink Inc. (CTL, Financial), Allergan PLC (AGN, Financial), General Electric Co. (GE, Financial), Realogy Holdings Corp. (RLGY, Financial), China Biologic Products Holdings Inc. (CBPO, Financial) and Grupo Televisa SAB (TV, Financial).
CenturyLink
Southeastern’s largest new purchase for the quarter was 71.46 billion shares of CenturyLink, paying an average price of $16.99 per share. The position was given 14.76% portfolio space, making it the firm’s largest holding.
The Monroe, Louisiana-based telecom company has a market cap of $19.4 billion; its shares were trading around $18.15 on Thursday with a price-earnings (P/E) ratio of 10.32, a price-book (P/B) ratio of 0.83 and a price-sales (P/S) ratio of 0.63.
The Peter Lynch chart below shows the stock is trading below its fair value, suggesting it is undervalued.
CenturyLink’s financial strength ranks a modest 4 out of 10, according to GuruFocus. Its Altman Z-score of 0.53 suggests the possibility of bankruptcy in the near future. In addition, GuruFocus warning signs show the company continues to issue new debt. Its profitability and growth is rated 6 of 10 due to its moderate Piotroski F-score of 5, low business predictability rank of one star and its expanding operating margin, which is ranked higher than 59% of other companies in the industry.
With its purchase, Southeastern became the company’s largest guru shareholder with 6.7% of outstanding shares. John Paulson (Trades, Portfolio), Prem Watsa (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) also established positions during the quarter.
Allergan
The firm invested in 2.29 million shares of Allergan for an average price of $179.54 per share, expanding the portfolio 4.65%.
The Irish pharmaceutical company has a market cap of $53.04 billion; its shares were trading around $160.11 on Thursday with a forward price-earnings ratio of 10.25, a price-book ratio of 0.77 and a price-sales ratio of 3.37.
According to the Peter Lynch chart below, the stock is overpriced as it is trading above its fair value.
GuruFocus rated Allergan’s financial strength 4 out of 10 as it has a heavy debt burden. Further, the Altman Z-score of 0.75 suggests the company could face bankruptcy in the near future. The company’s profitability and growth was rated 5 of 10 due to its moderated Piotroski F-score of 5, its one-star business predictability rating and its weak operating margins.
Of the 29 gurus invested in Allergan, the Vanguard Health Care Fund (Trades, Portfolio) has the largest holding with 3.97% of outstanding shares. Arnold Van Den Berg (Trades, Portfolio) and Larry Robbins (Trades, Portfolio) also established positions in the most recent quarter.
General Electric
Southeastern bought 11.32 million shares of General Electric for an average price of $19.95 per share, impacting the portfolio by 2.45%.
The Boston-based conglomerate, which produces industrial, household and medical goods, has a market cap of $128.78 billion; its shares were trading around $14.85 on Thursday with a forward price-earnings ratio of 14.41, a price-book ratio of 2 and a price-sales ratio of 1.05.
Based on the Peter Lynch chart below, the stock appears to be overpriced as it is trading above its fair value.
GE’s financial strength was rated 4 out of 10 by GuruFocus. Not only does its interest coverage ratio fall below Benjamin Graham’s threshold of 5, but its Altman Z-score of 1.4 indicates it is in danger of going bankrupt. The company’s profitability and growth was rated 5 of 10 due to its moderate Piotroski F-score of 5 and its one-star business predictability rating. In addition, even though its operating margin has been declining over the past five years, it still outperforms 67% of competitors.
Of the gurus invested in GE, Barrow, Hanley, Mewhinney & Strauss has the largest stake with 0.75% of outstanding shares. During the quarter, Louis Moore Bacon (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Tom Russo (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) also established positions in the stock, while Ray Dalio (Trades, Portfolio), Michael Price (Trades, Portfolio) and several others reduced their holdings.
Realogy Holdings
Hawkins’ firm picked up a 5.4 million-share stake in Realogy Holdings for an average price of $29.01 per share, giving it 1.79% portfolio space.
The Chicago-based real estate services company has a market cap of $3.3 billion; its shares were trading around $24.37 per share on Thursday with a price-earnings ratio of 14.66, a price-book ratio of 1.35 and a price-sales ratio of 0.54.
The Peter Lynch chart below shows the stock is trading close to its fair value.
Realogy’s financial strength and profitability and growth were both rated 4 out of 10 by GuruFocus. As the company has issued new long-term debt over the past several years, its Altman Z-score of 0.89 indicates it is under financial stress. Despite having a strong Piotroski F-score of 7, the company’s operating margin is ranked lower than 74% of competitors.
With 5% of outstanding shares, D.E. Shaw & Co. LP is Realogy’s largest guru shareholder. Robbins, Jim Simons (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Jones and Joel Greenblatt (Trades, Portfolio) also own the stock.
China Biologic Products
Southeastern invested in 3,645 shares of China Biologic for an average price of $83.13 per share.
The Chinese biopharmaceutical company, which focuses on plasma-based medicines, has a market cap of $2.32 billion; its shares were trading around $84.17 on Thursday with a price-earnings ratio of 21.30, a price-book ratio of 3.76 and a price-sales ratio of 6.47.
According to the Peter Lynch chart below, the stock is overpriced as it is trading higher than its fair value.
As the company has no debt and a high Altman Z-score of 11.65, GuruFocus rated China Biologic’s financial strength 9 out of 10. Its profitability and growth was rated 8 of 10 since its operating margin is expanding and it has a moderate Piotroski F-score of 5.
Simons is the company’s largest shareholder among the gurus with 0.37% of outstanding shares. Pioneer Investments is also a shareholder.
Grupo Televisa
The firm purchased 20,807 shares of Grupo Televisa for an average price of $20.73 per share.
The Mexican entertainment company, which operates a number of broadcast and pay-TV channels, has a market cap of $11 billion; its shares were trading around $18.65 on Thursday with a price-earnings ratio of 51.98, a price-book ratio of 2.30 and a price-sales ratio of 2.16.
Based on the Peter Lynch chart below, the stock appears to be overpriced since 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 Graham’s standard 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. Howard Marks (Trades, Portfolio) also established a position in the fourth quarter. Other guru shareholders are Steve Mandel (Trades, Portfolio), David Herro (Trades, Portfolio), Bill Gates (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).
Other trades
During the quarter, Southeastern also added to its positions in Mattel Inc. (MAT, Financial), CNX Resources Corp. (CNX, Financial), Belmond Ltd. (BEL, Financial), Consol Energy Inc. (CEIX, Financial) and Vipshop Holdings Ltd. (VIPS, Financial).
The current portfolio of 31 holdings is largely composed of stocks in the industrials and consumer cyclical sectors. According to its fact sheet, the Longleaf Partners Fund underperformed the S&P 500 Index in 2017 with a return of 15.51%.
Disclosure: No positions.
