Guru investor Jeff Auxier (Trades, Portfolio) established three positions in the final months of the year, bringing his total portfolio holdings to $521 million.
Auxier Asset Management reported 150 stocks, of which three are new: Sally Beauty Holdings Inc. (SBH, Financial), Compass Minerals International Inc. (CMP, Financial) and GAMCO Investors Inc. (GBL, Financial).
The guru eliminated his positions in agrochemical company Monsanto (MON, Financial), Andersons Inc. ( ANDE), an agricultural company, and Aon PLC (AON, Financial), a provider of insurance and reinsurance brokerage and human resources consulting.
Gurus Wallace Weitz (Trades, Portfolio) and NWQ Managers (Trades, Portfolio) also reduced shares of Aon in the fourth quarter.
Auxier’s portfolio is made up of 25% health care stocks, 22% consumer defensive, 19% financial services and 8% technology. His remaining investments are spread out in consumer cyclical, basic materials, energy, industrials and communication services.
His top holdings are in United Health Group Inc. (UNH), Phillip Morris International Inc. (PM), Bank of New York Mellon Corp. (BK) and PepsiCo. Inc. (PEP). Each position has a weighted value of 2.3% to 4.34%.
Auxier’s strategy hinges on companies that demonstrate strong or improving fundamentals. Many of his priorities echo \Warren Buffett (Trades, Portfolio)’s investing strategies. Some measures of performance include consistency in operating results, a substantial advantage over competition (strong franchise), ability to earn high rates of return on capital, easy-to-understand products, honest and competent shareholder-focused management and intelligent capital allocation policies.
He also looks for companies that generate substantial free cash flow with nominal mandatory capital requirements.
As other value investors, he’s looking for a strong balance sheet and financial flexibility.
Auxier also engages in a rigorous screening that zeroes in on establishing what price represents a good value.
In 2016, his fund returned 7.09% compared to the S&P 500's return of 11.96%.
Sally Beauty
Auxier bought 42,000 shares of the company at an average cost per share of $17.34. It sits in 0.15% of portfolio space.
Sally Beauty has a market cap of $2 billion with a 4 in 10 financial strength and a, 8 in 10 in profitability and growth, according to GuruFocus. Its Business Predictability Rank is a four-star.
Its stock price has dropped by 8% year to date, even while it has seen revenues climb.
The Texas-based company has a price-earnings ratio of 9.62 versus an industry median of 20.20. It has a price-sales ratio of 0.58 versus a median of 0.71.
Its stock price suggests it is undervalued. On Wednesday, it was trading at $17.58 a share, or up 0.86%. The Peter Lynch chart suggests its median is closer to $23 a share.
The company has shown predictable revenue and earnings growth and a strong Z-score.
During the past 12 months, the average revenue per-share growth rate of Sally Beauty was 9% per year. In the past five years, the average per-share growth rate was 8.7%.
Its operating income growth is 10.9% over 10 years and free cash flow growth is 30.50% over the last 12 months. Its EBITDA growth over the last 10 years is 11%.
Compass Minerals International Inc.
The Kansas-based company’s average price per share was $67.26, and it fills a portfolio space of 0.07%. Auxier bought 4,700 shares.
Compass Minerals produces salt and sulfate of potash, a specialty fertilizer used by growers of high-value crops that are sensitive to standard products.
The company has a price-earnings ratio of 50.28 versus an industry median of 16.16; a price-book ratio of 3.06 versus an industry median of 2.05; and a price sales-ratio of 1.56 versus an industry median of 1.69.
The percentage of revenue growth for Compass over 10 years is 2.2%. Its percentage of growth in operating income over 10 years is a loss of 8.90.
It has a market cap of $2 billion. GuruFocus ranks it a 4 in 10 in financial strength and a 7 in 10 in profitabilty and growth. Its Business Predictability ranking is two-star, representing an average gain of 6.5% a year.
The Peter Lynch chart suggests the median price for Compass Minerals is $60 a share, suggesting that the stock is trading near fair value. It was trading on Wednesday around $62 a share.
The company’ has a dividend yield of 4.58% and a forward dividend yield of 4.61%.
GuruFocus has detected several warnings signs, including the company’s dependence on issuance of long-term debt and the pace of asset growth overtaking growth in revenues.
The company reported a $1.3 billion debt load in final months of 2017.
GAMCO Investors Inc.
Auxier launched a position in GAMCO, buying more than 7,900 shares at the average price of $29.22 a share.
Guru Hotchkis & Wiley also took advantage and bought 13,800 shares of GAMCO in the fourth quarter.
New York-based GAMCO was founded by guru Mario Gabelli (Trades, Portfolio) and provides asset-management services for individual and institutional investors. It has subsidiaries that manage other accounts, Gabelli Funds and Gabelli Securities.
The Peter Lynch chart shows the stock is undervalued. Its shows a median price of $55.20 a share. On Wednesday, it was trading for about $26.48 a share, down 1%.
The company with a market cap of $774 million has a price-earnings ratio of 10.26 versus the industry median of 13.70; a price-sales ratio of 2.27 versus the industry median of 4.69.
Its Business Predictability Ranking is one-star, signaling an average gain of 1% a year. The stock has dropped 11% year to date. It took a dive in late January when it was priced at nearly $30 a share.
GuruFocus ranks it a 6 in 10 in financial strength and a 7 in 10 in profitability and growth. Its financial ratings are based on a strong Z-Score and expanding operating margins.
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