First Pacific Advisors (Trades, Portfolio) initiated a handful of major positions to top off a $31 billion portfolio in the first quarter.
Out of a total of 122 stocks, the Los Angeles-based institutional money management firm established nine new positions, of which six represented its largest stakes.
First Pacific’s major stake was in Kinder Morgan Inc. (KMI, Financial), buying more than 16 million shares of North America’s largest midstream company. While the stock has been part of a weakened energy patch, analysts see better times ahead for companies like Kinder Morgan. Wall Street has estimated Kinder Morgan will grow its earnings per share at a rate of 160.28% over the next three to five years.
First Pacific also opened a position in San Francisco-based electric utility and natural gas provider PG&E Corp. (PCG, Financial), buying more than 3.77 million shares.
Another stake was in employee public relations and social software provider Cision Ltd. (CISN, Financial), which had the second-largest initial public offering last year at $2.4 billion. The company has yet to make a profit.
Three additional buys were Pennsylvania-based mortgage banking company Ditech Holding Corp. (DHCP, Financial) as well as Aetna (AET, Financial) and Amazon (AMZN, Financial).
New buys representing light positions that did not register an impact on the portfolio included the stocks of General Dynamics (GD, Financial), Lockheed Martin (LMT, Financial) and Southwest Airlines (LUV, Financial). The firm purchased 1,850 shares of General Dynamics, it also purchased about 1,200 shares of the aerospace giant, Lockheed Martin. It bought 7,300 shares of the Dallas-based airline.
The mutual fund’s investment philosophy is value-oriented with a focus on small- and mid-cap stocks. The selection of stocks is a research-intensive process to create concentrated portfolios that include best ideas and practices, according to the firm.
Technology is the industry that makes up most of the fund, with 34% weight. The sector dedicated to financial services holds 31.8% of the fund while industrials take up 11%, health care, 5.2%, consumer cyclical, 4.7%, energy, 3.7%, basic materials, 3.6% and exchange-traded funds, 3.3%.
The fund’s CEO is Robert L. Rodriguez.
Kinder Morgan
The Houston-based energy infrastructure company holds 1.88% of the portfolio space. A total of roughly 16.4 million shares were purchased for an average price of $17.32 a share in the first quarter. So far, the investment has lost an estimated 1% in trading.
At market close on Wednesday, Kinder Morgan was down 1.12% in trading to $16.74 a share. It bounced back in afternoon trading on Thursday to just under $17 a share, up 1.02%.
The 52-week range is $14.69 to $21.25 a share. The stock is trading below its historical value, according to the GuruFocus median price-sales chart.
The company is trading at 335 times earnings. It is trading at 20.92 times forward earnings, lower than the median of 18.12. Kinder Morgan has a price-book ratio of 1.10, versus the median of 1.74. The price-sales ratio is 2.74, versus the median of 2.30.
Kinder Morgan pays a dividend yield of 3.4%. The industry median is 8.48%.
Its annual average earnings growth is -16.20% over the last five years. Revenues, which have fallen since 2014, peaked at $13.7 billion in 2018, a rise compared to the prior year. Net income has dropped to $183 million compared to the prior year. Kinder Morgan has $35 billion in long-term debt and $1.4 billion in free cash flow.
GuruFocus ranks Kinder Morgan 4 out of 10 in financial strength and 5 of 10 in profitability and growth. The company has a market cap of $36.95 billion.
A total of 14 analysts are for a buy approach to the stock; seven recommend a hold on the stock. Analysts are anticipating earnings of 94 cents a share on revenue of $13.997 billion, compared to $1.03 a share on revenue of $14.2 billion in 2019. The anticipated earnings per share growth rate for the next three to five years is 160.28%.
Gurus who hold the stock include Paul Tudor Jones (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jim Simons (Trades, Portfolio), T Boone Pickens (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Richard Snow (Trades, Portfolio) and Larry Robbins (Trades, Portfolio).
PG&E
The company sits in 1.26% portfolio space. A total of more than 3.77 million shares were purchased for an average price of $42.43 a share. The investment has reported a total estimated loss since the first quarter of 7%.
In Thursday trading, shares stood at just over $40, up 1.8%. The stock has lost 20% over the last three years. The GuruFocus median price-sales chart shows it is trading above its historical value.
The California-based electrical company’s stock is trading 10.31 times forward earnings, versus the industry median of 15.46 times. It is trading at 13.69 times earnings, compared to a median of 16.79 among industry peers in the Regulated Electric Industry. PG&E pays a dividend yield of 2.64%. The industry median is 3.44%.
The average annual rate of growth in earnings is 3.5% over the last five years and -3.3% over the last 12 months.
Analysts forecast $3.74 in earnings per share on $17.6 billion in revenue for 2018 and $3.14 per share on revenue of $18 billion for 2019. The company reported $16.82 billion in revenue in the trailing 12 months. Long-term debt stands at $17.4 billion and free cash was reported at $20 million.
Profits have reached $1.5 billion over the trailing 12 months. In December, profits were reported at $1.66 billion. PG&E hasn’t topped $1.4 billion in profits in more than a decade. In 2004, it reported $4.5 billion, while the prior-year profit was just $420 million.
PG&E has a market cap of $20.7 billion. GuruFocus ranks it 3 out of 10 in financial strength and 5 of 10 in profitability and growth.
Cision Ltd.
A total of more than 605,000 shares of the media communication technology and analytics company were purchased for an average price of $11.89 a share. The impact on the portfolio was 0.05%. The investment has gained an estimated 42% since it was established.
Website PE Hub Network described Cision's role as “an easy-to-use platform for communicators to reach relevant media influencers and craft compelling campaigns that impact customer behavior.”
Last year, Cision acquired PRNewswire for $841 million after it merged with publicly traded investment firm Capital Acquisition III. CEO Mark Ein said his firm was investing in order to get behind the new trend in media advertising. “We think the combined company will deliver superior returns for investors long into the future,” Ein reportedly said at the time.
Cision closed on Wednesday $16.83 a share, up 0.54%. But shares took a dive on Thursday to $15.60 a share, down more than 7% in afternoon trading. GuruFocus' median price-sales chart suggests the stock traded earlier this year above its two-year trend.
The company hasn’t made a profit since its IPO. It is trading at 21.46 times forward earnings, which compares to the industry's median of 24.04 times. That is roughly 82% higher than companies in the Global Software Application industry. It reported $1.27 billion in long-term debt in March. It also reported $27.5 million in free cash flow.
GuruFocus ranks it 4 out of 10 in financial strength and profitability and growth. Cision has a market cap of $2.2 billion.
Ditech Holding Corp.
The mortgage banking company covered 0.02% of portfolio space. The guru investment firm purchased a total of 276,000 shares for an average price of $5.64 a share. The investment has produced an estimated gain of 3%.
GuruFocus identified several severe warning signs that inhibit the company’s profits. Mounting debt weakens the company’s financial strength as it has amassed more than $2 billion in debt over the last three years. It also has seen a decline in revenues over the last five years. The company hasn’t turned a profit since 2014.
Ditech has a price-book ratio of 0.19 times, which is the lowest of its peers. It has a price-sales ratio of 0.58, which is among the lowest of more than 1,600 peers in the Global Specialty Finance sector.
Overall, Ditech Holding is rated 3 out of 10 in financial strength and 1 of 10 in profitability and growth. Shares closed at less than $5 on Wednesday but rose to $5.88, up 1.29%, in Thursday afternoon trading.
The stock is trading below its historical value, according to the GuruFocus median price-sales chart.
GuruFocus shows Ditech Holding has a market cap of $27 million.
Aetna Inc. (AET, Financial) and Amazon.com Inc. (AMZN, Financial)
Each took up 0.01% portfolio space.
A total of 6,800 shares were purchased for an average price of $179.70 per share of Connecticut-based Aetna, a health care benefits company. The investment has reaped an estimated gain of 4%.
As you recall, Aetna announced late last year that it intended to merge operations with Rhode Island-based CVS Health Corp. (CVS, Financial), one of the largest retail pharmacy chains in the U.S. If it receives approval from regulators, the merger would form one of the most powerful players in the health care space.
Aetna shares are trading above their historical value, based on the median price-sales chart provided by GuruFocus.
Aetna is ranked 4.5 out of five stars in the GuruFocus business predictability rating, which underscores companies that have posted average gains of 10.6% per year. The stock is trading at 17.78 times earnings, versus the median of 19.70 times. It is rated 5 out of 10 in financial strength and profitability and growth, and has a market cap of $61.31 billion.
Aetna stood over $188.11 a share in Thursday afternoon trading, up 0.48%.
A total of 600 shares of Amazon were purchased for an average price of $1,430 per share. The investment has gained an estimated 19%.
Amazon has a four-star business predictability ranking. The ranking underscores companies that have an average gain of 9.8% a year. The stock is trading at 214 times earnings. It is trading at 135 times forward earnings.
It is trading below its historical value based on the median price-sales chart.
Amazon has a market cap of $827 billion. It is ranked 7 out of 10 in financial strength and 8 of 10 in profitability and growth by GuruFocus.
Disclosure: I do not hold shares of any stocks mentioned in this article.
