David Abrams (Trades, Portfolio), the leader of Abrams Capital Management, released his third-quarter portfolio last week, listing three new holdings.
As a former protégé of Seth Klarman (Trades, Portfolio), the guru’s Boston-based firm follows a fundamental, value-oriented approach to stock picking, selecting a concentrated number of positions. It looks for long-term opportunities across a wide array of asset types in both foreign and domestic markets.
Based on these criteria, the investor established positions in Shire PLC (SHPG, Financial), Camping World Holdings Inc. (CWH, Financial) and Akebia Therapeutics Inc. (AKBA, Financial) during the quarter.
Shire
Abrams invested in 2.25 million shares of Shire for an average price of $173.02 per share, dedicating 10.77% of the equity portfolio to the stake. It is now his second-largest holding.
The Irish biotechnology company, which focuses on developing treatments for rare diseases and conditions, has a market cap of $55.06 billion; its shares were trading around $178.94 on Wednesday with a price-earnings ratio of 11.72, a price-book ratio of 1.46 and a price-sales ratio of 3.60.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated Shire’s financial strength 5 out of 10. While the interest coverage exceeds Benjamin Graham’s threshold of 5, the Altman Z-Score of 1.89 indicates the company is under some financial pressure as a results of a slowdown in revenue per share growth over the last 12 months. The company’s profitability and growth fared much better, scoring a 9 out of 10 rating. Although the operating and net margins are in decline, they still outperform a majority of competitors. The company is also supported by a moderate Piotrsoki F-Score of 6, suggesting operating conditions are stable, and a business predictability rank of 4.5 out of 5 stars. GuruFocus says companies with this rank typically see their stock prices gain an average of 10.6% per year.
Of the gurus invested in Shire, Larry Robbins (Trades, Portfolio) has the largest position with 1.63% of outstanding shares. John Paulson (Trades, Portfolio), Daniel Loeb (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Richard Snow (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Leon Cooperman (Trades, Portfolio), Seth Klarman (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and several other gurus are also shareholders.
Camping World
The guru picked up 2.3 million shares of Camping World for an average price of $22.02 per share, allocating 1.31% of the equity portfolio to the holding.
The Lincolnshire, Illinois-based manufacturer of recreational vehicles has a $1.55 billion market cap; its shares were trading around $17.61 on Wednesday with a price-earnings ratio of 58.70, a price-book ratio of 17.91 and a price-sales ratio of 0.23.
According to the Peter Lynch chart, the stock is overpriced.
Camping World’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. As a result of issuing roughly $826.3 million in new long-term debt over the last three years and recording a decline in revenue per share over the last 12 months, the Altman Z-Score of 2.73 indicates the company is under some fiduciary stress. The company is also supported by an operating margin that outperforms 58% of industry peers and a moderate Piotroski F-Score of 5.
With his purchase of 2.65% of the company’s outstanding shares, Abrams became its largest guru shareholder. Ron Baron (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio) are also shareholders.
Akebia Therapeutics
The investor purchased a 1.12 million-share stake in Akebia for an average price of $8.95 per share, giving the stake 0.26% space in the equity portfolio.
Headquartered in Cambridge, Massachusetts, the biotechnology company, which focuses on treatments for kidney disease, has a $442.78 million market cap; its shares were trading around $7.76 on Wednesday with a price-book ratio of 3.10 and a price-sales ratio of 1.70.
Based on the median price-sales chart, the stock appears to be trading below its historical value.
Supported by good interest coverage and no debt, Akebia’s financial strength was rated 8 out of 10 by GuruFocus. Regardless, the Altman Z-Score of 0.10 warns the company is at risk of bankruptcy. The company’s profitability and growth did not fare as well, scoring a 3 out of 10 rating as a result of negative margins and returns. It also has a moderate Piotroski F-Score of 5, suggesting operations are stable. GuruFocus also warns that the Sloan ration indicates the company has poor earnings quality.
Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest position in the company with 3.11% of outstanding shares. Abrams holds 1.96%.
Other trades and portfolio composition
During the quarter, Abrams also expanded his positions in Lithia Motors Inc. (LAD, Financial), Franklin Resources Inc. (BEN, Financial), Express Scripts Holding Co. (ESRX, Financial), Asbury Automotive Group Inc. (ABG, Financial) and Suburban Propane Partners LP (SPH, Financial).
The guru’s $3.78 billion portfolio, which is composed of 22 stocks, is largely invested in the health care and financial services sectors.
Disclosure: No positions.
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