Akre Capital Management, led by renowned investor Chuck Akre (Trades, Portfolio), released its third-quarter portfolio last week.
The Virginia-based firm takes a “three-legged stool” approach to stock picking, in which the portfolio managers look for companies that have a strong business model and good management teams that effectively reinvest free cash flow.
During the quarter, the firm established a position in Focus Financial Partners Inc. (FOCS, Financial) and expanded its holding of Dollar Tree Inc. (DLTR, Financial).
Focus Financial
The firm invested in 2.75 million shares of Focus Financial for an average price of $42.68 per share, allocating 1.52% of the equity portfolio to the stake.
The American asset management company, which went public in late July, has a market cap of $2.04 billion; its shares were trading around $30.68 on Tuesday with a forward price-earnings ratio of 13.32, a price-book ratio of 5.36 and a price-sales ratio of 1.99.
The price chart shows the stock has fallen 18% since its initial public offering.
Hurt by poor interest coverage, GuruFocus rated Focus Financial’s financial strength 4 out of 10. In addition, the Altman Z-Score of 1.6 warns the company is at risk of going bankrupt. The company’s profitability and growth scored a 3 out of 10 rating as a result of poor margins and returns.
Akre’s firm is the company’s largest guru shareholder with 4.21% of outstanding shares. Paul Tudor Jones (Trades, Portfolio) also established a position during the quarter.
Dollar Tree
The investment firm expanded its Dollar Tree stake by 1.06%, buying 53,479 shares for an average price of $87.62 per share. It now holds 5.08 million shares, representing 4.84% of the equity portfolio.
GuruFocus estimates the firm has gained 48% on the investment since the first quarter of 2012.
The Chesapeake, Virginia-based discount retail chain has a $19.49 billion market cap; its shares were trading around $81.78 on Tuesday with a price-earnings ratio of 11.36, a price-book ratio of 2.54 and a price-sales ratio of 0.86.
According to the Peter Lynch chart, the stock is undervalued since it is trading below its fair value.
Dollar Tree’s financial strength was rated 6 out of 10 by GuruFocus. Despite having poor interest coverage and recording a slowdown in revenue per share growth over the last 12 months, the Altman Z-Score of 3.42 indicates the company is in good financial standing. The company’s profitability and growth scored an 8 out of 10 rating. Although the operating margin is in decline, it still outperforms 88% of competitors. The company is also supported by a moderate Piotroski F-Score of 6, suggesting operating conditions are stable, and a business predictability rank of 4.5 out of 5 stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 10.6% per year.
Akre’s firm is, by far, Dollar Tree’s largest guru shareholder with 2.14% of outstanding shares. Other guru investors include Larry Robbins (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jana Partners (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Jones, John Hussman (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Jim Simons' (Trades, Portfolio) Renaissance Technologies.
Additional trades
The firm also reduced several positions during the quarter: Enstar Group Ltd. (ESGR, Financial), Boston Omaha Corp. (BOMN, Financial), American Tower Corp. (AMT, Financial), Mastercard Inc. (MA, Financial), Berkshire Hathaway Inc. (BRK.B, Financial), Markel Corp. (MKL, Financial), Moody’s Corp. (MCO, Financial), O’Reilly Automotive Inc. (ORLY, Financial), Roper Technologies Inc. (ROP, Financial) and Verisk Analytics Inc. (VRSK).
The $8.56 billion equity portfolio, which is composed of 24 stocks, is largely invested in the financial services sector. According to its website, the Akre Focus Fund outperformed the S&P 500 Total Return Index in 2017 with a return of 30.49%. The index posted a 21.83% return.
Disclosure: No positions.
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