The Oakmark Intl Small Cap (Trades, Portfolio) Fund recently released its portfolio updates for the fourth quarter of 2019.
Founded in 1995 and managed by portfolio managers David Herro (Trades, Portfolio), Michael Manelli and Justin Hance, the Oakmark International Small Cap Fund invests in a relatively small number of non-U.S. small cap stocks (approximately 50 to 60). The fund aims to invest in securities that are trading at a discount to intrinsic value and show strong potential to increase value for shareholders.
Based on these criteria, the fund established new holdings in BlackBerry Ltd. TSX:BB, Gildan Activewear Inc. TSX:GIL and Nordic Entertainment Group AB (OSTO:NENT B) during the fourth quarter.
BlackBerry
The fund invested in 4,247,000 shares of BlackBerry, impacting the equity portfolio by 1.81%. Shares traded at an average price of 7.27 Canadian dollars ($5.41) during the quarter.
The Canada-based enterprise software company was once famous for its smartphones, but it now primarily focuses on cybersecurity, communications software and Internet of Things (IoT) applications. Its turn from low-margin phones to high-margin IoT products could provide an avenue for future growth as 5G rolls out and businesses and governments alike continue increasing the scale and complexity of their internet resources.
On March 5, BlackBerry shares traded around CA$6.58 apiece for a market cap of CA$3.64 billion. The company has a GuruFocus financial strength rating of 5 out of 10 and a profitability rating of 3 out of 10.
The cash-debt ratio of 1.15 and current ratio of 1.06 suggest the company can cover its short-term debt, but the Altman Z-score of 1.37 suggests that it may have financial difficulties in the long term.
In terms of profitability, the operating margin of -16.44% and return on capital of -102.1% suggest difficulty with turning a profit. Since the dotcom bubble burst, revenue and net income have been steadily declining.
Gildan Activewear
The fund also established a new holding of 333,000 shares of Gildan Activewear, which had a 0.65% impact on the equity portfolio. During the quarter, shares traded at an average price of CA$38.52.
Gildan Activewear is a Canadian apparel company founded in 1984. It primarily manufactures basic apparel such as activewear, socks, underwear and legwear, with a focus on long-lasting quality. Gildan is recognized as a brand that is dedicated to reducing its negative impact on the environment.
On March 5, shares of Gildan Activewear traded around CA$33.11 for a market cap of CA$6.58 billion and a price-earnings ratio of 19.71. According to the Peter Lynch chart, the stock is trading near its intrinsic value.
Gildan has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 0.07 is underperforming 81.56% of competitors, but the Altman Z-score of 4.47 and interest coverage of 11.35% indicate financial stability. The company’s sales have grown steadily in recent years, but declined in 2019.
Nordic Entertainment
The fund bought 295,000 shares of Nordic Entertainment, impacting the equity portfolio by 0.63%. Shares traded at an average price of 277.26 Swedish krona ($29.32) during the quarter.
Nordic Entertainment is a media company based in Stockholm. It operates the video streaming services Viafree and Viaplay, as well as several advertising-funded radio and TV channels and a pay-TV and broadband service.
On March 5, shares of Nordic Entertainment traded around 297.40 krona for a market cap of 20.03 billion krona and a price-earnings ratio of 16.37. The company has a GuruFocus financial strength rating of 5 out of 10 and a profitability rating of 5 out of 10.
Nordic Entertainment’s cash-debt ratio of 0.16 and equity-to-asset ratio of 0.11 are on the low end of the spectrum, but the interest coverage of 24.95% and Altman Z-score of 2.26 mean it is financially stable.
Though the company’s net income and free cash flow have yet to show much growth since becoming publicly traded in 2017, operating income has shown significant advancement. The operating margin of 10.1% and return on capital of 74.3% are outperforming 67.8% of competitors.
Portfolio overview
As of the quarter’s end, the Oakmark International Small Cap Fund held shares of 59 stocks valued at a total of $1.51 billion. Its top holdings were Duerr AG (XTER:DUE) with 4.05% of the equity portfolio, Konecranes Oyj (OHEL:KCR) with 3.87% and Julius Baer Gruppe AG (XSWX:BAER) with 3.70%.
In terms of sector weightings, the fund was most invested in industrials (45.13%) and financial services (14.4%).
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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