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Sydnee Gatewood
Sydnee Gatewood
Articles (2226) 

Arnold Schneider Buys 4 Stocks in 1st Quarter

Guru invests in equipment rental company, thermal management, oil and shipping

Arnold Schneider (Trades, Portfolio), leader of Schneider Capital Management, disclosed four new positions in his first-quarter portfolio, which was released earlier this week.

With the belief that value investing delivers the best performance over time, the guru’s Pennsylvania-based firm uses independent, fundamental analysis to identify undervalued securities with potential for positive change. It then applies a proprietary ranking system that establishes ambitious return hurdles for new holdings and factors in downside risk.

With these criteria in mind, Schneider established positions in United Rentals Inc. (NYSE:URI), Modine Manufacturing Co. (NYSE:MOD), Battalion Oil Corp. (BATL) and U.S. Xpress Enterprises Inc. (NYSE:USX) during the quarter.

United Rentals

The guru invested in 34,100 shares of United Rentals, allocating 2% of the equity portfolio to the holding. The stock traded for an average price of $133.86 per share during the quarter.

The Stamford, Connecticut-based equipment rental company has a $7.94 billion market cap; its shares were trading around $109.81 on Wednesday with a price-earnings ratio of 7.18, a price-book ratio of 2.25 and a price-sales ratio of 0.9.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The GuruFocus valuation rank of 7 out of 10 also supports this assessment.

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GuruFocus rated United Rentals’ financial strength 3 out of 10. As a result of issuing approximately $4 billion in new long-term debt over the past three years, the company has poor interest coverage. In addition, the low Altman Z-Score of 1.62 warns it could be in danger of going bankrupt.

The company’s profitability fared much better, scoring a 9 out of 10 rating even though its margins are in decline. Regardless, United Rentals is being supported by strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which indicates its operating conditions are stable. Due to consistent earnings and revenue growth, the company has a business predictability rank of four out of five stars. According to GuruFocus, companies with this rank typically return an average of 9.8% per annum over a 10-year period.

Of the gurus invested in United Rentals, Pioneer Investments (Trades, Portfolio) has the largest stake with 1.61% of outstanding shares. Other top guru shareholders are David Carlson (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Larry Robbins (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Ray Dalio (Trades, Portfolio).

Modine Manufacturing

Having previously exited a position in Modine Manufacturing in the third quarter of 2015, the investor entered a new holding of 371,599 shares. The trade had an impact of 0.69% on the equity portfolio. Shares traded for an average price of $6.70 each during the quarter.

The thermal management company, which is headquartered in Racine, Wisconsin, has a market cap of $190.53 million; its shares were trading around $3.74 on Wednesday with a price-earnings ratio of 19, a price-book ratio of 0.38 and a price-sales ratio of 0.1.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 10 out of 10, however, leans more toward undervaluation.

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Modine’s financial strength was rated 4 out of 10 by GuruFocus. In addition to having weak interest coverage, the Altman Z-Score of 2.11 indicates the company is under some financial pressure since its assets are building up at a faster rate than revenue is growing. In addition the weighted average cost of capital is higher than the return on invested capital, suggesting low profitability.

The company’s profitability scored a 6 out of 10 rating, driven by an expanding operating margin, strong returns that underperform a majority of industry peers and a moderate Piotroski F-Score of 5. Modine also has a one-star business predictability rank, which is on watch as a result of recording a decline in revenue per share over the past 12 months. GuruFocus says companies with this rank typically return 1.1% per year on average.

With a 2.88% stake, Gabelli is Modine’s largest guru shareholder. Royce, Richard Snow (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Jeremy Grantham (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss and Paul Tudor Jones (Trades, Portfolio) also have positions in the stock.

Battalion Oil

Schneider picked up 64,111 shares of Battalion Oil, dedicating 0.17% of the equity portfolio to the position. During the quarter, the stock traded for an average per-share price of $9.97.

The Houston-based oil and gas producer has a $75.35 million market cap; its shares were trading around $4.65 on Wednesday with a price-book ratio of 0.04 and a price-sales ratio of 0.05.

Based on the chart below, the stock appears to be trading near its sales multiple, but above its price-book ratio, which is close to a 10-year low.

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Battalion Oil’s financial strength and profitability were both rated 3 out of 10 by GuruFocus. In addition to a low cash-debt ratio of 0.04, which is underperforming in comparison to its own history as well as its industry, the Sloan ratio indicates the company has poor earnings quality.

The company is also being weighed down by negative margins and returns that underperform a majority of competitors, a low Piotroski F-Score of 2, which suggests operations are in poor shape, and declining revenue per share over the past year. Battalion also has a one-star business predictability rank.

Schneider holds 0.40% of the company’s outstanding shares.

U.S. Xpress Enterprises

The guru purchased 12,460 shares of U.S. Xpress, expanding the equity portfolio 0.02%. The stock traded for an average price of $4.88 per share during the quarter.

The trucking company, which is headquartered in Chattanooga, Tennessee, has a market cap of $188.81 million; its shares were trading around $3.82 on Wednesday with a price-book ratio of 0.85 and a price-sales ratio of 0.11.

The price chart shows the stock is trading near its price-book ratio and above its sales multiple.

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Weighed down by weak interest coverage, GuruFocus rated U.S. Xpress’ financial strength 3 out of 10. The Altman Z-Score of 1.48 also warns the company could be in danger of going bankrupt.

The company’s profitability did not fare much better, scoring a 4 out of 10 rating on the back of a declining operating margin and returns that underperform a majority of industry peers. U.S. Xpress also has a low Piotroski F-Score of 3 and a one-star business predictability rank that is on watch due to a decline in revenue per share over the past five years.

Schneider holds 0.03% of the company’s outstanding shares.

Additional trades and portfolio performance

The investor also added so a number of other holdings during the quarter, including Synovus Financial Corp. (NYSE:SNV), Olin Corp. (NYSE:OLN), Univar Solutions Inc. (NYSE:UNVR), Cadence Bancorp (NYSE:CADE), SM Energy Co. (NYSE:SM) and Diamond S Shipping Inc. (NYSE:DSSI).

Schneider’s $175 million equity portfolio, which consists of 34 stocks, is heavily invested in the financial services (28.33%) and basic materials (22.56%) sectors, followed by smaller positions in the energy (16.25%) and industrials (14.29%) spaces.

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GuruFocus data shows the Schneider Small Cap Value Fund returned 16.17% in 2019, underperforming the 31.48% return of the S&P 500 Index.

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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