Third Avenue Management (Trades, Portfolio) recently disclosed its portfolio updates for the fourth quarter of 2020, which ended on March 31.
Founded in 1986 by Martin J. Whitman, Third Avenue Management (Trades, Portfolio) pursues a deep-value investing strategy based on the prices, balance sheets and assets of businesses. It aims to follow the crowds as little as possible, focusing on the long-term values of investments rather than the short-term effects of news reports or investor sentiment.
Based on the above criteria, the top three companies that Third Avenue Management (Trades, Portfolio) added to its portfolio in the first quarter were Prologis Inc. (PLD, Financial), Essex Property Trust Inc. (ESS, Financial) and Public Storage (PSA, Financial).
Prologis
The firm bought 368,926 shares of Prologis after selling out of its previous holding in the company in the fourth quarter of 2015. The trade had a 4.38% impact on the equity portfolio. During the quarter, shares traded for an average price of $87.65.
Prologis is a real estate investment trust headquartered in San Francisco. It invests in logistics facilities, primarily ones that are on the consumption side of the global supply chain.
On May 15, shares of Prologis traded around $82.65 for a market cap of $60.68 billion and a price-earnings ratio of 31.47. According to the Peter Lynch chart, the stock may be overvalued.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.05 is below the industry median of 0.07, but the current ratio of 3.13 and the Altman Z-Score of 2.23 suggest that the company is not in immediate danger of bankruptcy.
The company has achieved strong growth in revenue and net income in recent years, though the operating margin of 30.46% is below the industry median of 51.09%.
Essex Property Trust
The firm established a new position of 97,734 shares in Essex Property Trust, impacting the equity portfolio by 3.18%. Shares traded for an average price of $288.45 during the quarter.
Based in San Mateo, California, Essex Property Trust is a REIT that primarily invests in West Coast apartment complexes.
On May 15, shares of Essex Property Trust traded around $222.94 for a market cap of $14.47 billion and a price-earnings ratio of 23.19. The Peter Lynch chart suggests that the stock is trading higher than its intrinsic value but below its historical median valuation.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rating of 8 out of 10. The Altman Z-Score of 1.51 suggests that the company could be in danger of bankruptcy if it cannot secure additional liquidity. The current ratio of 0.95 and cash-debt ratio of 0.04 are also at the bottom of the industry.
With an operating margin of 33.87%, which is lower than 68.86% of competitors, the company has grown its revenue and net income significantly in recent years.
Public Storage
The firm also invested in 101,528 shares of Public Storage, which had a 2.98% impact on the equity portfolio. During the quarter, shares traded for an average price of $214.57.
Public Storage is a California-based REIT that runs a chain of self-storage facilities under the same name. It is the largest self-storage company in the U.S.
On May 15, shares of Public Storage traded around $175.62 for a market cap of $30.58 billion and a price-earnings ratio of 23.8. According to the Peter Lynch chart, the stock is trading higher than its intrinsic value but below its historical median valuation.
GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.3 is higher than 86.29% of competitors, and the interest coverage ratio of 28.6 and Altman Z-Score of 7.35 also suggest the company is not in danger of bankruptcy.
The three-year revenue growth rate of 3.5% and the three-year earnings per share without non-recurring items growth rate is 2.4%, which are average for the industry. The return on invested capital is more than 10 times the weighted average cost of capital, indicating high profitability.
Portfolio overview
As of the quarter’s end, Third Avenue Management (Trades, Portfolio)’s equity portfolio consisted of 67 stocks valued at $676 million. Its top holdings were in Five Point Holdings LLC (FPH) with 8.73% of the equity portfolio, Brookfield Asset Management Inc. (BAM) with 7.04% and JBG SMITH Properties (JBGS) with 5.80%.
The turnover rate was 3%. In terms of sector weighting, the firm was most invested in real estate (43.07%), followed by financial services (16.19%) and consumer cyclical (14.27%).
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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