Charles Brandes (Trades, Portfolio)' Brandes Investment released its portfolio for the first quarter of 2020. The top five buys included new positions in Textron Inc. TXT and Change Healthcare Inc. CHNG alongside additions to its holdings of Cameco Corp. CCJ, Embraer SA ERJ and Mohawk Industries Inc. MHK.
Brandes is a Benjamin Graham disciple. As such, his firm seeks to purchase out-of-favor securities that are trading at discounts to their intrinsic values, and then hold them until the market recognizes their true worth.
Portfolio overview
The portfolio is valued at $2.86 billion and is sitting at a 14% turnover rate. It holds 149 stocks, with 15 new buys, as of quarter-end on March 31. The top sectors by weight are health care (27.46%), financial services (17.01%) and industrials (14.27%).
Textron
The largest new addition to Brandes' holdings was the purchase of 1.18 million shares of Textron, representing 1.11% of the portfolio. The shares traded for an average price of $40.66 during the quarter.
The American industrial conglomerate employs over 37,000 people worldwide. Its subsidiaries include Artic Cat, Bell Helicopter, Textron Aviation and Lycoming Engines. The company manages a global network of aircraft, defense, industrial and finance businesses. As of May 19, the stock was trading at $27.24 per share with a market cap of $6.14 billion.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitiability rank of 7 out of 10 and a valuation rank of 9 out of 10. A cash-to-debt ratio of 0.49 ranks the company lower than 50.82% of the industry and a debt-to-equity ratio of 0.91 is lower than 72.32% of the industry, both contribute to the average financial strength rating.
Change Healthcare
The second-largest new buy for the portfolio was the purchase of 2.64 million shares of Change Healthcare, representing 0.92% of the portfolio. The company traded for an average price of $14.09 per share during the first quarter.
Headquartered in Nashville, Tensessee, the company covers approximately 175 million people under its services. A relative newcomer to public trading, shares were trading at $11.85 with a market cap of $3.60 billion as of May 19.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rank of 2 out of 10. A cash-to-debt ratio places it lower than 52.75% of the industry while a debt-to-equity ratio ranks it higher than 87.45% of the industry. The company has seen a decrease in net income since March 2019.
Cameco
The largest overall impact on the portfolio, a 2.19% increase, came in the addition of 8.18 million shares of Cameco. This representes a 747.35% increase in the holding. Shares traded at an average price of $8.24 during the quarter.
Cameco is a publicly traded uranium producer based out of Saskatchewan. The company was the second-largest producer of uranium in the world in 2015. As of May 19, the company was valued at $9.92 per share with a market bap of $3.90 billion. According to the Peter Lynch chart, the stock is overvalued.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 3 out of 10. Cameco's weighted average cost of capital is significantly higher than the return on invested capital, dictating difficulties with profitability.
Embraer
Brandes' firm added to its holding of Embraer by 24.83% with the purchase of 5.09 million shares. During the quarter, the average cost per share was $15.29 and the purchase represented a 1.32% impact on the portfolio.
The Brazilian aerospace conglomerate has been in business since 1969. It produces commercial, military, executive and agricultural aircraft and also provides aeronautical services. The company was trading at $4.71 per share on May 19 with a market cap of $796.81 million.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 10 out of 10. The company's price-book ratio and price-sales ratio place it well above 80% of the industry. An Altman Z-Score of 0.92 places it in the distress zone with the potential for bankruptcy.
Mohawk Industries
The last of Brandes Investments' top five additions to the portfolio was the increase in its holding of Mohawk Industries. The firm purchased 410,568 shares, a 1,807.48% increase in the holding. This represented a 1.10% impact on the overall portfolio with the company trading at an average of $119.34 per share during the quarter.
Based in Georgia, the floor manufacturing company produces floor covering products for both residential and commercial applications in North America and residential in Europe. As of May 19, the stock was trading at $85.82 per share with a market cap of $6.11 billion. According to the Peter Lynch chart, the company is undervalued.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 9 out of 10. While the cash-to-debt ratio of 0.09 places the company below 83.84% of the industry, an operating margin of 8.29% places it above 64.35% of industry competitors.
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. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.
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