ValueAct Holdings, the activist firm founded by Jeff Ubben (Trades, Portfolio), disclosed last week that its top five trades during the first quarter included selling all shares of FedEx Corp. (FDX, Financial), boosting its position in LKQ Corp. (LKQ, Financial) and Hawaiian Electric Industries Inc. (HE, Financial), and new positions in A.O. Smith Corp. (AOS, Financial) and BP PLC (BP, Financial).
Ubben earned an MBA at Northwestern University Kellogg Graduate School of Management. Prior to founding ValueAct, he managed Blum Capital Partners for over five years.
The San Francisco-based firm acquires stakes in out-of-favor companies that are fundamentally undervalued due to temporary factors like perceived unfavorable industry conditions, poor business performance, changes in management and reorganizations. Through its large position, ValueAct works productively with management to implement strategies to maximize shareholder returns.
As of the quarter-end, ValueAct’s $6.96 billion equity portfolio contains 24 stocks, with four new holdings and a turnover ratio of 6%. The top three sectors in terms of weight are financial services, technology and consumer cyclical, representing 41.82%, 22.12% and 10.88% of the equity portfolio.
Sold out: FedEx
Having purchased 590,000 shares of FedEx during the fourth quarter of 2019, ValueAct sold the shares during the first quarter, trimming the equity portfolio 0.90%. Shares averaged $154.38 during the fourth quarter of 2019 and $141.50 during the first quarter, resulting in an estimated loss of 8.34% on the stock according to GuruFocus estimates.
GuruFocus ranks the Memphis, Tennessee-based express package provider’s financial strength 4 out of 10 on the back of debt ratios underperforming over 80% of global competitors and a low Piotroski F-score of 3. Despite this, FedEx’s profitability ranks 8 out of 10, driven primarily by expanding operating margins and a three-year revenue growth rate that outperforms 76.88% of global transportation and logistics companies.
Gurus with large holdings in FedEx include Dodge & Cox, PRIMECAP Management (Trades, Portfolio), and Bill Gates (Trades, Portfolio)’ foundation trust.
LKQ
The firm added 5,015,028 shares of LKQ, increasing the stake 30.33% and the equity portfolio 1.48%. Shares averaged $29.87 during the first quarter.
The Chicago-based company distributes non-OEM automotive parts. GuruFocus ranks the company’s profitability 9 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a 4.5-star business predictability rank and an operating margin that is outperforming over 74% of global competitors despite contracting over the past five years.
Hawaiian Electric
The firm added 1,213,205 shares of Hawaiian Electric, increasing the position 59.66% and the equity portfolio 0.75%. Shares averaged $46.33 during the first quarter.
The Honolulu-based company provides electricity to the five islands of Hawaii. GuruFocus ranks the company’s profitability 6 out of 10: Although the company has expanding profit margins, the three-year Ebitda decline rate of 1.1% underperforms 69.50% of global competitors.
A.O. Smith
The firm purchased 2,092,510 shares of A.O. Smith, giving the holding 1.14% weight in the equity portfolio. Shares averaged $42.78 during the first quarter.
The Milwaukee-based company manufactures and markets comprehensive lines of residential and commercial gas, gas tanks and electric heaters. GuruFocus ranks the company’s profitability 8 out of 10 on the back of expanding operating margins and returns that are outperforming over 91% of global competitors.
BP
The firm purchased 2.77 million shares of BP, giving the stake 0.97% weight in the equity portfolio. Shares averaged $32.57 during the first quarter.
GuruFocus ranks the U.K.-based energy company’s financial strength 4 out of 10 on the back of debt ratios underperforming over 61% of global competitors and a low Piotroski F-score of 3.
Disclosure: No positions.
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