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Sydnee Gatewood
Sydnee Gatewood
Articles (2230) 

The Wasatch International Growth Fund’s Top 5 Trades

Fund releases 1st-quarter portfolio

The Wasatch International Growth (Trades, Portfolio) Fund released its portfolio for the first quarter of the year earlier this week.

Part of Salt Lake City-based Wasatch Global Investors, the fund is managed by Ken Applegate, Linda Lasater and Derrick Tzau. With the goal of generating long-term capital appreciation, it takes a bottom-up, fundamental approach to find high-quality, small-cap stocks from both developed and emerging markets.

Sticking to these criteria, the portfolio managers added five new stocks to the portfolio during the quarter, sold out of seven positions and added to or trimmed a number of other holdings. Notable trades included a new holding in Globant SA (NYSE:GLOB), the sales of TGS-NOPEC Geophysical Co. ASA (OSL:TGS), Pigeon Corp. (TSE:7956) and Nakanishi Inc. (TSE:7716) and a reduction of the Royal Unibrew A/S (OCSE:RBREW) position.

Globant

Wasatch invested in 92,393 shares of Globant, dedicating 0.92% of the equity portfolio to the position. The stock traded for an average price of $111.94 per share during the quarter.

The Argentine software development company has a $5.26 billion market cap; its shares were trading around $141.25 on Friday with a price-earnings ratio of 93.14, a price-book ratio of 11.41 and a price-sales ratio of 7.31.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.

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Globant’s financial strength and profitability were both rated 7 out of 10 by GuruFocus. The company not only has a comfortable level of interest coverage, but a high Altman Z-Score of 11.96 as well. The return on invested capital is also higher than the weighted average cost of capital, suggesting it is profitable even though assets are building up at a faster rate than revenue is growing.

In addition to an expanding operating margin, the company has strong returns that outperform over 70% of its competitors. It has a low Piotroski F-Score of 2, however, which indicates business conditions are in poor shape.

Of the gurus invested in Globant, Frank Sands (Trades, Portfolio) is the largest shareholder with a 1.87% stake. Ken Fisher (Trades, Portfolio), Ron Baron (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) also own the stock.

TGS-NOPEC Geophysical

With an impact of -1.27% on the equity portfolio, the fund divested of its 514,934 remaining shares of TGS-NOPEC Geophysical. Shares traded for an average price of 207.53 Norwegian krones ($22.32) each during the quarter.

GuruFocus estimates Wasatch gained 24.64% on the investment.

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The Norwegian company, which provides geophysical and surveying services to the oil and gas industry, has a market cap of 17.52 billion krones; its shares closed at 149.9 krones on Thursday with a price-earnings ratio of 39.05, a price-book ratio of 1.2 and a price-sales ratio of 3.49.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 5 out of 10, however, leans more toward it being fairly valued.

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TGS’s financial strength was rated 8 out of 10 by GuruFocus, driven by a high cash-debt ratio and comfortable interest coverage. The Altman Z-Score of 2.13, however, indicates it is under some pressure. Additionally, the WACC surpasses the ROIC, indicating the company earns less than it spends.

The company’s profitability scored a 7 out of 10 rating on the back of strong margins and returns that outperform over half of its industry peers. It has a low Piotroski F-Score of 3, however, and due to recording a decline in revenue per share over the past five years, TGS’s predictability rank of two out of five stars is on watch. GuruFocus says companies with this rank typically return an average of 6% per annum over a 10-year period.

With 0.75% of outstanding shares, the Royce International Premier Fund (Trades, Portfolio) is the company’s largest guru shareholder.

Pigeon

The International Growth Fund sold its 317,884 remaining shares of Pigeon, impacting the equity portfolio by -0.94%. The stock traded for an average per-share price of 3,856 yen ($35.16) during the quarter.

GuruFocus data shows the fund gained an estimated 105.78% on the investment.

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The Japanese company, which manufactures products for babies, children and expectant mothers, as well as elderly consumers, has a market cap of 523.21 billion yen; its shares closed at 4,370 yen on Thursday with a price-earnings ratio of 45.26, a price-book ratio of 8.2 and a price-sales ratio of 5.09.

Based on the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 1 out of 10 supports this assessment.

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Driven by comfortable interest coverage and a lack of long-term debt, GuruFocus rated Pigeon’s financial strength a perfect 10 out of 10. The robust Altman Z-Score of 18.77 also indicates it is in good standing. The company also shows strong profitability since its ROIC significantly outweighs its WACC.

The company’s profitability scored a 9 out of 10 rating on the back of expanding margins, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 4, which indicates operations are stable. Pigeon’s four-star business predictability rank is on watch, however, due to a decline in revenue per share over the past year. According to GuruFocus, companies with this rank return, on average, 9.8% per year.

The T. Rowe Price Japan Fund (Trades, Portfolio) is the company’s largest guru shareholder with 0.17% of its outstanding shares.

Nakanishi

Wasatch dumped its 604,664 remaining shares of Nakanishi. The trade had an impact of -0.93% on the equity portfolio. During the quarter, the stock traded for an average price of 1,771.72 yen per share.

GuruFocus estimates the fund lost 17.03% on the investment.

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The Japanese company, which manufactures high-speed rotary cutting tools for the dental and medical industry, has a market cap of 147.82 billion yen; its shares closed at 1,706 yen on Thursday with a price-earnings ratio of 24.98, a price-book ratio of 2.11 and a price-sales ratio of 4.3.

The Peter Lynch chart suggests the stock is overvalued. The GuruFocus valuation rank of 3 out of 10 aligns with this assessment.

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Boosted by comfortable interest coverage and a high Altman Z-Score of 21.38, Nakanishi’s financial strength was rated 10 out of 10 by GuruFocus. It may be becoming less efficient, though, as its assets are building up at a faster rate than revenue is growing.

Although the operating margin is in decline, the company’s profitability scored an 8 out of 10 rating. Nakanishi is supported by strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 4. Due to recording a decline in revenue per share over the past year, however, the three-star business predictability rank is on watch. GuruFocus data reveals companies with this rank return an average of 8.2% per year.

No gurus currently own the stock.

Royal Unibrew

Impacting the equity portfolio by -0.89%, the fund curbed its holding of Royal Unibrew by 49.17%, selling 120,439 shares. Shares traded for an average price of 580.46 Danish krones ($87.88) each during the quarter.

Wasatch now holds 124,521 shares total, which represent 1.01% of its total assets managed. GuruFocus estimates the fund has gained 19.58% on the investment since the fourth quarter of 2013.

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The brewing company, which is headquartered in Denmark, has a market cap of 30.27 billion krones; its shares closed at 560.4 krones on Thursday with a price-earnings ratio of 24.47, a price-book ratio of 9.28 and a price-sales ratio of 3.62.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 1 out of 10 agrees with this analysis.

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GuruFocus rated Royal Unibrew’s financial strength 6 out of 10. Although the company has issued 1.6 billion krones in new long-term debt over the past three years, it is still at a manageable level due to having adequate interest coverage. The Altman Z-Score of 4.52 also suggests it is in good standing.

The company’s profitability scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 5. Royal Unibrew also has a one-star business predictability rank. GuruFocus says companies with this rank return 1.1% annually.

The fund holds 0.25% of the brewer’s outstanding shares.

Additional trades and portfolio performance

During the quarter, the fund also established small positions in Leeno Industrial Inc. (XKRX:058470), Poya International Co. Ltd. (ROCO:5904), PT Ace Hardware Indonesia Tbk (ISX:ACES) and Atrae Inc. (TSE:6194), as well as sold out of its GB Group PLC (LSE:GBG), M3 Inc. (TSE:2413), Beijer Ref AB (OSTO:BEIJB) and Minth Group Ltd. (HKSE:00425) holdings.

Wasatch’s $884 million equity portfolio, which is composed of 86 stocks, is largely invested in the technology, health care and industrials sectors.

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According to its fact sheet, the International Growth Fund returned 29.43% in 2019, outperforming the MSCI AC World Except U.S. Small Cap Index’s 22.42% return.

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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