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James Li
James Li
Articles (1323)  | Author's Website |

FPA Capital Fund Buys 1, Trims 4 Positions in the 2nd Quarter

Los Angeles-based fund slashes holdings in several companies

The FPA Capital Fund (Trades, Portfolio), part of Los Angeles-based First Pacific Advisors (Trades, Portfolio), disclosed this week that although it established a new holding in Change Healthcare Inc. (NASDAQ:CHNG), its top transactions during the second quarter in terms of portfolio impact were position reductions in Noble Energy Inc. (NASDAQ:NBL), Investors Bancorp Inc. (NASDAQ:ISBC), Aaron’s Inc. (NYSE:AAN) and Ambarella Inc. (NASDAQ:AMBA).

Fund manager Arik Ahitov seeks long-term capital appreciation through a fundamental, bottom-up investing approach. The fund primarily invests in small and mid-cap companies with strong balance sheets, free cash flow, understandable business, capable management and unique business characteristics.

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As of June quarter's end, the $101-million equity portfolio contains 22 holdings with a turnover ratio of 3%. The top-three sectors in terms of portfolio weight are communication services, technology and consumer discretionary.

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Change Healthcare

The fund purchased 187,358 shares of Change Healthcare, giving the position 2.08% weight in the equity portfolio. Shares averaged $11.22 during the second quarter.

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The Nashville, Tennessee-based company began operations in March 2017 following the completion of joint-venture transactions with McKesson Corp. (NYSE:MCK). The company completed its IPO on July 1, 2019.

On March 10, the joint venture with McKesson merged into Change Healthcare. According to GuruFocus, the company’s cash-to-debt and debt-to-equity ratios underperform over 80% of global competitors, suggesting low financial strength.

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Noble Energy

The fund sold 575,278 shares of Noble Energy, reducing the position 48.89% and impacting the equity portfolio by -3.57%. Shares averaged $8.89 during the second quarter.

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The Houston-based company produces oil and natural gas primarily in the U.S., Israel and West Africa. GuruFocus ranks the company’s financial strength 2 out of 10 on several warning signs, which include a weak Piotroski F-score of 3 and a debt-to-equity ratio that underperforms 86.05% of global competitors.

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Investors Bancorp

The fund sold 345,004 shares of Investors Bancorp, reducing the position 44.10% and impacting the equity portfolio by -2.84%. Shares averaged $8.41 during the second quarter.

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The Short Hills, New Jersey-based company operates a savings bank primarily in the New York and New Jersey areas. GuruFocus ranks the bank’s financial strength 4 out of 10. Although the company’s debt-to-equity ratio of 0.07 outperforms 92.99% of global competitors, Investors Bancorp’s equity-to-asset ratio of 0.10 outperforms just 51.09% of global banks.

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Aaron’s

The fund sold 70,294 shares of Aaron’s, reducing the position 51.52% and impacting the equity portfolio by -1.64%. Shares averaged $33.69 during the second quarter.

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The Atlanta-based company provides lease-purchase solutions for a wide range of furniture, appliances, electronics and jewelry. GuruFocus ranks the company’s profitability 8 out of 10 on the back of consistent revenue growth as evidenced by its 4.5-star business predictability rank. Despite this, operating margins have contracted over the past five years while net margins and returns are underperforming over 80% of global competitors.

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Ambarella

The fund sold 31,439 shares of Ambarella, reducing the position 47.43% and impacting the equity portfolio by -1.57%. Shares averaged $51.50 during the second quarter.

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The Santa Clara, California-based company develops semiconductor processing solutions for high-definition video capture, sharing and display. GuruFocus ranks the company’s financial strength 7 out of 10 on robust Altman Z-scores and debt ratios outperforming 90% of global competitors, offset by a weak Piotroski F-score of 3.

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Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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