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Sydnee Gatewood
Sydnee Gatewood
Articles (2599) 

Robert Olstein's Top 2nd-Quarter Trades

Guru releases portfolio

Olstein Capital Management leader Robert Olstein (Trades, Portfolio) released his firm's portfolio for the second quarter earlier this week.

With the goal of achieving long-term capital appreciation, the guru's New York-based firm invests in undervalued companies that have good financial strength, a competitive edge and are able to generate free cash flow. According to its website, the investment team also takes downside risk into consideration before pursuing a position.

Taking these criteria into consideration, Olstein entered five new positions during the quarter, the largest of which were in Carrier Global Corp. (NYSE:CARR) and Johnson & Johnson (NYSE:JNJ). Other notable trades included an expansion of the Invesco Ltd. (NYSE:IVZ) stake and reductions of the Lowe's Companies Inc. (NYSE:LOW) and eBay Inc. (NASDAQ:EBAY) holdings.

Carrier Global

The guru invested in 181,000 shares of Carrier Global, allocating 0.75% of the equity portfolio to the position. The stock traded for an average price of $18.38 per share during the quarter.

The Florida-based HVAC company, which was spun off of United Technologies Corp. earlier this year, has a $25.86 billion market cap; its shares were trading around $30 on Thursday with a price-earnings ratio of 8.92, a price-book ratio of 6.41 and a price-sales ratio of 0.83.

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

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GuruFocus rated Carrier's financial strength 8 out of 10, driven by comfortable interest coverage. The Altman Z-Score of 2.86, however, indicates the company is under some pressure.

The company's profitability scored a 4 out of 10 rating despite having margins and returns that outperform a majority of competitors.

Of the gurus invested in Carrier, Chris Davis (Trades, Portfolio) has the largest stake with 3.53% of outstanding shares. Diamond Hill Capital (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Daniel Loeb (Trades, Portfolio), Mason Hawkins (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss also own the stock.

Johnson & Johnson

Having previously sold out of Johnson & Johnson in the second quarter of 2017, Olstein picked up a new 26,000-share holding, dedicating 0.68% of the equity portfolio to it. Shares traded for an average price of $145.42 each during the quarter.

Headquartered in New Brunswick, New Jersey, the company, which develops medical devices, pharmaceutical products and consumer packaged goods, has a market cap of $389.55 billion; its shares were trading around $147.98 on Thursday with a price-earnings ratio of 26.3, a price-book ratio of 6.26 and a price-sales ratio of 4.96.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 2 out of 10 also supports this assessment since its share price and price ratios are near 10-year highs.

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Johnson & Johnson's financial strength was rated 6 out of 10 by GuruFocus on the back of comfortable interest coverage and a high Altman Z-Score of 4.41. Although assets are building up at a faster rate than revenue is growing, the return on invested capital is three times larger than the weighted average cost of capital, indicating that it can turn a profit.

The company's profitability scored an 8 out of 10 rating. Even though margins are declining, they still outperform versus the rest of the industry. Johnson & Johnson's returns also surpass those of industry peers. Additionally, the company is supported by a moderate Piotroski F-Score of 5, which implies business conditions are stable. As a result of a slowdown in revenue per share growth over the past year, the 3.5-star predictability rank is on watch. GuruFocus says companies with this rank typically return an average of 9.3% annually over a 10-year period.

With a 0.2% stake, Pioneer Investments (Trades, Portfolio) has the largest position in Johnson & Johnson. Other top guru shareholders include Jim Simons (Trades, Portfolio)' Renaissance Technologies, Jeremy Grantham (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Tweedy Browne (Trades, Portfolio), Maris and Power, Barrow, Hanely, Mewhinney & Strauss and John Rogers (Trades, Portfolio).

Invesco

With an impact of 0.8% on the equity portfolio, the investor expanded his Invesco stake by 59.66%, buying 397,200 shares. The stock traded for an average per-share price of $8.96 during the quarter.

He now holds a total of 1.06 million shares, which represent 0.23% of the equity portfolio. GuruFocus data shows Olstein has lost an estimated 29.97% on the investment since the first quarter of 2014.

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The investment management company based in Atlanta has a $5.02 billion market cap; its shares were trading around $10.94 on Thursday with a price-earnings ratio of 10.69, a price-book ratio of 0.53 and a price-sales ratio of 0.78.

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

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GuruFocus rated Invesco's financial strength 4 out of 10. Despite issuing approximately $4.6 billion in new long-term debt over the past three years, the company is able to manage it due to having adequate interest coverage. The Altman Z-Score of 0.41, however, warns the company could be in danger of going bankrupt since its assets are building up at a faster rate than revenue is growing. The WACC also outweighs the ROIC, indicating it may have trouble turning a profit.

The company's profitability fared better, scoring a 7 out of 10 rating on the back of margins and returns that outperform around half of its competitors. Invesco also has a moderate Piotroski F-Score of 5 and a one-star predictability rank. According to GuruFocus, companies with this rank typically return 1.1% on average per year.

Richard Pzena (Trades, Portfolio) is the company's largest guru shareholder with a 0.91% stake. Greenblatt, Pioneer, Paul Tudor Jones (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) also own the stock.

Lowe's Companies

Impacting the equity portfolio by -0.58%, Olstein trimmed his holding of Lowe's Companies by 50.82%, or 31,000 shares. During the quarter, the stock traded for an average price of $113.61 per share.

He now holds 30,000 shares total, which account for _ of the equity portfolio. GuruFocus estimates he has gained 72.92% on the investment so far.

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The home improvement retailer, which is headquartered in Mooresville, North Carolina, has a market cap of $118.55 billion; its shares were trading around $156.53 on Thursday with a price-earnings ratio of 26.46, a price-book ratio of 68.91 and a price-sales ratio of 1.62.

The Peter Lynch chart and GuruFocus valuation rank of 2 out of 10 suggest the stock is overvalued.

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Lowe's financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately $5.7 billion in new long-term debt over the past three years, it is still at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 3.87 also indicates the company is in good standing despite recording an operating income loss over the past three years.

Despite having declining margins, the company's profitability scored an 8 out of 10 rating on the back of strong returns that outperform a majority of industry peers, a high Piotroski F-Score of 7, which suggests operations are healthy, and a one-star predictability rank.

Of the gurus invested in Lowe's, Bill Ackman (Trades, Portfolio) has the largest stake with 1.62% of outstanding shares. Other top guru shareholders include Barrow, Hanley, Mewhinney & Strauss, Andreas Halvorsen (Trades, Portfolio), Pioneer, Gayner, David Carlson (Trades, Portfolio), Cohen, Ron Baron (Trades, Portfolio), Third Avenue Management (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Ray Dalio (Trades, Portfolio).

EBay

Selling 78,000 shares of eBay, the guru trimmed his holding by 37.68%. The trade had an impact of -0.52% on the equity portfolio. Shares traded for an average price of $41.98 each during the quarter.

Olstein now holds 129,000 shares total, which represent 1.26% of the equity portfolio. According to GuruFocus, he has gained an estimated 47.45% on the investment so far.

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The San Jose, California-based e-commerce company has a $39.64 billion market cap; its shares were trading around $56.65 on Thursday with a price-earnings ratio of 8.59, a price-book ratio of 13.82 and a price-sales ratio of 4.13.

According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 3 out of 10, however, leans more toward overvaluation since its share price and price-sales ratio are near multiyear highs.

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GuruFocus rated eBay's financial strength 5 out of 10 on the back of sufficient interest coverage and a high Altman Z-Score of 4.05. The ROIC is also two times as large as the WACC, indicating good profitability.

The company's profitability scored an 8 out of 10 rating. While the operating margin is in decline, it is being supported by margins that outperform a majority of competitors, a moderate Piotroski F-Score of 6 and a one-star predictability rank.

With a 4.58% stake, Seth Klarman (Trades, Portfolio) is the company's largest guru shareholder. Other top guru investors include Simons' firm, Paul Singer (Trades, Portfolio), Bill Nygren (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Pioneer, the Smead Value Fund (Trades, Portfolio), Larry Robbins (Trades, Portfolio), Gabelli and Greenblatt.

Additional trades and portfolio performance

Other new positions Olstein established during the quarter were Accenture PLC (NYSE:ACN), First Hawaiian Inc. (NASDAQ:FHB) and Korn Ferry (NYSE:KFY).

Nearly 40% of the guru's $535 million equity portfolio, which consists of 104 stocks, is invested in the industrials and financial services sectors.

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According to its website, the Olstein All Cap Value Fund returned 27.15% in 2019, outperforming the Russell 3000 Value Index's 26.26% 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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