Charles Brandes (Trades, Portfolio)'s Brandes Investment revealed its second-quarter portfolio that is seeing profits on many of its new investments. New positions with positive estimated gains include Corteva Inc. (CTVA, Financial), Ambev SA (ABEV, Financial) and Anheuser-Busch Inbev SA/NV (BUD, Financial). The firm also sold its holdings of Biggs & Stratton Corp. (BGGSQ) and Jefferies Financial Group Inc. (JEF, Financial).
Brandes, who is now retired, 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 contains 167 stocks, with 25 new holdings. The portfolio is valued at $3.29 billion and has seen a turnover of 9%.
Top holdings include Cemex SAB de CV (CX, Financial)(5.89%), Embraer SA (ERJ, Financial)(4.66%), Cameco Corp. (CCJ, Financial)(2.81%), Citigroup Inc. (C, Financial)(2.68%) and McKeeson Corp. (MCK, Financial)(2.50%).
By weight, the top three sectors represented within the portfolio are health care (23.47%), financial services (18.00%) and industrials (13.41%).
Corteva
The firm purchased 1.17 million shares of Corteva during the second quarter at an average price of $25.99 per share. This purchase represents the first time the holding has been present in the portfolio. GuruFocus estimates the total gain on the holding at 3.16%. The purchase had an overall impact of 0.96% on the equity portfolio.
Corteva was formed in 2019 as the agriculture division of the DowDuPont merger and subsequent separation. The company is a leader in the development of new seed and crop chemicals products. Seeds and crop-protection chemicals each generate roughly half of total company profits. Although Corteva operates globally, around half of revenue comes from North America.
On Aug. 13, Corteva was trading at $26.84 with a market cap of $19.99 billion. According to the Peter Lynch chart, the stock is trading above its intrinsic value.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rank of 2 out of 10. There are currently three severe warning signs issued for inventory buildup, days sales outstanding and an Altman Z-Score of 1.27 that places it in the distress column. The company's cash-to-debt ratio of 1.09 places it higher than 63.90% of the industry.
Ambev
A new holding was established in Ambev with the purchase of 5.92 million shares by the firm. The shares were purchased at an average price of $2.36. The purchase represented an impact of 0.48% and GuruFocus estimates the total gain of the holding at 5.93%.
Ambev is the largest brewer in Latin America by volume and the fourth-largest beer producer in the world. It produces, distributes and sells beer and PepsiCo products in Brazil and other Latin American countries. It also owns Argentina's largest brewer, Quinsa. Ambev was formed in 1999 through the merger of Brazil's two largest beverage firms, Brahma and Antarctica. In 2004, Ambev combined with Canadian brewer Labatt, giving Interbrew (now Anheuser-Busch InBev) a controlling interest.
Aug. 13 saw shares trading at $2.48 with a market cap of $39.33 billion. The Peter Lynch chart shows that the company was trading near intrinsic value in March of this year.
GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 8 out of 10. Three severe warning signs are issued for assets growing faster than revenue and declining gross margin and operating margin percentages. An Altman Z-Score of 3.59 places the company in the safe zone away from bankruptcy and cash flows have remained relatively stable over the last several years.
Anheuser-Busch Inbev
The firm brought Anheuser-Busch into the portfolio with the purchase of 261,445 shares. The shares were purchased at an average price of $46.65 and GuruFocus estimates the total gain on the holding at 21.16%. Overall, the purchase had an impact of 0.39% on the equity portfolio.
Anheuser-Busch InBev is the largest brewer in the world and one of the world's top five consumer product companies, as measured by Ebitda. After the SABMiller acquisition, the company's portfolio now contains five of the top 10 beer brands by sales and 18 brands with retail sales over $1 billion. AB InBev was created by the 2008 merger of Belgium-based InBev and U.S.-based Anheuser-Busch. The firm holds a 62% economic interest in Ambev and in 2016 acquired SABMiller.
On Aug. 13, shares of Anheuser-Busch were trading at $56.32 with a market cap of $110.52 billion. The Peter Lynch chart suggests that the shares are currently overvalued.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rank of 6 out of 10. Two severe warning signs are issued for a low Piotroski F-Score of 3 and a Altman Z-Score of 0.95, placing them in distress. Recent years have seen increased levels of debt leading to the current cash-to-debt ratio of 0.22, lower than 67.55% of the industry.
Briggs & Stratton
The firm sold out of its position in Briggs & Stratton on the heels of consistent sales since the second quarter of 2019. The team sold the remaining 3.97 million shares for an average price of $1.83. GuruFocus estimates the total loss on the holding at 52.24%.
Briggs & Stratton is a producer of gasoline engines and outdoor power equipment. It operates in two segments, engines and products. Briggs & Stratton manufactures four-cycle aluminum alloy gasoline engines with gross horsepower ranging from 5.5hp up to 37hp and torques that range from 4.50 ft-lbs gross torque to 21.00 ft-lbs gross torque. The company's engines are used primarily by the lawn and garden equipment industry.
Aug. 13 saw the company trading at 15 cents per share with a market cap of $7.00 million. The Peter Lynch chart shows that the stock has consistently traded above intrinsic value.
GuruFocus gives the company a financial strength ratio of 3 out of 10 and a profitability rank of 5 out of 10. Four severe warning signs are issued. The Altman Z-Score of 1.42 places it in the distress column with the possibility of bankruptcy looming in the next two years. The weighted average cost of capital currently outweighs the return on invested capital.
Jefferies Financial Group
The firm sold off its holding of Jefferies Financial Group after selling every quarter since the holding was first established. The remaining 163,715 shares were sold at an average price of $14 and GuruFocus estimates the total loss at 15.98%. Overall, the sale had an impact of 0.08% on the equity portfolio.
Jefferies is a diversified financial services company. Its business consists of investment banking and capital markets (Jefferies Group), commercial mortgage banking (Berkadia), asset management (Leucadia Asset Management), an online platform for foreign exchange trading (FXCM), a real estate company (Homefed) and vehicle finance (Foursight Capital and Chrome Capital).The company is also involved in other businesses, such as oil and gas exploration, automobile dealerships, fixed wireless broadband services and gold and silver mining.
On Aug. 13, shares were trading at $17.70 with a market cap of $4.70 billion. The Peter Lynch chart suggests that the stock was undervalued throughout 2019.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 5 out of 10 and a valuation rank of 8 out of 10. Two severe warning signs are issued for declining revenue per share and an Altman Z-Score of 0.48, placing the company in the distress column. Cash levels have outweighed debt since 2013, yet a cash-to-debt ratio of 0.74 places the company lower than 75% of the industry.
Disclaimer: Author owns no stocks mentioned.
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