Oaktree Capital Management recently disclosed its portfolio updates for the second quarter of 2020, which ended on June 30.
Founded by Howard Marks (Trades, Portfolio) and several fellow investors in 1995, Oaktree Capital Management is a global investing firm that specializes in alternative and credit strategies. The Los Angeles-based firm now has over 39 portfolio managers and 950 employees in offices around the globe. Marks serves as co-chairman (along with Bruce Karsh) and chief financial officer. The firm's core investment philosophy has six tenets: risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing.
Based on the firm's investing criteria, its top new common stock buys for the quarter were PG&E Corp. (PCG, Financial) and Taylor Morrison Home Corp. (TMHC, Financial), while its top sells were Petroleo Brasileiro SA Petrobras (PBR.A, Financial) and CNOOC Ltd. (CEO, Financial).
PG&E
Oaktree established a new holding of 22,500,000 shares of PG&E after selling out of its previous investment in the company in the fourth quarter of 2019. The trade had a 5.44% impact on the equity portfolio. During the quarter, shares traded for an average price of $10.90.
PG&E, or Pacific Gas and Electric, is a natural gas company headquartered in San Francisco. The clean energy company provides natural gas and electricity to approximately 16 million customers in northern and central California.
On Aug. 19, shares of PG&E traded around $9.29 for a market cap of $18.41 billion. The price-sales ratio of 0.28 is lower than 85.43% of competitors, while the price-book ratio of 1.38 is near the industry median of 1.45 after a sharp increase since the end of 2019.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. The cash-debt ratio of 0.02 is lower than 90.57% of competitors, while the Altman Z-Score of -0.3 shows the company will need to raise more liquidity to avoid bankruptcy. The weighted average cost of capital is higher than the return on invested capital, which means the company is making a negative return on its investments.
Taylor Morrison Home
The firm upped its stake in Taylor Morrison Home Corp. by 1,608,140 shares, or 33.33%, for a total holding of 6,433,140 shares. The trade had a 0.84% impact on the equity portfolio. Shares traded for an average price of $15.68 during the quarter.
Taylor Morrison is a major U.S. homebuilder headquartered in Scottsdale, Arizona. Formed from the merger of Taylor Woodrow and Morrison Homes in 2007, the company has been rated "America's most trusted home builder" for the past five years by Lifestory Research's consumer trust study.
On Aug. 19, shares of Taylor Morrison traded around $24.79 for a market cap of $3.21 billion and a price-earnings ratio of 17.95. The Peter Lynch chart indicates that the stock is trading slightly above its intrinsic value.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.18 is lower than 75.63% of competitors, while the Altman Z-Score of 2.18 indicates that the company is not likely in danger of bankruptcy. The ROIC has dropped below the WACC, indicating difficulties with profitability.
Petroleo Brasileiro SA Petrobras
The firm sold out of its 6,117,097-share position in Petroleo Brasileiro SA Petrobras' Class A shares, impacting the equity portfolio by -1.14%. However, it also increased the position in the company's normal shares, which trade under the ticker (PBR), by 10.26% for a total holding of 4,110,666 shares, impacting the equity portfolio by 0.09%. During the quarter, Class A shares and normal shares traded for average prices of $6.98 and $7.21, respectively.
Petroleo Brasileiro is a semi-public Brazilian petroleum company, 64% of which is owned by the Brazilian government. Commonly known as Petrobras, the company explores for, extracts, refines, markets and supplies oil and natural gas products.
On Aug. 19, Class A shares of Petroleo Brasileiro traded around $8.28 for a market cap of $54.43 billion. The price-book ratio of 1.21 and price-sales ratio of 0.82 are higher than 68.08% of industry competitors.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 0.53 suggests that the company has a risk of going bankrupt, but the interest coverage ratio of 2.51 indicates that it can likely meet its short-term debt obligations. The operating margin of 24.7% is higher than 83.61% of competitors, but the WACC is higher than the ROIC.
CNOOC
The firm also sold all 293,304 shares of its investment in CNOOC, impacting the equity portfolio by -1.05%. Shares traded for an average price of $112.75 during the quarter.
Operating as a major subsidiary of China National Offshore Oil Corp., CNOOC is one of China's largest offshore oil and natural gas producers.
On Aug. 19, shares of CNOOC traded around $118.01 for a market cap of $52.79 billion and a price-earnings ratio of 5.95. The Peter Lynch chart indicates that the stock is trading below its fair value.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 1.05 is far higher than the industry median of 0.38, but the Altman Z-Score of 1.58 suggests the company could face liquidity issues. The ROIC is higher than the WACC, indicating overall profitability.
Portfolio overview
At the end of the quarter, Oaktree Capital Management held 75 common stock positions valued at a total of $3.67 billion. The firm established nine new holdings, sold out of 14 stocks and added to or reduced several other positions for a turnover rate of 12%.
The top holdings as of the quarter's end were Vistra Energy Corp. (VST) with 15.36 % of the equity portfolio, TORM PLC (TRMD) with 9.67% and Ally Financial Inc. (ALLY) with 7.74%. In terms of sector weighting, the firm was most invested in utilities, financial services and technology.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.
Read more here:
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