Marathon Capital Management leader Mario Cibelli (Trades, Portfolio) released his second-quarter portfolio earlier this month.
Known for focusing on less efficient portions of the market, the activist investor's New York-based firm relies on fundamental research to find long-term opportunities among undervalued stocks that he believes will double in three to five years.
Keeping these strategies in mind, the guru's most notable trades for the quarter included a new position in The Simply Good Foods Co. (SMPL, Financial) as well as the sale of US Foods Holding Corp. (USFD, Financial) and Performance Food Group Co. (PFGC, Financial), which used to be among his top 10 holdings.
Simply Good Foods
The guru invested in 252,500 shares of Simply Good Foods, allocating 2.17% of the equity portfolio to the holding. The stock traded for an average price of $17.69 per share during the quarter. It is now Cibelli's eighth-largest holding.
The Denver-based company, which manufactures and distributes nutrition bars, ready-to-drink shakes and other healthy snacks, has a $2.38 billion market cap; its shares were trading around $25.02 on Monday with a price-earnings ratio of 83.21, a price-book ratio of 1.96 and a price-sales ratio of 3.22.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Simply Good's financial strength 5 out of 10. In addition to weak interest coverage, the Altman Z-Score of 2.43 indicates the company is under some pressure.
The company's profitability scored a 4 out of 10 rating on the back of a strong operating margin and returns that underperform over half of its competitors. Simply Good also has a moderate Piotroski F-Score of 5, which indicates its business conditions are stable.
Steven Cohen (Trades, Portfolio) is the company's largest guru shareholder with a 0.47% stake. Cibelli holds 0.26% of its outstanding shares.
US Foods Holding
With an impact of -3.72% on the equity portfolio, the investor sold his 335,000 remaining shares of US Foods. Shares traded for an average price of $19.07 each during the quarter.
GuruFocus estimates he gained 17.24% on the investment, which was established in the third quarter of 2016.
The food service distribution company, which is headquartered in Rosemont, Illinois, has a market cap of $5.38 billion; its shares were trading around $24.42 on Monday with a price-book ratio of 1.54 and a price-sales ratio of 0.22.
According to the median price-sales chart, the stock is overvalued.
US Foods' financial strength and profitability were both rated 5 out of 10 by GuruFocus. In addition to weak interest coverage, the company is also being weighed down by the Altman Z-Score of 2.4, which suggests it is under some pressure since revenue per share had declined over the past 12 months. The return on invested capital is also below the weighted average cost of capital, indicating it is destroying value as it grows.
Although the operating margin is expanding, it, along with the negative returns, underperforms a majority of industry peers. US Foods also has a low Piotroski F-Score of 3, which indicates business conditions are in poor shape.
Of the gurus invested in US Foods, Cohen has the largest stake with 0.07% of outstanding shares. Michael Price (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and Jeremy Grantham (Trades, Portfolio) also own the stock.
Performance Food Group
Impacting the equity portfolio by -1.36%, Cibelli divested of all 87,500 shares of Performance Food Group. The stock traded for an average per-share price of $26 during the quarter.
GuruFocus data shows Cibelli lost an estimated 40.13% on the investment since it was established in the first quarter.
The distributor of food products that is based in Richmond, Virginia has a $4.85 billion market cap; its shares were trading around $36.51 on Monday with a price-book ratio of 2.34 and a price-sales ratio of 0.17.
Based on the median price-sales chart, the stock appears to be overvalued.
Performance Food's financial strength and profitability were both rated 5 out of 10 by GuruFocus. As a result of issuing approximately $1.1 billion in new long-term debt over the past three years, the company has poor interest coverage. The Altman Z-Score of 3.91, however, indicates it is in good standing even though assets are building up at a faster rate than revenue is growing.
The company also has negative margins and returns that underperform a majority of competitors. Performance Food also has a low Piotroski F-Score of 3 and the predictability rank of one out of five stars is on watch as a result of losses in operating income in recent years. GuruFocus says companies with this rank typically return an average of 1.1% annually over a 10-year period.
With 0.58% of outstanding shares, Cohen is the company's largest guru shareholder. Ron Baron (Trades, Portfolio) and Simons' firm also have positions in the stock.
Additional trades and portfolio composition
During the quarter, the guru also boosted his holdings of Uber Technologies Inc. (UBER, Financial), e.l.f. Beauty Inc. (ELF, Financial) and Eventbrite Inc. (EB, Financial), while curbing his positions in Grubhub Inc. (GRUB, Financial), HD Supply Holdings Inc. (HDS, Financial), Word Wrestling Entertainment Inc. (WWE, Financial), Facebook Inc. (FB, Financial) and J. Alexander's Holdings Inc. (JAX, Financial).
Over half of Cibelli's $216 million equity portfolio, which is composed of 13 stocks, is invested in the communication services and consumer defensive sectors, followed by a smaller representation in the technology space.
Disclosure: No positions.
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