Sarah Ketterer (Trades, Portfolio), the CEO and fundamental portfolio manager of Causeway Capital Management, recently released the firm's portfolio updates for the third quarter of 2020, which ended on Sept. 30.
Causeway Capital Management was founded in 2001 by Ketterer and Harry Hartford. The Los Angeles-based firm chooses stocks from among large and mid-cap companies in developed markets around the world. Their screens use quantitative, value-oriented metrics and a "risk score" to find potential investment opportunities. After screening, the investment team chooses the stocks that have the most favorable risk-adjusted returns, price-earnings ratios and dividend yields.
Based on the above criteria, the firm's biggest sells for the quarter were for Linde PLC (LIN, Financial) and Baidu Inc. (BIDU, Financial), while its biggest buys were for Alphabet Inc. (GOOG, Financial) and Booking Holdings Inc. (BKNG, Financial).
Linde
The firm cut its third-largest holding, Linde, by 1,434,079 shares, or 57.57%, for a remaining holding of 1,056,844, reducing it to the fifth-largest holding. The trade had a -5.48% impact on the equity portfolio. During the quarter, shares traded for an average price of $242.24.
Linde is a multinational chemicals and engineering company headquartered in Dublin, Ireland. By market share and revenue, it is the world's largest industrial gas production company. It mainly produces atmospheric and process gases for a wide variety of applications.
On Nov. 13, shares of Linde traded around $258.08 for a market cap of $135.10 billion and a price-earnings ratio of 61.15. The GuruFocus Value chart rates the stock as modestly overvalued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.29 is lower than the industry median of 0.66, but the Altman Z-Score of 2.75 indicates that the company is not likely to face bankruptcy in the near future. The return on invested capital has been below the weighted average cost of capital in recent years, indicating declining profitability.
Baidu
The firm also reduced its top holding, Baidu, by 2,030,210 shares, or 33.38%, for a remaining position of 4,051,280, making it the second-largest holding. The trade had a -4.38% impact on the equity portfolio. Shares traded for an average price of $123.89 during the quarter.
Baidu is a Chinese internet and technology giant that specializes in artificial intelligence, internet services, search engines and related products. It has access to the world's largest domestic addressable population of internet users.
On Nov. 13, shares of Baidu traded around $143.95 for a market cap of $49.29 billion and a price-earnings ratio of 97.84. The GuruFocus Value chart rates the stock as modestly undervalued.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio of 3.37 is lower than 89% of competitors, but the Altman Z-Score of 2.94 indicates the company is not likely to face liquidity issues. The three-year revenue growth rate is 14.4%, while the three-year Ebitda growth rate is only 0.5%.
Alphabet
The firm initiated a new position worth 69,077 shares in Alphabet, impacting the equity portfolio by 1.89%. During the quarter, shares traded for an average price of $1,525.89.
Based in Mountain View, California, Alphabet is a multinational conglomerate that was formed as part of a restructuring of Google in 2015, in which Alphabet became the parent company of Google and several former Google subsidiaries.
On Nov. 13, shares of Alphabet traded around $ 1,757.05 for a market cap of $1.19 trillion and a price-earnings ratio of 33.82. The GuruFocus Value chart rates the stock as modestly overvalued.
The company has a financial strength rating of 8 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 5.02 and interest coverage ratio of 351.91 both show a strong cash position. The three-year revenue growth rate is 31.5%, while the three-year Ebitda growth rate is 19.2%.
Booking Holdings
The firm also made a new investment of 44,411 shares in Booking Holdings, impacting the equity portfolio by 1.41%. Shares traded for an average price of $1,757.32 during the quarter.
Based in Norwalk, Connecticut, Booking Holdings is a world leader in online travel services, providing booking services for everything from flights and cars to hotels and vacation packages. The company's focus is mainly on the more fragmented European and Asian hotel markets rather than the U.S. market.
On Nov. 13, shares of Booking Holdings traded around $1,976.82 for a market cap of $80.68 billion and a price-earnings ratio of 59.33. The GuruFocus Value chart rates the stock as significantly overvalued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 9 out of 10. The current ratio of 3.17 and Altman Z-Score of 5.46 indicate the company can keep up debt payments in the short term and long term. The ROIC is typically higher than the WACC, which is typical of a value-creating company.
Portfolio overview
As of the quarter's end, the equity portfolio contained positions in 79 stocks and was valued at $5.37 billion. The firm made 11 new buys, sold out of 11 stocks and added to or reduced its positions in several other holdings for a turnover rate of 13%.
The firm's top holdings were Alibaba Group Holding Ltd. (BABA) with 11.59% of the equity portfolio, Baidu with 9.54% and Ryanair Holdings PLC (RYAAY) with 9.41%. In terms of sector weighting, the firm was most invested in the consumer cyclical, technology and communication services sectors.
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.
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