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Margaret Moran
Margaret Moran
Articles (383) 

The Biggest 3rd-Quarter Trades of the Oakmark International Small Cap Fund

Small-cap fund releases its portfolio updates

The Oakmark International Small Cap Fund (Trades, Portfolio) recently disclosed its portfolio updates for the third quarter of 2020, which ended on Sept. 30.

Founded in 1995 and managed by portfolio managers David Herro (Trades, Portfolio), Michael Manelli and Justin Hance, the Oakmark International Small Cap Fund invests in a relatively small number of non-U.S. small cap stocks (approximately 50 to 60). The fund aims to invest in securities that are trading at a discount to intrinsic value and show strong potential to increase value for shareholders.

Based on these criteria, the fund's top buys for the quarter were MITIE Group PLC (LSE:MTO) and Smith (DS) PLC (LSE:SMDS), while its top sells were Neles Corp. (OHEL:NELES) and Dometic Group AB (OSTO:DOM).

MITIE Group

The fund increased its stake in MITIE Group by 30,257,000 shares, or 218.46%, for a total investment of 44,107,000 shares. The trade had a 1.14% impact on the equity portfolio. During the quarter, shares traded for an average price of 0.36 British pounds (48 cents).

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Mitie is a British facility management company that provides strategic outsourcing and energy services. Its areas of operation include infrastructure consultancy, facilities management, property management, energy and health care.

On Dec. 1, shares of Mitie traded around 0.38 pounds for a market cap of 446.16 million pounds. The GuruFocus Value chart rates the stock as significantly undervalued.

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The company has a financial strength rating of 6 out of 10 and a profitability rating of 5 out of 10. The interest coverage ratio of 4.9 and Altman Z-Score of 2.34 indicate that the company is financially stable, though it doesn't have a significant cushion. The return on invested capital no longer has the same lead on the weighted average cost of capital as it did in the past, but the company is still profitable more often than not.

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Smith (DS)

The fund also invested in an additional 3,215,000 shares of Smith (DS), increasing the position by 64.61% to a total of 8,191,000 shares. The trade had a 1.09% impact on the equity portfolio. Shares traded for an average price of 2.78 pounds during the quarter.

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Also known as DS Smith, the British multinational packaging company provides customer-specific packaging products, paper products and recycling services primarily to industrial-scale customers.

On Dec. 1, shares of DS Smith traded around 3.32 pounds for a market cap of 4.56 billion pounds. The GuruFocus Value chart rates the stock as fairly valued.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. The Altman Z-Score of 1.53 indicates the company could face liquidity issues in the near future, though the Piotroski F-Score of 6 out of 9 is typical of a financially stable company. As shown in the chart below, the company has been increasing its operating margin and net margin over recent years.

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Neles

The fund sold out of its 775,000-share stake in Neles, impacting the equity portfolio by -2.36%. During the quarter, shares traded for an average price of 11.41 euros ($13.75).

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Neles is a Finnish company that provides flow control solutions and services primarily to companies in the oil and gas refining, paper products and chemicals industries. It is perhaps best known for its valves and valve automation technologies.

On Dec. 1, shares of Neles traded around 10.82 euros for a market cap of 1.64 billion euros. According to the Peter Lynch chart, the stock is trading above its intrinsic value.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.46 is near the industry median of 0.44, while the Altman Z-Score of 6.7 indicates the company is not likely in danger of bankruptcy. The WACC has been higher than the ROIC in recent years, indicating struggles with value creation.

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Dometic Group

The fund cut its Dometic Group stake by 1,061,000 shares, or 70.36%, for a remaining holding of 447,000 shares. The trade had a -0.89% impact on the equity portfolio. Shares traded for an average price of 97.13 Swedish krona ($11.43) during the quarter.

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Dometic Group is a Swedish company that provides a variety of products and solutions primarily for use in mobile living situations. Its offerings include portable heating, coolers and refrigerators, mobile cooking solutions (such as RV and boat ovens) and marine steering systems, among others.

On Dec. 1, shares of Dometic traded around 108.05 krona for a market cap of 31.96 billion krona. The GuruFocus Value chart rates the stock as significantly overvalued.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 1.6 indicates the company may face liquidity issues in the near future, though the current ratio of 2.69 shows it has enough cash to make its short-term obligations. The three-year revenue growth rate is 14.3%, while the three-year Ebitda growth rate is 18.3%.

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Portfolio overview

As of the quarter's end, the fund held shares in 60 common stocks valued at a total of $1.12 billion. The top holdings were Konecranes Oyj (OHEL:KCR) with 4.87% of the equity portfolio, Duerr AG (XTER:DUE) with 3.92% and Julius Baer Gruppe AG (XSWX:BAER) with 3.63%.

In terms of sector weighting, the fund was most invested in industrials, followed by financial services and consumer cyclical.

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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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