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Third Avenue Value Fund Enters 3 Positions in 4th Quarter

Fund's largest new holding is in French aircraft manufacturer

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Sydnee Gatewood
Jan 05, 2021
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The

Third Avenue Value Fund (Trades, Portfolio) disclosed its portfolio for the fourth quarter, which ended Oct. 31, 2020, earlier this week.

Part of the late Martin Whitman's

Third Avenue Management (Trades, Portfolio), which is based in New York, the fund relies on a high-conviction strategy, investing in undervalued securities across several different industries, market capitalizations and regions. Portfolio manager Matthew Fine uses fundamental analysis to find stocks trading below their intrinsic value that compound asset values at double-digit rates.

Sticking to these criteria, the fund invested in three new stocks during the quarter: Dassault Aviation SA (

XPAR:AM, Financial), Korn Ferry (KFY, Financial) and Seven & I Holdings Co. Ltd. (TSE:3382, Financial).

Dassault Aviation

The fund invested in 12,061 shares of Dassault Aviation, allocating 2.53% of the equity portfolio to the position. The stock traded for an average price of 759.16 euros ($932.14) per share during the quarter.

The French aircraft manufacturer, which builds military and business jets, has a market cap of 7.37 billion euros; its shares closed at 886 euros on Monday with a price-earnings ratio of 15, a price-book ratio of 1.72 and a price-sales ratio of 1.06.

The Peter Lynch chart shows the stock is trading near its fair value. The GuruFocus valuation rank of 10 out of 10, however, leans toward undervaluation.

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Dassault Aviation's financial strength and profitability were both rated 7 out of 10 by GuruFocus. Despite having adequate interest coverage, the Altman Z-Score of 1.2 warns the company could be in danger of bankruptcy if it does not improve its liquidity position. The return on invested capital is also eclipsed by the weighted average cost of capital, indicating it is having issues turning a profit on its projects and is not returning value to shareholders.

The company is also being supported by an expanding operating margin, returns that outperform over half of its competitors and a moderate Piotroski F-Score of 4, which suggests business conditions are stable. Dassault's predictability rank of one out of five stars is on watch, however, as a result of a slowdown in revenue per share growth over the past 12 months. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Dassault Aviation,

Bestinfond (Trades, Portfolio) has the largest holding with 0.36% of outstanding shares. Charles de Vaulx (Trades, Portfolio) and the IVA International Fund (Trades, Portfolio) also have positions in the stock.

Korn Ferry

Third Avenue picked up 324,786 shares of Korn Ferry, dedicating 2.46% of the equity portfolio to the holding. During the quarter, shares traded for an average price of $30.33 each.

The Los Angeles-based management consulting company has a $2.31 billion market cap; its shares were trading around $42.87 on Tuesday with a price-earnings ratio of 158.53, a price-book ratio of 1.87 and a price-sales ratio of 1.32.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 4 out of 10 supports this assessment since the share price and the price-earnings and price-sales ratios are approaching multiyear highs.

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GuruFocus rated Korn Ferry's financial strength 6 out of 10 on the back of sufficient interest coverage. The Altman Z-Score of 2.32, however, indicates the company is under some pressure since its assets are building up faster than revenue is growing. The WACC also surpasses the ROIC, indicating struggles with creating value.

The company's profitability scored an 8 out of 10 rating, driven by an expanding operating margin and moderate Piotroski F-Score of 4. Its returns, however, underperform over half of its industry peers. Korn Ferry also has a 3.5-star predictability rank, which is on watch as a result of the revenue per share declining over the past year. GuruFocus says companies with this rank return, on average, 9.3% annually.

With a 1.37% stake,

John Rogers (Trades, Portfolio) is the company's largest guru shareholder. Other top guru investors include Chuck Royce (Trades, Portfolio), Hotchkis & Wiley, Jim Simons (Trades, Portfolio)' Renaissance Technologies, Ken Fisher (Trades, Portfolio), Robert Olstein (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss.

Seven & I Holdings

The fund purchased 130,300 shares of Seven & I Holdings, giving it 0.99% space in the equity portfolio. The stock traded for an average per-share price of 3,384.48 yen ($32.96) during the quarter.

The Japanese company, which manages and operates chains of convenience stores, supermarkets and department stores, has a market cap of 3.22 trillion yen; its shares closed at 3,645 yen on Monday with a price-earnings ratio of 17.87, a price-book ratio of 1.24 and a price-sales ratio of 0.53.

Based on the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 7 out of 10, however, leans more toward undervaluation.

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Seven & I's financial strength was rated 6 out of 10 by GuruFocus on the back of a comfortable level of interest coverage. The Altman Z-Score of 2.26, however, indicates it is under some pressure. The ROIC also surpasses the WACC, indicating good value creation.

The company's profitability scored a 7 out of 10 rating, driven by an expanding operating margin, returns that outperform at least half of its competitors and a high Piotroski F-Score of 7, which suggests business conditions are healthy. Seven & I's 3.5-star predictability rank, however, is on watch as a result of declining revenue per share over the past year.

Third Avenue holds 0.01% of the company's outstanding shares.

Additional trades and portfolio performance

Other significant trades the Value Fund made during the quarter included reductions of its Fed Ex Corp. (

FDX, Financial), Interfor Corp. (TSE:IFP, Financial) and Eagle Materials Inc. (EXP, Financial) positions.

Third Avenue's $399 million equity portfolio, which is composed of 32 stocks, is largely invested in the basic materials sector, followed by smaller positions in the industrial and financial services spaces.

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GuruFocus data indicates the fund returned 12.85% in 2019, underperforming the S&P 500's 31.48% return. Performance data for 2020 has not yet been released.

Disclosure: No positions.

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