Southeastern Asset Management recently disclosed its portfolio updates for the fourth quarter of 2020, which ended on Dec. 31.
Founded by Mason Hawkins (Trades, Portfolio) in 1975, the Memphis, Tennessee-based firm manages the Longleaf Partners Funds. The firm employs a fundamental, bottom-up appraisal process based on in-house research in order to select a concentrated portfolio of quality investments that have strong balance sheets, good management teams and attractive valuations.
Based on its investment criteria, the firm's biggest buys for the quarter were Douglas Emmett Inc. (DEI, Financial) and MGM Resorts International (MGM, Financial), while its most significant sells were Mattel Inc. (MAT, Financial) and Univar Solutions Inc. (UNVR, Financial).
Douglas Emmett
The firm established a new holding worth 4,137,247 shares in Douglas Emmett Inc. (DEI, Financial), impacting the equity portfolio by 2.70%. During the quarter, shares traded for an average price of $28.47.
Douglas Emmett is a real estate investment trust that owns and operates class-A office buildings and apartment communities in Southern California and Honolulu. It is headquartered in Santa Monica, California.
On Feb. 19, shares of Douglas Emmett traded around $28.23 for a market cap of $4.95 billion. The GuruFocus Value chart rates the stock as a possible value trap because the price is too far below the intrinsic value estimate.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The interest coverage ratio of 1.13 and Altman Z-Score of 0.62 indicate the company is in danger of bankruptcy. The operating margin of 18.09% and net margin of 5.66% have been in decline recently and underperform 80% of industry peers.
MGM Resorts International
The firm upped its stake in MGM Resorts International (MGM, Financial) by 2,090,108 shares, or 42.11%, for a total investment of 7,053,064 shares. The trade had a 1.47% impact on the equity portfolio. Shares traded for an average price of $25.80 during the quarter.
MGM Resorts is a hospitality company based in Las Vegas. It owns and operates entertainment destination resorts in Las Vegas, Massachusetts, Detroit, Mississippi, Maryland and New Jersey through brand names that include Bellagio, Mandalay Bay, MGM Grand and Park MGM.
On Feb. 19, shares of MGM traded around $36.20 for a market cap of $17.94 billion. The GuruFocus Value chart rates the stock as significantly overvalued.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. The Pioroski F-Score of 4 out of 9 implies poor business operations, while the Altman Z-Score of 1.05 indicates the company is in danger of bankruptcy. Before the Covid-19 pandemic began in 2020, the company had a three-year revenue growth rate of 13.9% and a three-year Ebitda growth rate of 24.7%.
Mattel
Southeastern reduced its position in Mattel (MAT, Financial) by 10,660,998, or 37.97% , during the fourth quarter, impacting the equity portfolio by -3.21%. According to GuruFocus Real-Time Picks, the firm trimmed the investment by another 782,172 shares, or 4.49%, on Jan. 31, leaving a remaining holding of 16,635,067 shares. The stock traded for an average price of $17.45 during the fourth quarter and $18.12 on Jan. 31.
Based in Hawthorne, California, Mattel is a toy company that was originally founded in 1945. Its brand portfolio consists of more than 100 names, including Uno, Barbie, Hot Wheels, Fisher-Price, American Girl and Apples-to-Apples.
On Feb. 19, shares of Mattel traded around $19.02 for a market cap of $6.62 billion. The GuruFocus Value chart rates the stock as significantly overvalued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. While the Altman Z-Score of 2.12 indicates the company is in some financial distress, the Piotroski F-Score of 8 out of 9 is typical of a financially healthy company. The return on invested capital has dropped below the weighted average cost of capital in recent years, indicating a lack of profitability.
Univar Solutions
The firm sold out of its 4,607,943-share position in Univar Solutions (UNVR, Financial), impacting the equity portfolio by -2%. During the quarter, shares traded for an average price of $18.05.
Univar is a specialty chemical and ingredients distributor as well as a provider of value-added services for such products. The company's customers come from a variety of industries, including agriculture, energy, forestry, water treatment, military and many more. It is based in Downers Grove, Illinois.
On Feb. 19, shares of Univar traded around $20.94 for a market cap of $3.54 billion. The GuruFocus Value chart rates the stock as modestly overvalued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 5 out of 10. The cash-debt ratio of 0.1 is lower than 89% of competitors, while the Altman Z-Score of 1.9 indicates the company is in some financial distress. The three-year revenue growth rate is -1.1%, while the three-year Ebitda growth rate is -2%.
Portfolio overview
As of the quarter's end, Southeastern's equity portfolio consisted of holdings in 25 stocks valued at a total of $4.48 billion. The firm established one new position, sold out of five other holdings and added to or reduced several other investments for a turnover of 5% for the quarter.
The top holdings at the quarter's end were Lumen Technologies Inc. (LUMN, Financial) with 14.18% of the equity portfolio, CNX Resources Corp. (CNX, Financial) with 8.56% and General Electric Co. (GE, Financial) with 7.81%. In terms of sector weighting, the firm was most invested in communication services, consumer cyclical and industrials.
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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