Robert Olstein's Top Trades of the 4th Quarter

Guru sells Greenbrier Companies, buys Quest Diagnostics

Feb 26, 2021

Olstein Capital Management founder and Chief Investment Officer Robert Olstein (Trades, Portfolio) released his firm's fourth-quarter portfolio earlier this month.

In order to attain long-term capital appreciation, the guru's New York-based firm invests in undervalued companies that have good financial strength, a competitive edge and are able to generate free cash flow. According to its website, the investment team also takes downside risk into consideration before pursuing a position.

Keeping these criteria in mind, Olstein entered four new positions during the quarter, sold out of 11 stocks and added to or reduced a number or existing holdings. Notable trades for the quarter consisted of the divestment of Greenbrier Companies Inc. (GBX, Financial), The Middleby Corp. (MIDD, Financial), Caterpillar Inc. (CAT, Financial) and Aptiv PLC (APTV, Financial), as well as a new investment in Quest Diagnostics Inc. (DGX, Financial).

Greenbrier Companies

With an impact of -1.39% on the equity portfolio, the guru sold his 260,495 remaining shares of Greenbrier Companies (GBX, Financial). The stock traded for an average price of $33.06 per share during the quarter.

GuruFocus estimates Olstein has lost 14.74% on the investment, which was established in the second quarter of 2014.

The Lake Oswego, Oregon-based railroad transportation company, which builds leases, supplies and manages railcars in North America and internationally, has a $1.57 billion market cap; its shares were trading around $47.26 on Friday with a price-earnings ratio of 51.51, a price-book ratio of 1.22 and a price-sales ratio of 0.66.

The GF Value line shows the stock is significantly overvalued currently based on historical ratios, past performance and projections of future earnings. The GuruFocus valuation rank of 5 out of 10, however, leans more toward it being fairly valued even though the share price and price-sales ratio are approaching two-year highs.

GuruFocus rated Greenbrier's financial strength 5 out of 10. As a result of issuing approximately $564.2 million in new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 2.35 also indicates the company is under some financial pressure since it has recorded a loss in operating income over the past three years. The return on invested capital is also eclipsed by the weighted average cost of capital, indicating struggles with creating value.

The company's profitability scored a 6 out of 10 rating despite having a declining operating margin and returns that underperform over half of its competitors. Greenbrier is supported by a moderate Piotroski F-Score of 6, however, which indicates business conditions are stable. As a result of revenue per share declining over the past 12 months, the predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Greenbrier, Barrow, Hanley, Mewhinney & Strauss has the largest stake with 6.43% of outstanding shares. Donald Smith & Co., Hotchkis & Wiley, Paul Tudor Jones (Trades, Portfolio), David Nierenberg (Trades, Portfolio) and Murray Stahl (Trades, Portfolio) also own the stock.

Middleby

Olstein sold his 65,500 remaining shares of Middleby (MIDD, Financial), impacting the equity portfolio by -1.07%. Shares traded for an average price of $121.19 each during the quarter.

GuruFocus data shows the guru gained an estimated 5.73% on the investment, which was established in third-quarter 2019.

The company, which is headquartered in Elgin, Illinois, manufactures commercial cooking equipment, industrial processing equipment and residential appliances. The foodservice equipment provider has a market cap of $8.18 billion; its shares were trading around $146.49 on Friday with a price-earnings ratio of 30.76, a price-book ratio of 3.99 and a price-sales ratio of 3.16.

According to the GF Value line, the stock is currently significantly overvalued. The GuruFocus valuation rank of 4 out of 10 supports this assessment as the share price and price-sales ratios are close to multiyear highs.

Middleby's financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately $981.3 million in new long-term debt over the past three years, it is at a manageable level due to having adequate interest coverage. The Altman Z-Score of 3.26, however, indicates it is in good standing even though assets are building up at a faster rate than revenue is growing. The WACC also surpasses the ROIC.

Despite having declining margins, the company's profitability fared much better with a 9 out of 10 rating as a result of its returns outperforming a majority of industry peers. Middleby is also supported by a moderate Piotroski F-Score of 6 and a 4.5-star predictability rank, which is on watch as a result of revenue per share declining over the past year. GuruFocus says companies with this rank return an average of 10.6% annually.

With a 0.35% stake, Pioneer Investments (Trades, Portfolio) is the company's largest guru shareholder. Other top guru investors include John Rogers (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Ray Dalio (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Prem Watsa (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).

Caterpillar

Impacting the equity portfolio by -0.76%, the investor sold his 28,000 remaining shares of Caterpillar (CAT, Financial). The stock traded for an average per-share price of $169.94 during the quarter.

Olstein has gained an estimated 40.45% on the investment based on GuruFocus data. It was established in the third quarter of 2016.

The Deerfield, Illinois-based manufacturer of construction equipment and farming machinery has a $118.65 billion market cap; its shares were trading around $218.01 on Friday with a price-earnings ratio of 39.85, a price-book ratio of 7.82 and a price-sales ratio of 2.86.

Based on the GF Value line, the stock appears to be significantly overvalued currently. The GuruFocus valuation rank of 1 out of 10 supports this assessment since the share price and price ratios are closing in on 10-year highs.

GuruFocus rated Caterpillar's financial strength 4 out of 10. Despite issuing approximately $2.6 billion in new long-term debt over the past three years, it is at a manageable level due to the company having sufficient interest coverage. The Altman Z-Score of 2.72, however, indicates it is under some pressure.

The company's profitability fared better, scoring a 7 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 5. The one-star predictability rank is on watch, however, as a result of revenue per share declining over the past year.

Bill Gates (Trades, Portfolio)' foundation trust has the largest stake in Caterpillar with 2.07% of its outstanding shares. Ken Fisher (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio) also have significant holdings in the stock.

Aptiv

Olstein scrapped his 44,000 remaining shares of Aptiv (APTV, Financial), impacting the equity portfolio by -0.73%. During the quarter, the stock traded for an average price of $111.37 per share.

GuruFocus data shows he gained around 12.57% on the investment, which was established in the fourth quarter of 2017.

The Irish auto parts company, which develops safer, greener and more connected mobility solutions, has a market cap of $40.07 billion; its shares were trading around $148.40 on Friday with a price-earnings ratio of 21.81, a price-book ratio of 5.29 and a price-sales ratio of 3.05.

The GF Value line indicates the stock is significantly overvalued currently as its share price and price-sales ratio are closing in on 10-year highs.

Aptiv's financial strength was rated 6 out of 10 by GuruFocus, driven by adequate interest coverage and a high Altman Z-Score of 4.28. The ROIC, however, is being surpassed by the WACC, indicating struggles with creating value as the company grows.

The company's profitability scored an 8 out of 10 rating even though its margins are in decline and revenue per share has declined over the past year. Aptiv is supported by strong returns that outperform a majority of industry peers, a moderate Piotroski F-Score of 5 and a four-star predictability rank. GuruFocus data shows companies with this rank return an average of 9.8% annually.

Of the gurus invested in Aptiv, Frank Sands (Trades, Portfolio) has the largest stake with 1.87% of outstanding shares. Other top guru shareholders are Nygren, Pioneer, Daniel Loeb (Trades, Portfolio), Al Gore (Trades, Portfolio), Caxton, Chris Davis (Trades, Portfolio), George Soros (Trades, Portfolio), Larry Robbins (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Fisher, Dalio, Jones, Lee Ainslie (Trades, Portfolio), Greenblatt and Gabelli.

Quest Diagnostics

In its largest buy of the quarter, Olstein invested in 40,000 shares of Quest Diagnostics (DGX, Financial), giving the holding 0.76% space in the equity portfolio. He previously sold out of the stock in the first quarter of 2015. During the quarter, shares traded for an average price of $122.05 each.

The Secaucus, New Jersey-based company, which provides diagnostic testing, information and other health-related services, has a $15.33 billion market cap; its shares were trading around $114.67 on Friday with a price-earnings ratio of 11, a price-book ratio of 2.32 and a price-sales ratio of 1.65.

According to the GF Value line, the stock is modestly undervalued. The GuruFocus valuation rank of 9 out of 10 aligns with this assessment since the price-earnings ratio is near a five-year low.

GuruFocus rated Quest Diagnostic's financial strength 6 out of 10. Although the company has issued approximately $151 million in new long-term debt over the past three years, it is at an acceptable level due to having adequate interest coverage. The Altman Z-Score of 3.46 indicates it is in good standing.

The company's profitability scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 9, which indicates business conditions are healthy. Steady earnings and revenue growth have also contributed to its 3.5-star predictability rank. GuruFocus data shows companies with this rank return, on average, 9.3% annually.

With a 2.2% stake, Davis is Quest Diagnostics' largest guru shareholder. Grantham, Pioneer, Simons' firm, NWQ Managers (Trades, Portfolio), Robbins, Bacon, Jones, Dalio, Greenblatt and several other gurus also own the stock.

Additional trades and portfolio performance

Other new positions Olstein established during the quarter were in Keurig Dr Pepper Inc. (KDP, Financial), CBRE Group Inc. (CBRE, Financial) and Brady Corp. (BRC, Financial). He also divested of SeaWorld Entertainment Inc. (SEAS, Financial) and Ingersoll Rand Inc. (IR, Financial).

Nearly 20% of the guru's $627 million equity portfolio, which consists of 96 stocks, is invested in the financial services sector. The technology and health care spaces have slightly smaller representations.

According to its website, the Olstein All Cap Value Fund returned 11.09% in 2020, underperforming the S&P 500 Index's 18.4% return.

Disclosure: No positions.