Donald Smith & Co. released its first-quarter portfolio this week, revealing that its top five trades included a new position in Navient Corp. (NAVI, Financial) and the trimming of its holdings in AerCap Holdings NV (AER, Financial), JetBlue Airways Corp. (JBLU, Financial) and The Mosaic Co. (MOS, Financial). The firm also revealed a holding in Bonanza Creek Energy Inc. (BCEI, Financial), a company that restructured its shares following a merger with HighPoint Resources in April.
Founded by the late Donald Smith in 1983, the New York-based firm employs a deep-value, bottom-up approach to investing. The firm seeks out-of-favor companies that have positive earnings outlook over the next two to four years with price-to-tangible-book ratios in the bottom 10% of all stocks.
As of March 31, the firm's $2.57 billion equity portfolio contains 63 stocks with a turnover ratio of 6%. The top three sectors in terms of weight are industrials, financial services and basic materials, representing 25.97%, 24.78% and 22.03% of the equity portfolio.
Bonanza Creek Energy
The firm revealed a stake of 1,189,181 shares in Bonanza Creek Energy (BCEI, Financial), giving the position 1.65% weight in the equity portfolio. Shares averaged $28.15 during the first quarter; the stock is significantly overvalued based on Tuesday's price-to-GF Value ratio of 1.77.
The Denver-based energy company announced in November that it entered into a definitive merger agreement with HighPoint Resources in which the two companies will combine into a single entity valued at $376 million at the time of the merger agreement. Under the merger terms, the companies agreed to commence a registered exchange offer and simultaneous solicitation of a prepackaged reorganization plan.
Upon completion of the transaction, which took place on April 1, Bonanza Creek shareholders received approximately 68% of the combined company. HighPoint shareholders received 0.11464 Bonanza Creek shares for each share of HighPoint under the merger terms; Bonanza Creek also issued to holders of HighPoint senior notes an aggregate total of 9,314,214 shares under the prepackaged reorganization plan.
Bonanza Creek announced on Monday that it entered a definitive merger agreement in which it will combine with Extraction Oil & Gas Inc. (XOG, Financial) in a merger-of-equals transaction with an enterprise value of approximately $2.6 billion based on the closing prices of the two companies as of May 7. Under the merger terms, Extraction shareholders will receive 1.1711 shares of Bonanza Creek for each share of Extraction. Bonanza Creek and Extraction's shareholders are expected to each own approximately 50% of the combined company.
GuruFocus ranks Bonanza Creek's financial strength 8 out of 10 on several positive investing signs, which include a strong Altman Z-score of 5 and debt ratios that outperform over 81% of global competitors.
The firm purchased 2,482,462 shares of Navient (NAVI, Financial), giving the position 1.38% weight in the equity portfolio. Shares averaged $12.31 during the first quarter; the stock is fairly valued based on Tuesday's price-to-GF Value ratio of 0.97.
The firm sold 719,644 shares of AerCap Holdings NV (AER, Financial), trimming the position 16.25% and the equity portfolio 1.42%. Shares averaged $48.60 during the first quarter; the stock is fairly valued based on Tuesday's price-to-GF Value ratio of 1.07.
The firm sold 2,136,069 shares of JetBlue (JBLU, Financial), discarding 23.22% of the stake and 1.34% of the equity portfolio. Shares averaged $17.32 during the first quarter; the stock is significantly overvalued based on Tuesday's price-to-GF Value ratio of 2.95.
GuruFocus ranks the Long Island City, New York-based airline's financial strength 2 out of 10 on several warning signs, which include a low Piotroski F-score of 2 and a debt-to-equity ratio that underperforms approximately 75% of global competitors.
The firm sold 1,210,022 shares of The Mosaic Co. (MOS, Financial), reducing the position by 29.21% and the equity portfolio by 1.20%. Shares averaged $29.48 during the first quarter; the stock is significantly overvalued based on Tuesday's price-to-GF Value ratio of 1.44.
Disclosure: No positions.
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