Founded in 1986 by Martin J. Whitman, Third Avenue Management (Trades, Portfolio) pursues a deep-value investing strategy based on the prices, balance sheets and assets of businesses. It aims to follow the crowd as little as possible, focusing on the long-term values of investments rather than the short-term effects of news reports or investor sentiment.
Based on the above criteria, the firm's top buys for the quarter were BrightSphere Investment Group Inc. (BSIG, Financial) and Warrior Met Coal Inc. (HCC, Financial), while its biggest sells were Weyerhaeuser Co. (WY, Financial) and Korn Ferry (KFY, Financial).
BrightSphere Investment Group
The firm's only new buy for the quarter was BrightSphere Investment Group (BSIG, Financial). It picked up 193,259 shares, impacting the equity portfolio by 0.52%. During the quarter, shares traded for an average price of $19.71.
BrightSphere Investment Group is a global diversified asset management company based in Boston. It offers more than 60 active investment strategies through five leading institutional asset management firms and supports the growth of its affiliate companies.
On May 17, shares of BrightSphere Investment Group traded around $22.92 for a market cap of $1.82 billion and a price-earnings ratio of 6.68. According to the GuruFocus Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. While the cash-debt ratio of 0.79 is lower than 67% of industry peers, the Piotroski F-Score of 6 out of 9 indicates a healthy financial situation. The three-year revenue growth rate is 3.2% and the three-year Ebitda growth rate is 52.6%.
Warrior Met Coal
The firm added 169,148 shares, or 13.91%, to its investment in Warrior Met Coal (HCC, Financial) for a total holding of 1,385,558 shares. The trade had a 0.38% impact on the equity portfolio. Shares traded for an average price of $21.12 during the quarter.
Warrior Met Coal is a U.S.-based coal company that has a singular focus on providing premium on-thermal metallurgical (met) coal for use in the global steel industry. It mines the coal from highly productive mines in Alabama, and its production scale allows it to keep prices low.
On May 17, shares of Warrior Met Coal traded around $17.48 for a market cap of $898.63 million. According to the GF Value chart, the stock is modestly overvalued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 5 out of 10. The Piotroski F-Score of 3 out of 9 indicates poor business operation, but the cash-debt ratio of 0.52 is higher than the industry median of 0.37. At 5.18%, the operating margin seems to be recovering from the past few negative quarters, but the net margin is still low at -9.99%.
The firm cut its investment in Weyerhaeuser (WY, Financial), formerly its second-largest position, by 483,707 shares, or 36.17%, leaving a remaining holding of 853,583 shares. The trade had a -2.28% impact on the equity portfolio. During the quarter, shares traded for an average price of $34.06.
Headquartered in Seattle, Weyerhaeuser is a timberland real estate investment trust that owns 12.4 million acres of timberlands in the U.S. and manages 14.0 million acres under long-term licenses in Canada. It also produces wood products for the construction industry.
On May 17, shares of Weyerhaeuser traded around $38.07 for a market cap of $28.52 billion and a price-earnings ratio of 16.60. According to the GF Value chart, the stock is fairly valued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. The Piotroski F-Score of 8 out of 9 and Altman Z-Score of 3.37 suggest that the balance sheet is strong. The return on invested capital is typically below the weighted average cost of capital, indicating that growth is not profitable.
Korn Ferry is a Los Angeles-based management consulting company that operates in 52 countries around the world, helping clients to organize their management structures and matching them with their ideal job candidates.
On May 17, shares of Korn Ferry traded around $67.49 for a market cap of $3.64 billion and a price-earnings ratio of 79.40. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio is on the low end at 5.68, but the Piotroski F-Score of 6 out of 9 indicates financial stability. The three-year revenue growth rate is 8.2%, while the three-year Ebitda growth rate is 10.1%.
As of the quarter's end, Third Avenue Management (Trades, Portfolio)'s equity portfolio consisted of 61 stocks valued at $756 million. During the quarter, it made one new buy, sold out of four stocks and added to or reduced several other positions for a turnover of 2%.
Its top holdings were Five Point Holdings LLC (FPH, Financial) with 8.96% of the equity portfolio, Lennar Corp. (LEN.B, Financial) with 5.25% and Brookfield Asset Management Inc. (BAM, Financial) with 5.14%. In terms of sector weighting, the firm was most invested in real estate, financial services and consumer cyclical.
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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