ValueAct Holdings LP (Trades, Portfolio), the investment firm founded by Jeff Ubben in 2000, disclosed its portfolio for the first quarter earlier this month.
Known for its activist investments, the San Francisco-based hedge fund concentrates on acquiring significant ownership stakes in companies it believes are fundamentally undervalued. The investment team seeks out-of-favor companies that are mispriced for a specific reason; ValueAct then works productively with management to maximize shareholder value. After stepping down as chief investment officer in July 2017, handing the reins to Mason Morfit, Ubben announced in June 2020 he left the firm to pursue social investing.
While the majority of the firm's trades for the three months ended March 31 were sells, it established stakes in Insight Enterprises Inc. (NSIT, Financial), TopBuild Corp. (BLD, Financial) and Outfront Media Inc. (OUT, Financial). It also increased its investment in Fiserv Inc. (FISV, Financial).
Insight Enterprises
ValueAct invested in 1.1 million shares of Insight Enterprises (NSIT, Financial), allocating 1.23% of the equity portfolio to the stake. The stock traded for an average price of $85.69 per share during the quarter. It is now the firm's ninth-largest holding.
The Tempe, Arizona-based company, which provides business-to-business software and information technology services, has a $3.69 billion market cap; its shares were trading around $105 on Tuesday with a price-earnings ratio of 20.48, a price-book ratio of 2.66 and a price-sales ratio of 0.44.
The GF Value Line suggests the stock is significantly overvalued currently based on its historical ratios, past performance and future earnings projections.
The valuation rank of 4 out of 10 aligns with this assessment as the share price and price ratios are all approaching multiyear highs.
GuruFocus rated Insight's financial strength 6 out of 10. In addition to adequate interest coverage, the company has a strong Altman Z-Score of 3.57, indicating it is in good standing even though assets are building up at a faster rate than revenue is growing.
The company's profitability scored a 7 out of 10 rating, driven by an expanding operating margin and returns on equity, assets and capital that outperform over half its peers. Insight also has a moderate Piotroski F-Score of 5, suggesting business conditions are stable, as well as a predictability rank of three out of five stars. According to GuruFocus, companies with this rank return an average of 8.2% annually over a 10-year period.
ValueAct now has the largest stake in Insight with 3.11% of outstanding shares. Chuck Royce (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Hotchkis & Wiley, Jim Simons (Trades, Portfolio)' Renaissance Technologies and Barrow, Hanley, Mewhinney & Strauss also own the stock.
TopBuild
The firm invested in 221,770 shares of TopBuild (BLD, Financial), dedicating 0.54% of the equity portfolio to the position. Shares traded for an average price of $203.51 each during the quarter.
The construction company headquartered in Florida, which installs and distributes insulation products, has a market cap of $6.67 billion; its shares were trading around $200.52 on Tuesday with a price-earnings ratio of 26.18, a price-book ratio of 4.79 and a price-sales ratio of 2.38.
According to the the GF Value Line, the stock is significantly overvalued currently.
TopBuild's financial strength was rated 6 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the Altman Z-Score of 4.64 indicates the company is in good standing. The return on invested capital also surpasses the weighted average cost of capital, indicating good value creation while the company grows.
The company's profitability scored a 7 out of 10 rating. In addition to an expanding operating margin, TopBuild is supported by strong margins that outperform a majority of industry peers and a high Piotroski F-Score of 9, which indicates business conditions are healthy.
Of the gurus invested in TopBuild, ValueAct now has the largest holding with 0.67% of outstanding shares. Pioneer Investments (Trades, Portfolio), Royce and Joel Greenblatt (Trades, Portfolio) are also shareholders.
Outfront Media
After previously exiting a position in Outfront Media (OUT, Financial) in the second quarter of 2020, ValueAct entered a new 157,448-share holding. The transaction had an impact of 0.04% on the equity portfolio. The stock traded for an average per-share price of $20.72 during the quarter.
The New York-based company, which is a real estate investment trust that owns billboards and transit displays, has a $3.42 billion market cap; its shares were trading around $23.54 on Tuesday with a price-book ratio of 3.77 and a price-sales ratio of 3.06.
Based on the GF Value Line, the stock appears to be significantly overvalued currently.
GuruFocus rated Outfront's financial strength 3 out of 10. As a result of issuing approximately $376.5 million in new long-term debt over the past three years, it has poor interest coverage. The Altman Z-Score of 0.44 also warns the company could be at risk of bankruptcy if it does not improve its liquidity position.
The company's profitability fared better with a 6 out of 10 rating despite having a declining operating margin and negative returns that underperform a majority of industry peers. Outfront is supported by a moderate Piotroski F-Score of 4, but the one-star predictability rank is on watch as a result of declining revenue per share and losses in operating income over the past several years. GuruFocus says companies with this rank return, on average, 1.1% annually.
With a 0.63% holding, Simons' firm is the company's largest guru shareholder. Steven Cohen (Trades, Portfolio), Pioneer and Tom Russo (Trades, Portfolio) also own the stock.
Fiserv
The firm upped its position in Fiserv (FISV, Financial) by 161.97%, buying 531,719 shares. The trade impacted the equity portfolio by 0.74%. The stock traded for an average price of $114.68 per share during the quarter.
It now holds a total of 860,000 shares, which account for 1.19% of the equity portfolio. Fiserv is now the firm's 10th-largest holding. GuruFocus data shows ValueAct has gained an estimated 3.81% on the investment since the fourth quarter of 2020.
The financial technology company, which is headquartered in Brookfield, Wisconsin, has a market cap of $76.69 billion; its shares were trading around $115.89 on Tuesday with a price-earnings ratio of 90.32, a price-book ratio of 2.41 and a price-sales ratio of 5.33.
The GF Value Line suggests the stock is fairly valued.
The valuation rank of 4 out of 10 points toward overvaluation.
Fiserv's financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $14.7 billion in new long-term debt over the past three years, the company has poor interest coverage. The Altman Z-Score of 1.63 also warns the company could be in danger of going bankrupt if it doesn't improve its liquidity. It may also be becoming less efficient since assets are building up at a faster rate than revenue is growing. The WACC, however, eclipses the ROIC, indicating issues with creating value.
The company's profitability fared much better, scoring an 8 out of 10 rating. Although the operating margin is in decline, Fiserv is supported by returns that outperform over half of its industry peers, a moderate Piotroski F-Score of 6 and consistent earnings and revenue growth. It also has a 2.5-star predictability rank. GuruFocus data shows companies with this rank return an average of 7.3% annually.
Dodge & Cox is the company's largest guru shareholder with a 2.18% stake. Mairs and Power (Trades, Portfolio), Leon Cooperman (Trades, Portfolio) and Bill Nygren (Trades, Portfolio) also have significant positions in the stock.
Additional trades and portfolio composition
During the quarter, ValueAct also sold out of its positions in Morgan Stanley (MS, Financial) and CDW Corp. (CDW, Financial) and trimmed a handful of other existing holdings.
Over 40% of the firm's $8.57 billion equity portfolio, which consists of 13 stocks, is invested in the financial services sector, followed by smaller exposures to the technology and consumer cyclical spaces.
Disclosure: No positions.
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