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Buys Dominate Robert Olstein's 2nd-Quarter Portfolio

Guru invests in manufacturing, medical devices and more

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Sydnee Gatewood
Aug 11, 2021

Summary

  • Olstein entered seven new positions during the quarter.
  • While he reduced a number of existing holdings, the guru did not completely sell out of any.
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Olstein Capital Management founder and Chief Investment Officer

Robert Olstein (Trades, Portfolio) released his firm's second-quarter portfolio earlier this week.

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 seven new positions during the quarter and added to or reduced a number of existing investments. He did not completely sell out of any positions. Notable trades for the quarter consisted of new holdings in The Timken Co. (

TKR, Financial), Hologic Inc. (HOLX, Financial) and Reynolds Consumer Products Inc. (REYN, Financial) and boosts to the Dine Brands Global Inc. (DIN, Financial) and Discovery Inc. (DISCK, Financial) positions.

Timken

Olstein invested in 91,500 shares of Timken (

TKR, Financial), allocating 0.93% of the equity portfolio to the holding. He previously sold out of the stock in the fourth quarter of 2013. During the quarter, the stock traded for an average price of $84.61 per share.

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The Canton, Ohio-based company, which manufactures bearings and power transmission products, has a $5.88 billion market cap; its shares were trading around $77.32 on Wednesday with a price-earnings ratio of 16.48, a price-book ratio of 2.57 and a price-sales ratio of 1.53.

The GF Value Line suggests the stock is significantly overvalued based on historical ratios, past performance and future earnings projections. The valuation rank of 4 out of 10 aligns with this assessment.

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GuruFocus rated Timken’s financial strength 5 out of 10. Although the company has issued approximately $428.7 million in new long-term debt over the past three years, it is at a manageable level as a result of adequate interest coverage. The high Altman Z-Score of 3.06 indicates it is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital is also higher than the weighted average cost of capital, suggesting value creation is occurring as the company grows.

The company’s profitability fared better, scoring an 8 out of 10 rating on the back of an expanding operating margin, strong returns on equity, assets and capital that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which indicates business conditions are stable. Timken also has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Timken, Pioneer Investments (Trades, Portfolio) has the largest holding with 0.91% of its outstanding shares.

Chuck Royce (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio) also have positions in the stock.

Hologic

The guru picked up 95,000 shares of Hologic (

HOLX, Financial), dedicating 0.8% of the equity portfolio to the position. He previously divested of the stock in the third quarter of 2020. Shares traded for an average price of $67.02 each during the quarter.

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The medical device manufacturer, which is headquartered in Marlborough, Massachusetts, has a market cap of $19.48 billion; its shares were trading around $76.70 on Wednesday with a price-earnings ratio of 9.86, a price-book ratio of 5.02 and a price-sales ratio of 3.55.

According to the GF Value Line, the stock is fairly valued currently. The valuation rank of 9 out of 10, however, leans more toward undervaluation even though the share price is closing in on a 10-year high.

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Hologic’s financial strength and profitability were both rated 6 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the company has a robust Altman Z-Score of 4.29. The ROIC also eclipses the WACC, indicating value creation is occurring.

The company is supported by strong margins and returns that outperform a majority of industry peers. Hologic also has a high Piotroski F-Score of 9, suggesting operations are healthy, and a one-star predictability rank.

With 0.31% of outstanding shares,

Jim Simons (Trades, Portfolio)’ Renaissance Technologies is the company’s largest guru shareholder. Other top guru investors include Pioneer, Barrow, Hanley, Mewhinney & Strauss, Larry Robbins (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio).

Reynolds Consumer Products

The investor entered a 182,000-share holding of Reynolds Consumer Products (

REYN, Financial), giving it 0.70% space in the equity portfolio. The stock traded for an average per-share price of $30.32 during the quarter.

The Lake Forest, Illinois-based company, which manufactures household goods like cooking products, trash bags, aluminum foil and tableware, has a $6.17 billion market cap; its shares were trading around $29.44 on Wednesday with a price-earnings ratio of 16.38, a price-book ratio of 3.7 and a price-sales ratio of 1.85.

Based on the Peter Lynch chart, the stock appears to be overvalued currently.

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Reynolds’ financial strength and profitability were both rated 4 out of 10 by GuruFocus. Despite having sufficient interest coverage, the Altman Z-Score of 2.54 indicates the company is under some pressure. The ROIC, however, is above the WACC, indicating value is being created.

The company also has strong margins and returns that outperform a majority of competitors.

Royce is the company’s largest guru shareholder with 0.29% of its outstanding shares. Simons’ firm also has a position in Reynolds.

Dine Brands Global

With an impact of 1.12% on the equity portfolio, Olstein boosted his holding of Dine Brands Global by 292.65%, buying 99,500 shares. During the quarter, the stock traded for an average price of $92.52 each.

The guru now holds 133,500 shares total, which account for 1.5% of the equity portfolio. GuruFocus estimates he has lost 13.86% on the investment, which was established in the first quarter of 2017.

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The Glendale, California-based restaurant operator, which owns the IHOP and Applebee’s brands, has a market cap of $1.3 billion; its shares were trading around $75.03 on Wednesday with a price-earnings ratio of 20.45 and a price-sales ratio of 1.56.

The GF Value Line shows the stock is fairly valued currently, though the valuation rank of 8 out of 10 favors undervaluation.

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GuruFocus rated Dine Brands’ financial strength 3 out of 10. In addition to being weighed down by weak interest coverage, the low Altman Z-Score of 1.1 indicates the company could be in danger of bankruptcy if it does not improve its liquidity. The ROIC has also fallen slightly below the WACC, indicating issues with creating value.

The company’s profitability fared better with a 6 out of 10 rating. Despite having a declining operating margin, Dine Brands is supported by strong returns that outperform a majority of industry peers, a moderate Piotroski F-Score of 6 and a one-star predictability rank.

Of the gurus invested in Dine Brands,

Michael Dell (Trades, Portfolio) has the largest holding with 4.32% of outstanding shares. Ken Fisher (Trades, Portfolio), Greenblatt, Prem Watsa (Trades, Portfolio), Simons’ firm and Ainslie also own the stock.

Discovery

Impacting the equity portfolio by 0.82%, the investor upped his Discovery (

DISCK, Financial) position by 51.33%, buying 224,333 shares. During the quarter, shares traded for an average price of $31.22 each.

He now owns a total of 661,400 shares, representing 2.41% of the equity portfolio. Olstein has gained an estimated 15.56% on the investment based on GuruFocus data. It was established in the fourth quarter of 2014.

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The mass media company headquartered in New York, which operates popular TV stations like the Discovery Channel and Animal Planet, has a $14.37 billion market cap; its shares were trading around $27.72 on Wednesday with a price-earnings ratio of 14.06, a price-book ratio of 1.29 and a price-sales ratio of 1.73.

According to the GF Value Line, the stock is modestly undervalued currently. The valuation rank of 9 out of 10 supports this assessment.

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Discovery’s financial strength was rated 4 out of 10 by GuruFocus. In addition to poor interest coverage, the low Altman Z-Score of 1.45 indicates the company could be at risk of going bankrupt. Assets are also building up at a faster rate than revenue is growing, suggesting it may be becoming inefficient.

Despite having a declining operating margin, the company’s profitability scored a 9 out of 10 rating. Discovery is supported by strong returns that outperform a majority of competitors as well as a high Piotroski F-Score of 8. Consistent earnings and revenue growth contributed to a 3.5-star predictability rank. GuruFocus says companies with this rank return, on average, 9.3% annually.

With a 2.78% stake, Hotchkis & Wiley is Discovery’s largest guru shareholder. The

Smead Value Fund (Trades, Portfolio), Pioneer, Grantham, Gabelli, George Soros (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Jeff Auxier (Trades, Portfolio) also have positions in the stock.

Additional trades and portfolio performance

Olstein also established positions in Winnebago Industries Inc. (

WGO, Financial), Southwest Airlines Co. (LUV, Financial) and several other companies during the quarter. He also upped his holdings of Stanley Black & Decker Inc. (SWK, Financial), Sensata Technologies Holding PLC (ST, Financial) and ViacomCBS Inc. (VIAC, Financial).

Nearly 20% of the guru's $794 million equity portfolio, which consists of 107 stocks, is invested in the industrials sector. The financial services, consumer cyclical and technology spaces have slightly smaller representations.

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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.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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