Oaktree Capital Management recently disclosed its portfolio updates for the second quarter of 2021, which ended on June 30.
Founded by Howard Marks (Trades, Portfolio) and several fellow investors in 1995, Oaktree Capital Management is a global investing firm that specializes in alternative and credit strategies. The Los Angeles-based firm now has over 39 portfolio managers and 950 employees in offices around the globe. Marks serves as co-chairman and Chief Financial Officer. The firm’s core investment philosophy has six tenets: risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing.
Based on the firm’s investing criteria, its biggest sells for the quarter were for Ally Financial Inc. (ALLY, Financial) and Star Bulk Carriers Corp. (SBLK, Financial), while its top buys were for Frontier Communications Parent Inc. (FYBR, Financial) and PG&E Corp. (PCG, Financial).
Ally Financial Inc.
Oaktree cut its stake in Ally Financial Inc. (ALLY, Financial) by 4,300,000 shares, or 38.48%, for a remaining holding of 6,874,687 shares. The trade had a -3.22% impact on the equity portfolio. During the quarter, shares traded for an average price of $51.21.
Ally Financial is a bank holding company that provides a variety of financial services, including car finance, online banking via a direct bank, corporate lending, vehicle insurance, mortgage loans and an electronic trading platform to trade financial assets. It is based in Detroit, Michigan.
On Aug. 16, shares of Ally Financial traded around $53.74 for a market cap of $19.38 billion. According to the GuruFocus Value chart, the stock is “significantly overvalued.”
The company has a financial strength rating of 2 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 0.79 is better than average for the industry, though the debt-to-revenue ratio is high at 2.10. The return on equity of 22.39% and return on assets of 1.99% are outperforming their respective industry medians of 4.56% and 1.42%.
Star Bulk Carriers Corp
The firm also slimmed its investment in Star Bulk Carriers Corp. (SBLK, Financial) by 13,012,775 shares, or 33.36%, leaving a stake worth 25,993,242 shares. The trade impacted the equity portfolio by -3.17%. Shares traded for an average price of $19.60 during the quarter.
Headquartered in Marousi, Greece, Star Bulk Carriers is a global shipping company providing worldwide seaborne transportation solutions for major bulks such as iron ore, minerals and grain as well as minor bulks such as bauxite, fertilizers and steel products.
On Aug. 16, shares of Star Bulk Carriers traded around $20.95 for a market cap of $2.14 billion. According to the GuruFocus Value chart, the stock is “significantly overvalued.”
The company has a financial strength rating of 4 out of 10 and a profitability rating of 4 out of 10. While the Altman Z-Score of 0.89 indicates the company could be in danger of bankruptcy, the Piotroski F-Score of 8 out of 9 is typical of a very healthy financial situation. The return on invested capital (ROIC) has risen above the weighted average cost of capital (WACC) in recent quarters, showing a turn to profitable growth.
Frontier Communications Parent Inc.
The firm established a new position of 3,982,849 shares in Frontier Communications Parent Inc. (FYBR, Financial), impacting the equity portfolio by 1.67%. During the quarter, shares traded for an average price of $24.54.
Frontier Communications is an American telecommunications company based in Norwalk, Connecticut. In the past, it focused primarily on providing service to rural areas and smaller communities, but it has more recently extended its reach to several large metropolitan markets.
On Aug. 16, shares of Frontier Communications traded around $29.70 for a market cap of $7.26 billion. Since the company went public at the beginning of May, shares have gained 14%.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 1 out of 10. The interest coverage ratio of 1.65 and cash-debt ratio of 0.14 indicate the company could face liquidity issues in the near future. The return on equity and return on assets are -4.26% and -1.2%, respectively, showing the company is not currently profitable.
PG&E Corp
The firm added 7,500,000 shares, or 33.33%, to its investment in PG&E Corp. (PCG, Financial) for a total holding of 30,000,000. The trade had a 1.21% impact on the equity portfolio. Shares traded for an average price of $10.75 during the quarter.
PG&E, or Pacific Gas and Electric, is a natural gas company headquartered in San Francisco, California. It recently emerged from the bankruptcy that resulted from disasters caused by its refusal to properly maintain its equipment.
On Aug. 16, shares of PG&E traded around $9.17 for a market cap of $20.63 billion. According to the GuruFocus Value chart, the stock is “significantly overvalued.”
The company has a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. The cash-debt ratio of 0.01 and Altman Z-Score of 0.24 indicate the company will likely need to raise additional liquidity to avoid bankruptcy. The three-year revenue per share growth rate is -23.9%, while the three-year Ebitda per share growth rate is -36.1%.
Portfolio overview
At the end of the quarter, Oaktree Capital Management held 72 common stock positions valued at a total of $6.32 billion. The turnover rate was 5%.
The top holdings as of the quarter’s end were Chesapeake Energy Corp. (CHK, Financial) with 9.82% of the equity portfolio, Star Bulk Carriers with 9.45% and Vistra Corp. (VST, Financial) with 8.79%. In terms of sector weighting, the firm was most invested in energy, industrials and financial services.