Top 5 3rd-Quarter Buys of Steven Scruggs' Fund

FPA Queens Road Small Cap Value Fund releases quarterly portfolio

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James Li
Oct 22, 2021
Summary
  • Fund started a position in Safety Insurance.
  • Fund’s top buy is a position boost in Sprouts Farmers Market.
  • Fund also boosted its holdings in Axos, MGIC Investment and Kimball International.
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Steven Scruggs (Trades, Portfolio), portfolio manager of the FPA Queens Road Small Cap Value Fund, disclosed this week that his fund’s top five buys for the third quarter included a new position in Safety Insurance Group Inc. (SAFT, Financial) and boosts to its holdings of Sprouts Farmers Market Inc. (SFM, Financial), Axos Financial Inc. (AX, Financial), MGIC Investment Corp. (MTG, Financial) and Kimball International Inc. (KBAL, Financial).

The fund seeks long-term capital appreciation by investing in small-cap companies using a fundamental, bottom-up stock analysis approach. Key factors include quantitative analysis, balance sheet metrics, valuation, management and sector and industry trends.

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As of Aug. 31, the fund’s $422 million equity portfolio contains 55 stocks and a turnover ratio of 1%. The top four sectors in terms of weight are financial services, technology, industrials and consumer cyclical, respresenting 26.74%, 22.75%, 17.59% and 10.56% of the equity portfolio.

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Safety Insurance Group

The fund purchased 4,905 shares of Safety Insurance Group (

SAFT, Financial), giving the position 0.09% weight in the equity portfolio. Shares averaged $79.41 during the third quarter; the stock is modestly undervalued based on Thursday’s price-to-GF Value ratio of 0.89.

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GuruFocus ranks the Boston-based automobile insurance company’s financial strength 6 out of 10 on the back of a high Piotroski F-score of 8 and interest coverage and debt ratios that outperform more than 70% of global competitors.

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Other gurus with holdings in Safety Insurance include

Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Chuck Royce (Trades, Portfolio)’s Royce Investment Partners.

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Sprouts Farmers Market

The fund purchased 72,980 shares of Sprouts Farmers Market (

SFM, Financial), increasing the position by 81.09% and its equity portfolio by 0.43%. Shares averaged $25.76 during the third quarter; the stock is fairly valued based on Friday’s price-to-GF Value ratio of 0.93.

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GuruFocus ranks the Phoenix-based grocery store chain’s profitability 8 out of 10 on several positive investing signs, which include a three-star business predictability rank, a high Piotroski F-score of 8 and profit margins and returns that outperform more than 77% of global competitors.

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Axos Financial

The fund purchased 34,055 shares of Axos Financial (

AX, Financial), raising the stake by 20.02% and its equity portfolio by 0.39%. Shares averaged $47.65 during the third quarter; the stock is modestly overvalued based on Friday’s price-to-GF Value ratio of 1.28.

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GuruFocus ranks the Las Vegas-based bank’s profitability 6 out of 10 on the back of a 4.5-star business predictability rank and profit margins and returns that are outperforming more than 70% of global competitors.

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MGIC Investment

The fund purchased 50,000 shares of MGIC Investment (

MTG, Financial), expanding the position by 50% and its equity portfolio by 0.18%. Shares averaged $14.21 during the third quarter; the stock is modestly overvalued based on Friday’s price-to-GF Value ratio of 1.19.

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GuruFocus ranks the Milwaukee-based mortgage insurance company’s profitability 6 out of 10 on the back of profit margins and returns outperforming more than 70% of global competitors.

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Kimball International

The fund purchased 25,000 shares of Kimball International (

KBAL, Financial), raising the position by 12.45% and its equity portfolio by 0.07%. Shares averaged $12.90 during the third quarter; the stock is fairly valued based on Friday’s price-to-GF Value ratio of 0.94.

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GuruFocus ranks the Jasper, Indiana-based furniture manufacturing company’s financial strength 6 out of 10 on the back of a strong Altman Z-score of 3.57 despite interest coverage and debt ratios underperforming more than half of global competitors.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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