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Hillman Capital's Top 5 Buys of the 3rd Quarter

The firm's top pick was a struggling luxury retailer; it also added to several other value stocks

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Dec 01, 2021
Summary
  • Hillman Capital's top 3rd-quarter buy was struggling luxury retailer Nordstrom.
  • The firm also added to Emerson Electric, Boeing, Enterprise Products Partners and Intel.
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Hillman Capital Management recently disclosed its 13F portfolio updates for the third quarter of 2021, which ended on Sept. 30.

Mark Hillman (Trades, Portfolio) is the president, CEO and chief investment officer of the firm, which he founded in 1998. The firm’s strategy is to invest in companies with distinct competitive advantages, especially ones that have fallen temporarily out of favor with investors due to short-term, non-recurring issues. Hillman considers factors such as cash flow, dividends, sales, earnings, book value and projected growth rates when valuing a business.

Using the criteria above, the firm’s top five buys were Nordstrom Inc. (

JWN, Financial), Emerson Electric Co. (EMR, Financial), Boeing Co. (BA, Financial), Enterprise Products Partners LP (EPD, Financial) and Intel Corp. (INTC, Financial).

Nordstrom

Hillman Capital took a new stake of 267,806 shares in Nordstrom Inc. (

JWN, Financial) after selling out of its previous investment in the stock in the first quarter of 2021. At the quarter’s average price of $31.92, this gives the stock a weight of 2.49% in the equity portfolio.

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Nordstrom is a U.S. luxury department store chain based in Seattle that is over 100 years old. Originating as a shoe store, it has since grown into a full-line retailer with departments for clothing, footwear, handbags, jewelry, accessories, cosmetics and fragrances.

Shares of Nordstrom traded around $20.36 apiece on Dec. 1 for a market cap of $3.26 billion. The GF Value chart says the stock could be a potential value trap, since the price is so far below the intrinsic value estimate.

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The company has a financial strength rating of 4 out of 10. While the Altman Z-Score of 1.3 indicates the potential for bankruptcy, the Piotroski F-Score of 7 out of 9 sends a contrasting message, indicating a healthy financial situation. Its profitability rating is 6 out of 10, driven by top and bottom lines that plunged in 2020 and are only about halfway recovered.

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Emerson Electric

The firm added 39,174 shares to its Emerson Electric (

EMR, Financial) holding, bringing the total number of shares owned to 71,850 and adding 1.30% to the equity portfolio. During the quarter, shares traded for an average price of $99.83.

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Based in St. Louis, Emerson Electric is a manufacturer of industrial products and a provider of engineering services for various industrial, commercial and consumer markets. Its products include automation and control software as well as industrial parts.

Shares of Emerson Electric traded around $87.72 apiece on Dec. 1 for a market cap of $52.65 billion. The GF Value chart rates the stock as modestly overvalued.

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The company has a financial strength rating of 5 out of 10. The Altman Z-Score of 4.85 and interest coverage ratio of 18.45 are both healthy. Its profitability rating is 8 out of 10. The return on invested capital is consistently higher than the weighted average cost of capital, meaning the company is creating value for shareholders.

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Boeing

The firm also upped its stake in Boeing (

BA, Financial) by 12,501 shares for a total holding of 46,237 shares, impacting the equity portfolio by 0.97%. Shares changed hands for an average price of $223.15 each in the three months through the end of September.

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Boeing is a multinational aerospace company based in Chicago. It designs, manufactures and produces commercial and private aircraft, rockets, telecommunications equipment and more. The company’s 737 Max failure has led the way in a series of issues that have devastated profits.

Shares of Boeing traded around $190.25 apiece on Dec. 1 for a market cap of $111.81 billion. The GF Value chart rates the stock as modestly undervalued.

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The company has a financial strength rating of 3 out of 10, with the Piotroski F-Score of 3 out of 9 and current ratio of 1.36 indicating a high chance for liquidity issues. Its profitability rating is 5 out of 10. In the second quarter of 2021, the operating margin and net margin managed to turn positive for the first time since the third quarter of 2019, but the net margin dropped back into the negatives in the third quarter.

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Enterprise Products Partners

Hillman Capital added another 107,118 shares of Enterprise Products Partners (

EPD, Financial), bringing the position to a total of 433,609 shares. With the stock trading for around $22.74 per share during the quarter, the trade had a 0.81% impact on the equity portfolio.

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Based in Houston, Enterprise Products Partners is a natural gas and crude oil pipeline company. Its services include the transportation, fractionation and storage of energy assets, as well as providing import and export terminals.

Shares of Enterprise Products Partners traded around $21.14 apiece on Dec. 1 for a market cap of $46.06 billion. The GF Value chart rates the stock as modestly undervalued.

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The company has a financial strength rating of 4 out of 10. While the cash-debt ratio is low at 0.08, the Piotroski F-Score of 6 out of 9 indicates financial stabilitiy. Its profitability rating is 7 out of 10. The revenue per share growth rate is -3.1%, but the three-year Ebitda per share growth rate is 8%.

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Intel

The firm increased its investment in Intel Corp. (

INTC, Financial) by 43,178 shares for a total of 170,631 shares. The stock traded for an average price of $54.24 per share during the quarter. The buy added 0.81% to the equity portfolio.

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Intel is a semiconductor technology company based in Santa Clara, California. The company is the world’s largest producer of PC microprocessors, and its mobile processors have been a key driver of growth in recent years. It is also aiming to become a chip foundry in efforts to revive growth.

Shares of Intel traded around $49.06 apiece on Dec. 1 for a market cap of $199.18 billion. The GF Value chart rates the stock as modestly undervalued.

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The company has a financial strength rating of 6 out of 10, driven by a strong interest coverage ratio of 37.64 and a safe Altman Z-Score of 3.25. Its profitability rating is 9 out of 10, with the operating margin of 27.45% and net margin of 35.55% outperforming 90% of industry peers.

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Portfolio overview

As per the latest filing, the firm’s U.S. common stock equity portfolio held shares in 51 stocks valued at a total of $285 million. The turnover was fairly high at 16%.

The top holding was Wells Fargo & Co (WFC) with 3.87% of the equity portfolio, followed by Simon Property Group Inc. (SPG) with 3.60% and Boeing and The Kraft Heinz Co. (KHC) tying for third place with 3.57% each.

In terms of sector weighting, the firm was most invested in health care, communication services and industrials.

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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.
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 SEC filings for the quarter in question and may not include non-U.S.-listed international stocks or changes made after the quarter ended.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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