Scott Black Enters EOG and FedEx, Exits Holdings of 2 Clinical Labs

Guru reveals 3rd-quarter portfolio

Author's Avatar
Dec 03, 2021
Summary
  • Black exited his holdings of Labcorp and Quest Diagnostics.
  • He also added to his West Fraser Timber position.
Article's Main Image

Delphi Management leader Scott Black (Trades, Portfolio) released his third-quarter portfolio in November.

A disciple of the Graham-Dodd school of value investing, the guru’s Boston-based firm takes long positions in companies that exhibit “a low absolute valuation” that are run by good management teams. The firm is also known for contacting the management team of every company it invests in.

During the three months ended Sept. 30, the investor entered six new positions, sold out of nine stocks and added to or trimmed a number of other existing investments. His most notable trades included new holdings in EOG Resources Inc. (EOG, Financial) and FedEx Corp. (FDX, Financial), an increased bet on West Fraser Timber Co. Ltd. (WFG, Financial) and the divestment of the Laboratory Corp of America Holdings (LH, Financial) and Quest Diagnostics Inc. (DGX, Financial) positions.

EOG Resources

The guru invested in 14,520 shares of EOG Resources (EOG, Financial), dedicating 1.20% of the equity portfolio to the position. The stock traded for an average price of $73.01 per share during the quarter.

The Houston-based oil and gas producer has a $51.8 billion market cap; its shares were trading around $88.09 on Friday with a price-earnings ratio of 16.73, a price-book ratio of 2.31 and a price-sales ratio of 3.04.

The GF Value Line suggests the stock is modestly overvalued based on its historical ratios, past performance and future earnings projections.

1466546092941471744.png

GuruFocus rated EOG’s financial strength 6 out of 10. In addition to a comfortable level of interest coverage, the high Altman Z-Score of 3.46 indicates the company is in good standing. The return on invested capital also overshadows the return on invested capital, meaning value is being created as the company grows.

The company’s profitability scored a 7 out of 10 rating as its margins and returns on equity, assets and capital outperform over half of its competitors. EOG also has a high Piotroski F-Score of 7 out of 9, implying business conditions are healthy. Although revenue per share has declined over the past several years, it still 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 EOG, Bill Nygren (Trades, Portfolio) has the largest stake with 1.04% of its outstanding shares. PRIMECAP Management (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio) and Pioneer Investments also have significant positions in the stock.

FedEx

After selling out of a FedEx (FDX, Financial) position in the third quarter of 2019, Black picked up a new 4,993-share holding, allocating it to 1.13% of the equity portfolio. Shares traded for an average price of $271.73 each during the quarter.

1466550022094155776.png

The courier company, which is headquartered in Memphis, Tennessee, has a market cap of $62.90 billion; its shares were trading around $238.49 on Friday with a price-earnings ratio of 12.58, a price-book ratio of 2.59 and a price-sales ratio of 0.73.

According to the GF Value Line, the stock is fairly valued currently.

1466788905432084480.png

FedEx’s financial strength was rated 4 out of 10 by GuruFocus. Although the company has issued approximately $2.6 billion in new long-term debt over the past three years, it is at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 2.61, however, indicates it is under some pressure since assets are building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, so value is being created.

The company’s profitability fared better with an 8 out of 10 rating. Although the operating margin is in decline, FedEx has strong returns that outperform over half of its industry peers and a high Piotroski F-Score of 7. Consistent earnings and revenue growth also contributed to a four-star predictability rank. GuruFocus says companies with this rank return an average of 9.8% annually.

With a 5.14% stake, Dodge & Cox is the largest guru shareholder of FedEx. PRIMECAP Management (Trades, Portfolio), Hotchkis & Wiley, Bill Gates (Trades, Portfolio)’ foundation trust and Mason Hawkins (Trades, Portfolio), among several other gurus, also own the stock.

West Fraser Timber

Impacting the equity portfolio by 1.16%, the investor increased the West Fraser Timber holding by 99.38%, buying 14,459 shares. During the quarter, the stock traded for an average per-share price of $74.59.

Black now holds 29,008 shares total, accounting for 2.33% of the equity portfolio and his third-largest holding. GuruFocus estimates he has gained 22.59% on the investment so far.

1466796225239150592.png

The Canadian forestry company, which produces lumber, plywood, pulp, newsprint, wood chips and other products, has a $9.2 billion market cap; its shares were trading around $86.09 on Friday with a price-earnings ratio of 3.21, a price-book ratio of 1.27 and a price-sales ratio of 0.9.

Based on the GF Value Line, the stock appears to be fairly valued currently.

1466797079748898816.png

West Fraser Timber’s financial strength and profitability were both rated 8 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the robust Altman Z-Score of 5.04 indicates it is in good standing. Value creation is also occurring since the ROIC exceeds the WACC.

The company is being supported by strong margins and returns that outperform a majority of competitors as well as a high Piotroski F-Score of 8. As a result of steady earnings and revenue growth, West Fraser Timber has a three-star predictability rank. GuruFocus data shows companies with this rank return, on average, 8.2% annually.

Murray Stahl (Trades, Portfolio) is West Fraser’s largest guru shareholder with a 0.28% position. Other guru investors are Jeremy Grantham (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Ken Heebner (Trades, Portfolio), Pioneer Investments, Lee Ainslie (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio).

Laboratory Corp of America

In his largest transaction of the quarter with a -1.43% impact on the equity portfolio, Black dumped all 5,417 shares of Laboratory Corp of America (LH, Financial). The stock traded for an average price of $293.32 per share during the quarter.

He gained an estimated 28.95% on the investment according to GuruFocus. It was previously his fifth-largest holding.

1466816703349616640.png

More commonly known as Labcorp, the Burlington, North Carolina-based company, which provides clinical laboratory testing services, has a market cap of $28.05 billion; its shares were trading around $291.21 on Friday with a price-earnings ratio of 10.4, a price-book ratio of 2.67 and a price-sales ratio of 1.73.

The GF Value Line suggests the stock is modestly overvalued currently.

1466819618499948544.png

GuruFocus rated Labcorp’s financial strength 5 out of 10. Along with adequate interest coverage, the high Altman Z-Score of 3.93 indicates the company is in good standing. The ROIC also significantly surpasses the WACC, so good value creation is occurring.

The company’s profitability fared better, scoring a 9 out of 10 rating on the back of an expanding operating margin. Labcorp is being bolstered by strong returns that top a majority of industry peers, a high Piotroski F-Score of 9 and consistent earnings and revenue growth. It also has a four-star predictability rank.

Of the gurus invested in Labcorp, the Vanguard Health Care Fund (Trades, Portfolio) has the largest stake with 1.45% of its outstanding shares. Andreas Halvorsen (Trades, Portfolio), John Rogers (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Jana Partners (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Charles Brandes (Trades, Portfolio) and Cohen are other notable shareholders.

Quest Diagnostics

The guru sold 9,349 shares of Quest Diagnostics (DGX, Financial), which had an impact of -1.18% on the equity portfolio. During the quarter, shares traded for an average price of $146.26 each.

GuruFocus estimates he gained 7.81% on the investment, which was established in the first quarter of the year.

1466824472425361408.png

Headquartered in Secaucus, New Jersey, the clinical laboratory company, which provides diagnostic testing, information and other services, has a $19.22 billion market cap; its shares were trading around $157.35 on Friday with a price-earnings ratio of 9.42, a price-book ratio of 3.02 and a price-sales ratio of 1.86.

According to the GF Value Line, the stock is fairly valued currently.

1466826702574546944.png

Quest Diagnostic’s financial strength was rated 5 out of 10 by GuruFocus. In addition to sufficient interest coverage, the high Altman Z-Score of 3.99 indicates the company is in good standing. Value creation is also occurring since the ROIC is higher than the WACC.

The company’s profitability scored an 8 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 9. Steady earnings and revenue growth have also contributed to its 3.5-star predictability rank. GuruFocus has found that companies with this rank return an annual average of 9.3%.

With a 2.24% stake, Chris Davis (Trades, Portfolio) is the company’s largest guru shareholder. Grantham and Pioneer Investments also have significant stakes in Quest Diagnostics.

Additional trades and portfolio composition

Black also established positions in Webster Financial Corp. (WBS, Financial), Himax Technologies Inc. (HIMX, Financial), Freeport-McMoRan Inc. (FCX, Financial) and Lakeland Industries Inc. (LAKE, Financial) during the quarter, sold out of Lumen Technologies Inc. (LUMN, Financial) and Blackstone Inc. (BX, Financial) and boosted its holding of Civitas Resources Inc. (CIVI, Financial).

The guru’s $97 million equity portfolio, which is composed of 102 stocks, is heavily invested in the technology, financial services and consumer cyclical sectors.

1466846130674561024.png

Disclosures

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