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Steven Scruggs' Top 5 Trades of the 4th Quarter

FPA Queens Road Small Cap Value Fund releases quarterly portfolio

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Jan 17, 2022
Summary
  • Fund boosts holdings in MGIC Investment and Oshkosh.
  • Fund reduces positions in Treehouse Foods, L.B. Foster and Synaptics.
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Steven Scruggs (Trades, Portfolio), manager of the FPA Queens Road Small Cap Value Fund, disclosed in a regulatory portfolio filing that his firm’s top five trades during the fourth quarter of 2021 included boosts to its holdings of MGIC Investment Corp. (MTG, Financial) and Oshkosh Corp. (OSK, Financial) and reductions in its holdings of Treehouse Foods Inc. (THS, Financial), L.B. Foster Co. (FSTR, Financial) and Synaptics Inc. (SYNA, Financial).

The fund constructs a diversified portfolio of small-cap companies using fundamental analysis and bottom-up stock picking. The fund’s research process considers quantitative and qualitative analysis, balance sheet and valuation, management, sector and industry trends and Benjamin Graham’s principle of finding companies trading at a discount to intrinsic value.

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As of November 2021, the fund’s $423 million equity portfolio contains 52 stocks with a quarterly turnover of 1%. The top four sectors in terms of weight are financial services, technology, industrials and consumer cyclical, representing 27.29%, 24.96%, 16.45% and 10.22% of the equity portfolio.

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MGIC Investment

The fund purchased 150,000 shares of MGIC Investment (

MTG, Financial), doubling the position and increasing the equity portfolio by 0.50%.

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Shares of MGIC Investment averaged $15.46 during the fourth 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 financial strength 4 out of 10 on the back of interest coverage and debt ratios that are underperforming more than 56% of global competitors despite the company having a high Piotroski F-score of 8.

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Other gurus with holdings in MGIC Investment include

Howard Marks (Trades, Portfolio)’ Oaktree Capital Management and Chuck Royce (Trades, Portfolio)’s Royce Investment Partners.

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Oshkosh

The fund added 15,000 shares of Oshkosh (

OSK, Financial), boosting the position by 16.54% and its equity portfolio by 0.38%.

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Shares of Oshkosh averaged $108.68 during the fourth quarter; the stock is significantly overvalued based on Friday’s price-to-GF Value ratio of 1.47.

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GuruFocus ranks the Wisconsin-based military truck manufacturing company’s profitability 7 out of 10 on the back of returns outperforming more than 77% of global competitors.

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Treehouse Foods

The fund sold 47,384 shares of Treehouse Foods (

THS, Financial), trimming 23.78% of the position and 0.42% of its equity portfolio.

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Shares of Treehouse Foods averaged $38.42 during the fourth quarter; the stock is fairly valued based on Friday’s price-to-GF Value ratio of 0.91.

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GuruFocus ranks the Oak Brook, Illinois-based packaged food company’s financial strength 4 out of 10 on several warning signs, which include a weak Altman Z-score of 1.41 and interest coverage and debt ratios that are underperforming more than 80% of global competitors.

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L.B. Foster

The fund sold 45,385 shares of L.B. Foster (

FSTR, Financial), trimming 28.71% of the holding and 0.18% of its equity portfolio.

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Shares of L.B. Foster averaged $16.05 during the fourth quarter; the stock is fairly valued based on Friday’s price-to-GF Value ratio of 0.98.

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GuruFocus ranks the Pittsburgh-based rail manufacturing company’s financial strength 5 out of 10 on the back of debt-to-equity ratios outperforming more than 69% of global competitors despite having a modestly strong Altman Z-score of 3.08 and a weak Piotroski F-score of 3.

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Synaptics

The fund sold 4,000 shares of Synaptics (

SYNA, Financial), curbing 3.03% of the position and 0.18% of its equity portfolio.

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Shares of Synaptics averaged $206.77 during the fourth quarter; the stock is significantly overvalued based on Friday’s price-to-GF Value ratio of 3.95.

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GuruFocus ranks the San Jose, California-based semiconductor company’s financial strength 6 out of 10 on the back of a strong Altman Z-score of 9.5 despite interest coverage and debt ratios underperforming more than 56% of global competitors.

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