Polaris Capital Management leader Bernard Horn (Trades, Portfolio) released his first-quarter portfolio earlier this month.
Seeking to generate strong risk-adjusted returns and capital appreciation, the guru’s Boston-based firm invests in discounted but high-quality stocks in developed as well as emerging markets.
Keeping these criteria in mind, the 13F filing showed Horn’s firm entered five new positions during the quarter, which were SLM Corp. (SLM, Financial), Open Text Corp. (TSX:OTEX, Financial), Sally Beauty Holdings Inc. (SBH, Financial), NOV Inc. (NOV, Financial) and Nomad Foods Ltd. (NOMD, Financial). It also sold out of three stocks and added to or reduced a number of other existing holdings.
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
SLM
Polaris invested in 284,800 shares of SLM (SLM, Financial), allocating 1.12% of the equity portfolio to the position. The stock traded for an average price of $18.96 per share during the quarter.
Also known as Sallie Mae, the Newark, Delaware-based financial services company, which provides student loans, has a $5 billion market cap; its shares were trading around $18.56 on Wednesday with a price-earnings ratio of 8.57, a price-book ratio of 2.81 and a price-sales ratio of 3.28.
The GF Value Line suggests the stock is modestly overvalued currently based on its historical ratios, past financial performance and future earnings projections.
GuruFocus rated SLM’s financial strength 3 out of 10. Despite the company issuing approximately $1.1 billion in new long-term debt over the past three years, it is still a manageable level.
The company’s profitability scored a 5 out of 10 rating, driven by margins and returns on equity, assets and capital that outperform over half of its competitors. SLM also has a low Piotroski F-Score of 2 out of 9, meaning operations are in poor shape, and a predictability rating of one out of five stars. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in SLM, ValueAct Holding LP has the largest stake with 5.16% of its outstanding shares. Hotchkis & Wiley and Julian Robertson (Trades, Portfolio) also own the stock.
Open Text
The firm picked up 122,700 shares of Open Text, dedicating 1.11% of the equity portfolio to the holding. During the quarter, shares traded for an average price of 56.25 Canadian dollars ($72.10) each.
The Canadian company, which provides enterprise information management software, has a market cap of CA$13.09 billion; its shares were trading around CA$48.90 on Wednesday with a price-earnings ratio of 22.44, a price-book ratio of 2.55 and a price-sales ratio of 3.04.
According to the GF Value Line, the stock is modestly undervalued currently.
OpenText’s financial strength was rated 5 out of 10 by GuruFocus. In addition to insufficient interest coverage, the Altman Z-Score of 1.99 indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing. The return on invested capital exceeds the weighted average cost of capital, however, so the company is creating value as it grows.
The company’s profitability fared better with a 10 out of 10 rating, supported by operating margin expansion, strong returns that top over half its industry peers and a high Piotroski F-Score of 8, meaning conditions are healthy. Due to a slowdown in revenue per share growth over the past year, however, OpenText’s four-star predictability rank is on watch. GuruFocus data shows companies with this rank return 9.8% annually.
With a 2.21% stake in its Canada-listed shares, David Herro (Trades, Portfolio) is Open Text’s largest guru shareholder. The iShares MSCI ACWI ex. U.S. ETF also has a position in the company.
Sally Beauty
Horn’s firm entered a 301,800-share investment in Sally Beauty (SBH, Financial), giving it 1.01% space in the equity portfolio. The stock traded for an average per-share price of $17.34 during the quarter.
The retailer of beauty supplies, which is headquartered in Denton, Texas, has a $1.52 billion market cap; its shares were trading around $14.29 on Wednesday with a price-earnings ratio of 6.27, a price-book ratio of 5.59 and a price-sales ratio of 0.41.
Based on the GF Value Line, the stock appears to be modestly undervalued currently.
GuruFocus rated Sally Beauty’s financial strength 5 out of 10 on the back of adequate interest coverage. The Altman Z-Score of 2.8, however, indicates the company is under some pressure. The ROIC also overshadows the WACC, so value creation is occurring.
The company’s profitability fared even better, scoring an 8 out of 10 rating. Although the operating margin is in decline, its returns outperform a majority of competitors. Sally Beauty also has a high Piotroski F-Score of 7 as well as a one-star predictability rank.
Ken Fisher (Trades, Portfolio) is Sally Beauty’s largest guru shareholder with a 3.28% stake. Other guru investors are Mario Gabelli (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, John Hussman (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Jeff Auxier (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss.
NOV
Polaris purchased 232,322 shares of NOV (NOV, Financial), expanding the equity portfolio by 0.97%. During the quarter, the stock traded for an average price of $17.49 per share.
The Houston-based oil and gas company, which supplies drilling rig equipment and related products, has a market cap of $7.49 billion; its shares were trading around $19.13 on Wednesday with a price-book ratio of 1.51 and a price-sales ratio of 1.25.
The GF Value Line suggests the stock is significantly overvalued currently.
NOV’s financial strength was rated 6 out of 10. Even though the Altman Z-Score of 1.63 warns it could be in danger of going bankrupt, the company has debt-related ratios that are outperforming versus other industry players as well as its own history.
The company’s profitability did not fare as well with a 4 out of 10 rating as a result of negative margins and returns that underperform over half of its industry peers. NOV also has a moderate Piotroski F-Score of 5, meaning conditions are typical for a stable company. Although revenue per share has declined in recent years, it also has a one-star predictability rank.
Of the gurus invested in NOV, Richard Pzena (Trades, Portfolio) has the largest stake with 9.82% of its outstanding shares. First Eagle Investment (Trades, Portfolio)s, Hotchkis & Wiley, Azvalor International FI and Fisher also have significant positions in the stock.
Nomad Foods
The guru’s firm bought 92,561 shares of Nomad Foods (NOMD, Financial), which make up 0.45% of the equity portfolio. Shares traded for an average price of $24.35 each during the quarter.
The frozen foods producer headquartered in the U.K. has a $3.61 billion market cap; its shares were trading around $20.69 on Wednesday with a price-earnings ratio of 16.85, a price-book ratio of 1.38 and a price-sales ratio of 1.21.
According to the GF Value Line, the stock is modestly undervalued currently.
GuruFocus rated Nomad’s financial strength 5 out of 10, driven by adequate interest coverage. The Altman Z-Score of 1.22, however, warns the company could be at risk of bankruptcy. The ROIC also exceeds the WACC, suggesting value is being created.
The company’s profitability scored a 6 out of 10 rating on the back of an expanding operating margin, returns that outperform over half of its competitors and a moderate Piotroski F-Score of 4.
With a 2.52% stake, Simons’ firm is the largest guru shareholder of Nomad Foods. Chuck Royce (Trades, Portfolio) and Gabelli also own the stock.
Additional trades and portfolio performance
During the quarter, Horn’s firm also divested of its positions in Laboratory Corp of America Holdings (LH, Financial), Sumitomo Mitsui Trust Holdings Inc. (TSE:8309, Financial) and Andritz AG (WBO:ANDR, Financial) as well as boosted its Flatex AG (XTER:FTK, Financial) holding and curbed its Antofagasta PLC (LSE:ANTO, Financial) investment.
Polaris’ $469 million equity portfolio, which is composed of 101 stocks, is most heavily invested in the financial services sector with a weight of 23.1%, followed by a smaller representation in the consumer cyclical, basic materials and industrials spaces.
GuruFocus data shows the firm returned 15.39% in 2021, underperforming the S&P 500’s return of 28.7%.
