Robert Olstein Buys Scotts Miracle-Gro, Boosts 2 Top Holdings

Guru reveals 2nd-quarter portfolio

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Jul 26, 2022
Summary
  • The investor added to his holdings of WestRock and Zimmer Biomet.
  • He whittled down his Timken position.
  • Olstein sold out of JetBlue.
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Olstein Capital Management founder and Chief Investment Officer

Robert Olstein (Trades, Portfolio) released his firm's second-quarter equity portfolio earlier this week.

In order to attain long-term capital appreciation, the guru's New York-based firm invests in undervalued companies that have good financial strength, a competitive edge and are able to generate free cash flow. The investment team also takes downside risk into consideration before pursuing a position.

Keeping these criteria in mind, 13F filings show Olstein entered one new holding during the three months ended June 30, sold out of four stocks and added to or trimmed a number of other existing investments. Notable trades for the quarter consisted of a new position in The Scotts Miracle-Gro Co. (

SMG, Financial), increased bets on WestRock Co. (WRK, Financial) and Zimmer Biomet Holdings Inc. (ZBH, Financial), a reduction of The Timken Co. (TKR, Financial) holding and the divestment of JetBlue Airways Corp. (JBLU, Financial).

Investors should be aware 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.

Scotts Miracle-Gro

Olstein invested in 59,000 shares of Scotts Miracle-Gro (

SMG, Financial), allocating 0.70% of the equity portfolio to the position. The stock traded for an average price of $99.23 per share during the quarter.

The Marysville, Ohio-based company, which manufactures lawn, garden and pest control products, has a $4.53 billion market cap; its shares were trading around $81.76 on Tuesday with a price-earnings ratio of 11.50, a price-book ratio of 4.65 and a price-sales ratio of 1.01.

The GF Value Line suggests the stock, while undervalued, is a possible value trap currently based on historical ratios, past financial performance and future earnings projections. As such, potential investors should do thorough research before making a decision.

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GuruFocus rated Scotts Miracle-Gro’s financial strength 4 out of 10. Although the company has issued new long-term debt over the past three years, it is at a manageable level as a result of adequate interest coverage. The moderate Altman Z-Score of 2.35, however, indicates the company is under some pressure since the days inventory is building up. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.

The company’s profitability fared better, scoring an 8 out of 10 rating. Although its margins are contracting, the returns on equity, assets and capital are outperforming over half of its competitors. Scotts Miracle-Gro also has a low Piotroski F-Score of 3 out of 9, indicating operations are in poor shape. Due to losses in operating income and declining revenue per share, the predictability rank of one out of five stars is on watch. 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 Scotts Miracle-Gro,

First Eagle Investment (Trades, Portfolio) has the largest stake with 3.16% of its outstanding shares. Ken Fisher (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) also have positions in the stock.

WestRock

The investor expanded the WestRock (

WRK, Financial) holding by 84.87%, picking up 230,000 shares. The transaction had an impact of 1.51% on the equity portfolio. Shares traded for an average price of $47.03 each during the quarter.

Olstein now holds 501,000 shares total, which account for 3.28% of the equity portfolio and is his largest holding. GuruFocus estimates he has gained 8% on the investment over its lifetime.

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The company headquartered in Atlanta, which manufactures paper and corrugated packaging products, has a market cap of $10.41 billion; its shares were trading around $40.83 on Tuesday with a price-earnings ratio of 13.80, a price-book ratio of 0.92 and a price-sales ratio of 0.54.

According to the GF Value Line, the stock is modestly undervalued currently.

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WestRock’s financial strength was rated 5 out of 10 by GuruFocus. In addition to weak interest coverage, the low Altman Z-Score of 1.38 warns the company could be at risk of bankruptcy. The ROIC is also being eclipsed by the WACC, so it is struggling to create value.

The company’s profitability scored a 7 out of 10 rating on the back of an expanding operating margin. Its returns, however, are underperforming at least half of its industry peers. WestRock also has a perfect Piotroski F-Score of 9, indicating conditions are healthy, and a one-star predictability rank.

With a 01.81% stake,

Sarah Ketterer (Trades, Portfolio) is the company’s largest guru shareholder. Other top guru shareholders include Steven Cohen (Trades, Portfolio), Arnold Van Den Berg (Trades, Portfolio), Dalio, Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Greenblatt.

Zimmer Biomet

The guru boosted the Zimmer Biomet (

ZBH, Financial) position by 85%, buying 85,000 shares. The transaction impacted the equity portfolio by 1.49%. During the quarter, the stock traded for an average per-share price of $118.79.

Olstein now holds 185,000 shares in total, which represent his second-largest holding with a weight of 3.25%. GuruFocus says he has gained an estimated 14.47% on the investment so far.

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The Warsaw, Indiana-based medical device company, which manufactures orthopedic reconstructive implants, supplies and surgical equipment, has a $22.63 billion market cap; its shares were trading around $108 on Tuesday with a price-earnings ratio of 104.85, a price-book ratio of 1.89 and a price-sales ratio of 2.96.

Based on the GF Value Line, the stock appears to be modestly undervalued currently.

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GuruFocus rated Zimmer Biomet’s financial strength 5 out of 10. Despite having sufficient interest coverage, the Altman Z-Score of 2.55 indicates the company is under some pressure. In addition, the WACC exceeds the ROIC, so it is struggling to create value.

The company’s profitability fared better with a 7 out of 10 rating. While the operating margin is declining, the returns outperform at least half of its competitors. Zimmer Biomet also has a moderate Piotroski F-Score of 6, suggesting conditions are typical for a stable company. Due to declining revenue per share over the past several years, the one-star predictability rank is on watch.

PRIMECAP Management (Trades, Portfolio) has the largest stake in Zimmer Biomet with 2.35% of its outstanding shares. Dodge & Cox, Hotchkis & Wiley and the T Rowe Price Equity Income Fund (Trades, Portfolio) also have notable positions in the stock.

Timken

Impacting the equity portfolio by -0.71%, Olstein curbed his Timken (

TKR, Financial) holding by 79.5%, selling 93,100 shares. The stock traded for an average price of $58.42 per share during the quarter.

The investor now holds 24,000 shares total, which make up 0.19% of the equity portfolio. He has gained approximately 6.41% on the investment since the second quarter of 2021.

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The company headquartered in Canton, Ohio, which manufactures bearings and power transmission products, has a market cap of $4.41 billion; its shares were trading around $59.50 on Tuesday with a price-earnings ratio of 12.18, a price-book ratio of 1.94 and a price-sales ratio of 1.07.

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

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Timken’s financial strength was rated 6 out of 10 by GuruFocus, driven by adequate interest coverage. The Altman Z-Score of 2.77, though, indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing.

The company’s profitability scored an 8 out of 10 rating on the back of an expanding operating margin and returns that top over half of its industry peers. Timken is also supported by a moderate Piotroski F-Score of 6 and a one-star predictability rank.

Of the gurus invested in Timken,

Chuck Royce (Trades, Portfolio) has the largest holding with 0.49% of its outstanding shares. Greenblatt, Keeley-Teton Advisors, LLC (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Gabelli also own the stock.

JetBlue

With an impact of -1.52% on the equity portfolio, the investor dumped his 812,000 remaining shares of JetBlue (

JBLU, Financial). During the quarter, shares traded for an average price of $10.76 each.

GuruFocus estimates Olstein lost 26.32% on the investment.

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The New York-based low-cost airline has a $2.63 billion market cap; its shares were trading around $8.18 on Tuesday with a price-book ratio of 0.73 and a price-sales ratio of 0.38.

According to the GF Value Line, the stock, while undervalued, is a possible value trap currently. As such, potential investors should do thorough research before making a decision.

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GuruFocus rated JetBlue’s financial strength 4 out of 10. As a result of the company issuing new long-term debt over the past three years, it has poor interest coverage. The low Altman Z-Score of 0.83 warns the company could be at risk of bankruptcy.

The company’s profitability scored a 6 out of 10 rating even though its margins and returns are negative and underperforming versus competitors. JetBlue is being supported by a moderate Piotroski F-Score of 6. Despite recording losses in operating income and declines in revenue per share, it still has a one-star predictability rank.

PRIMECAP is the airline’s largest guru shareholder with a 4.66% stake. JetBlue is also being held by Donald Smith & Co., Simons’ firm, Royce, Jones and First Eagle.

Additional trades and portfolio performance

During the quarter, Olstein also added to his Alphabet Inc. (

GOOG, Financial) and SS&C Technologies Holdings Inc. (SSNC, Financial) positions, cut back the holdings of Winnebago Industries Inc. (WGO, Financial) and Meta Platforms Inc. (META, Financial) and sold out of Dollar Tree Inc. (DLTR, Financial).

The guru's $667 million equity portfolio, which consists of 104 stocks, is most heavily invested in the consumer cyclical, industrials, health care and financial services sectors.

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The Olstein All Cap Value Fund returned 25.08% in 2021, slightly underperforming the S&P 500’s 28.07% return and the Russell 3000 Value Index’s return of 25.37%.

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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
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