Steven Romick (Trades, Portfolio), one of several managers of the FPA Crescent Fund, disclosed this week that the fund's top trades during the third quarter included the closure of the holdings in Open Text Corp. (OTEX, Financial) and Baidu Inc. (HKSE:09888, Financial), new investments in Icon PLC (ICLR, Financial) and Vornado Realty Trust (VNO, Financial) and boosts to the positions in International Flavors & Fragrances Inc. (IFF, Financial) and CarMax Inc. (KMX, Financial).
The fund, part of Los Angeles-based First Pacific Advisors (Trades, Portfolio), seeks long-term capital appreciation in both long and short equity positions. The fund seeks stocks and convertible bonds that reflect low cyclically-adjusted price-earnings ratios and trade at discounts to private market value.
As of September, the fund’s $5.48 billion equity portfolio contains 134 stocks, with eight new positions and a quarterly turnover ratio of 3%. The top four sectors in terms of weight are financial services, communication services, technology and basic materials, representing 25.67%, 21.52%, 15.21% and 12.03% of the equity portfolio.
Investors should be aware that portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Open Text
The fund sold all 2,341,452 shares of Open Text (OTEX, Financial), trimming 1.48% of its equity portfolio. Shares averaged $35.31 during the third quarter.
GuruFocus’ GF Value Line labeled the Waterloo, Ontario-based software company a possible value trap based on its low price-to-GF Value ratio of 0.54 as of Friday and low momentum rank of 4 out of 10.
Despite low momentum and modest financial strength, Open Text has a GF Score of 87 out of 100, driven by a profitability rank of 9 out of 10 and a rank of 8 out of 10 for growth and GF Value.
Open Text’s profitability ranks 9 out of 10 on several positive investing signs, which include a three-star business predictability rank, a high Piotroski F-score of 7 and an operating margin that has increased approximately 2.2% per year on average over the past five years and outperforms more than 88% of global competitors.
Gurus with holdings in Open Text include Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Charles Brandes (Trades, Portfolio)’ Brandes Investment.
Baidu
The fund sold all 1,100,248 Hong Kong-based shares of Baidu (HKSE:09888, Financial), trimming 0.35% of its equity portfolio. Shares averaged 134.47 Hong Kong dollars ($17.13) during the third quarter.
GuruFocus’ GF Value Line labels the Chinese online search giant a possible value trap based on its low price-to-GF Value ratio of 0.68 as of Friday. Despite this, Baidu’s U.S.-based shares (BIDU, Financial) have a GF Score of 92 out of 100 based on a rank of 9 out of 10 for profitability and growth, a rank of 7 out of 10 for momentum and GF Value and a financial strength rank of 6 out of 10.
Baidu’s profitability ranks 9 out of 10: Even though net margins and returns underperform over 60% of global competitors, Baidu has 10 years of profitability over the past 10 years.
Gurus with holdings in Baidu’s U.S.-based shares include PRIMECAP Management (Trades, Portfolio), Dodge & Cox and Baillie Gifford (Trades, Portfolio).
Icon PLC
The fund invested in 114,967 shares of Icon PLC (ICLR, Financial), giving the position 0.39% equity portfolio weight. Shares averaged $217.64 during the third quarter. GuruFocus’ GF Value Line labeled the company a possible value trap due to its low price-to-GF Value ratio of 0.54 as of Friday and modest financial strength rank of 5 out of 10.
Despite modest financial strength, the Dublin, Ireland-based medical research company has a GF Score of 94 out of 100 on the back of a growth rank of 10 out of 10, a profitability rank of 9 out of 10 and a rank of 8 out of 10 for momentum and GF Value.
Vornado Realty Trust
The fund purchased 877,469 shares of Vornado Realty Trust (VNO, Financial), giving the position 0.37% equity portfolio weight. Shares averaged $27.89 during the third quarter. GuruFocus’ GF Value Line labeled the company a possible value trap due to its low price-to-GF Value ratio of 0.46 as of Friday and low ranks for financial strength and growth.
The New York-based office and retail REIT has a GF Score of 65 out of 100 based on a profitability rank of 7 out of 10, a momentum rank of 5 out of 10, a GF Value rank of 4 out of 10, a financial strength rank of 3 out of 10 and a growth rank of 2 out of 10.
International Flavors & Fragrances
The fund added 538,491 shares of International Flavors & Fragrances (IFF, Financial), boosting the position by 51.97% and its equity portfolio by 0.89%. Shares averaged $114.56 during the third quarter.
GuruFocus’ GF Value Line labeled the New York-based specialty ingredients company a possible value trap based on its low price-to-GF Value ratio of 0.63 as of Friday and modest financial strength rank of 5 out of 10.
Despite modest financial strength, International Flavors & Fragrances has a GF Score of 87 out of 100, driven by a GF Value rank of 10 out of 10, a growth rank of 7 out of 10 and a rank of 8 out of 10 for momentum and profitability.
CarMax
The fund added 311,489 shares of CarMax (KMX, Financial), increasing the position by 33.59% and its equity portfolio by 0.37%.
Shares of CarMax averaged $91.38 during the third quarter; the stock is significantly undervalued based on its price-to-GF Value ratio of 0.35 as of Friday.
The Richmond, Virginia-based car retail company has a GF Score of 89 out of 100, driven by a growth rank of 10 out of 10, a profitability rank of 9 out of 10 and a momentum rank of 8 out of 10 despite financial strength and GF Value ranking just 4 out of 10.
