Noted investor Bob Rodriguez once helmed the FPA Capital Fund (Trades, Portfolio), which celebrated its 30th birthday in July, but in recent years narrowed his duties to chief executive officer of FPA Capital and strategic advisor to several other funds. Dennis Bryan and Arik Ahitov, its new managers, outperformed the benchmark for the year’s first half, did not have robustly optimistic hopes for the economy going into the third quarter, saying in their second quarter shareholder letter:
“Similar to the first quarter and as mentioned above, the major indices reached new highs in the second quarter. However, unlike the first quarter, we believe the fundamentals for the economy are improving. In our prior letter, we did not express any confidence that the economy was improving because the fundamentals were so weak. As it turns out, the latest report from the government statisticians is that the first quarter GDP declined nearly 3%, even though the January 2014 consensus expectation was for 2.6% “growth.” Thus, the bar has been set relatively low for subsequent quarterly growth for the remainder of 2014, including the second quarter.”
In the third quarter they bought no new stocks but added to their holdings in 11 existing positions, which brought their total portfolio to 27 stocks valued at $926 million. The largest increases they made during the third quarter were to: Aaron’s Inc. (AAN, Financial), SM Energy Co. (SM, Financial), Cimarex Energy Co. (XEC, Financial) and Ensco PLC (ESV, Financial).
Aaron’s Inc. (AAN, Financial)
FPA Capital increased its stake in Aaron’s Inc. 78.3% to 792,696 shares from 444,500 shares. The quarter’s average share price was $27.
Aaron's Inc. was established in 1955 by its former chairman. Aaron's Inc. has a market cap of $1.74 billion; its shares were traded at around $24.01 with a P/E ratio of 19.6 and P/S ratio of 0.80. The dividend yield of Aaron's Inc. stocks is 0.40%. Aaron's Inc. had an annual average earnings growth of 10.3% over the past 10 years. GuruFocus rated Aaron's Inc. the business predictability rank of 4.5-star.
The fund increased its stake in SM Energy 48.7% to 448,500 shares from 301,500 shares. The quarter’s average stock price was $82.
SM Energy Co. was founded in 1908 and incorporated in Delaware in 1915. SM Energy Co has a market cap of $3.76 billion; its shares were traded at around $55.83 with a P/E ratio of 19.6 and P/S ratio of 1.60. The dividend yield of SM Energy Co. stocks is 0.2%. SM Energy Co had an annual average earnings growth of 13.9% over the past 10 years. GuruFocus rated SM Energy Co. the business predictability rank of 3.5-star.
Cimarex Energy Co. (XEC, Financial)
The fund increased its position in Cimarex 39.4% to 245,200 shares from 175,900. The stock’s share price averaged $138.
Cimarex Energy Company, a Delaware corporation, was formed in February 2002 as a wholly owned subsidiary of Tulsa-based Helmerich & Payne Inc. Cimarex Energy Co. has a market cap of $9.25 billion; its shares were traded at around $106.25 with a P/E ratio of 14.40 and P/S ratio of 3.80. The dividend yield of Cimarex Energy Co. stocks is 0.50%.
The fund increased its holding of Ensco 31.4% to 1,250,500 shares from 951,800 shares. The stock’s average price for the quarter was $50.
Ensco PLC was formed as a Texas corporation in 1975 and was reincorporated in Delaware in 1987. Ensco Plc has a market cap of $8.67 billion; its shares were traded at around $37.00 with and P/S ratio of 1.80. The dividend yield of Ensco Plc stocks is 8.1%. Ensco Plc had an annual average earnings growth of 12.0% over the past 10 years.
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