Mason Hawkins (Trades, Portfolio) has announced a 6,206,894-share stake in Actuant Corp. (ATU, Financial), taking over 10.4% of the small-cap company that has a business predictability rating from GuruFocus of one star and a P/E ratio near a 10-year high.
Southeastern Asset Management Inc., where Hawkins is chairman and CEO, disclosed the stake on Tuesday in a filing recording the share count on Oct. 31 for the Longleaf Partners Small-Cap Fund. Shares of the company closed at $22.80 on Friday, Oct. 30, and at $23.99 on Tuesday, a 6% increase. In the past year the company’s price has declined 25%.
Actuant is a diversified industrial company operating in niche markets such as hydraulic tools, energy products and services, and engineered position and motion control systems. Its fourth quarter sales declined 15% year over year driven by a stronger U.S. dollar and core sales decline. Net earnings also fell to $22.1 million from $35.6 million the previous year, in line with expectations.
The company has been experiencing weakness in several of its end markets, such as energy, general industrial and agriculture and has been responding by reducing business costs. For 2016, it is expecting soft demand to linger. Cash flow generation remains strong at the company, however, as it marked its 15th consecutive year of free cash flow conversation of net earnings of more than 100%. This represented a key factor for Bill Frels' (Trades, Portfolio) firm, Mairs & Power, to add the company to its small-cap fund in the first quarter.
“Its end markets include the energy and agricultural sectors, so the company’s revenues have been under pressure driven by lower oil and commodity food prices in these cyclical businesses,” Mairs & Power managers said in their shareholder letter. “As the stock price has pulled back significantly, it has created a very compelling investment opportunity due to the company’s strong cash flow generation.”
The company was also a popular pick for value gurus in the second quarter. Michael Price (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) initiated a position, while Joel Greenblatt (Trades, Portfolio), James Barrow (Trades, Portfolio), Richard Snow (Trades, Portfolio) and Bill Frels (Trades, Portfolio) (Mairs & Power) increased their positions by double digit percentages or more. Third Avenue Management (Trades, Portfolio) held their position steady at 0.43% of shares outstanding, and no gurus reduced or sold their positions.
Actuant also has a P/B ratio of 2.08 and P/S ratio of 1.19. Southeastern Asset Management’s top stocks are Level 3 Communications (LVLT, Financial), Loews Corp. (L, Financial) and Aon PLC (AON, Financial).
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