On Friday, Ken Heebner (Trades, Portfolio)’s Capital Growth Management (CGM) disclosed 22 new buys for fourth-quarter 2017 among three portfolios: CGM Mutual Fund (LOMMX), CGM Focus Fund (CGMFX) and CGM Realty Fund (CGMRX).
CGM has a history of making bold and swift sector calls and making big bets based on Heebner’s convictions. The firm’s top six bets for the quarter include Petroleo Brasileiro SA Petrobas (PBR, Financial), Skechers USA Inc. (SKX, Financial), United Rentals Inc. (URI, Financial), Teck Resources Ltd. (TECK, Financial), Melco Resorts and Entertainment Ltd. (MLCO, Financial) and Best Buy Co. Inc. (BBY, Financial).
Petroleo Brasileiro
CGM invested in 6.5 million shares of Brazil-based Petroleo Brasileiro for an average price of $10.23 per share. With this transaction, the firm added 2.77% to its portfolios.
While Petroleo Brasileiro primarily engages in exploration and production, the integrated energy company contains other business segments, including refining, transportation and marketing, distribution, gas, power and biofuel. The company’s profitability ranks 8 out of 10, driven primarily by expanding margins and a strong Piotroski F-score of 8. Petroleo Brasileiro’s operating margin is near a 10-year high of 23.8% and outperforms 85% of global competitors.
Skechers
CGM invested in 1.76 million shares of Skechers for an average price of $32.33 per share. The firm expanded its portfolios by 2.76% with this transaction.
Skechers offers various styles of footwear for men, women and kids. CEO Robert Greenberg said the company had a “monumental” year in 2017, achieving over $4 billion in sales “for the first time in the company’s 25-year history.” Chief Operating Officer David Weinberg mentioned several key sales drivers, which include increased demand for children’s footwear and comfortable adult styles. The strong sales contributed to a three-year revenue growth rate of 23.60%, higher than 95% of global competitors.
GuruFocus ranks Skechers’ profitability 7 out of 10. While the company’s profit margins are near a 10-year high, the margins outperform just about two-thirds of global competitors. Despite this, Skechers’ financial strength ranks a solid 8 out of 10, driven by low debt-to-equity ratios, high interest coverage and robust Altman Z-scores.
United Rentals
CGM invested in 380,000 shares of United Rentals for an average price of $152.08 per share. With this transaction, the firm boosted the portfolios by 2.71%.
United Rentals provides equipment on rent to various construction and industrial companies. GuruFocus ranks the company’s profitability 8 out of 10, driven primarily by strong operating margins and returns on equity. The former is near a 10-year high of 22.69%, while the latter outperforms 97% of global competitors.
Teck Resources
CGM invested in 2.14 million shares of Teck Resources for an average price of $22.78 per share. With this transaction, the firm added 2.32% to its portfolios.
Teck’s profitability ranks a modest 6 out of 10. Although the company has strong profit margins and a Piotroski F-score of 8, Teck’s revenue has declined approximately 4.80% per year over the past five years.
Melco Resorts
CGM invested in 1.84 million shares of Melco Resorts for an average price of $25.50 per share. The firm increased its portfolios by 2.21% with this transaction.
Melco Resorts operates various casinos in Macau, the only Chinese region with legalized gambling. The company’s profitability ranks a modest 6 out of 10 as low three-year revenue growth offset satisfactory operating margins.
Best Buy
CGM invested in 740,000 shares of Best Buy for an average price of $59.17 per share. With this transaction, the firm expanded its portfolios by 2.10%.
Best Buy markets various consumer electronics, ranging from tablets, computers, TVs, mobile phones and other miscellaneous appliances and entertainment products. The company’s financial strength and profitability both rank 7 out of 10, suggesting good growth potential.
The Minneapolis-based company has comfortable interest coverage, including $2.51 in cash for every $1 in debt. Best Buy also has two positive investing signs: expanding operating margins and a strong Piotroski F-score of 7.
Disclosure: I do not have positions in the stocks mentioned.
