The FPA Capital Fund (Trades, Portfolio) released its first-quarter portfolio this week, listing five new positions.
In order to achieve long-term capital growth, fund managers Arik A. Ahitov, Chris J. Moreno and Sean R. Pompa invest in quality small- and mid-cap companies that are market leaders, have a history of profitability, have balance sheets with little to no leverage and are run by good management teams.
During the quarter, FPA invested in Frank’s International NV (FI, Financial), Graphic Packaging Holding Co. (GPK, Financial), Gentex Corp. (GNTX, Financial), Matson Inc. (MATX, Financial) and Cision Ltd. (CISN, Financial).
Frank’s International
The fund’s largest new purchase for the quarter was 973,900 shares of Frank’s International for an average price of $6.45 per share, giving it 1.99% portfolio space.
The Netherlands-based oil and gas services company has a market cap of $1.36 billion; its shares were trading around $6.07 on Wednesday, up 3.58%, with a price-book ratio of 1.24 and a price-sales ratio of 2.98.
The Peter Lynch chart below shows the stock is trading slightly above its fair value, suggesting it is overpriced.
As Frank’s has a comfortable level of interest coverage and a high Altman Z-Score of 5.63, GuruFocus rated its financial strength 7 out of 10. In contrast, its profitability and growth was rated 5 of 10 as it has a low Piotroski F-Score and a declining operating margin.
With 6.23% of outstanding shares, Hotchkis & Wiley is the company’s largest guru shareholder. First Pacific Advisors (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Chuck Royce (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) also own the stock.
Graphic Packaging Holding
FPA invested in 321,042 shares of Graphic Packaging for an average price of $15.60 per share, expanding the portfolio 1.85%.
The Atlanta-based company, which provides paper-based packaging products to food, beverage and other consumer goods companies, has a market cap of $4.83 billion; its shares were trading around $15.58 on Wednesday, down 1.2%, with a price-earnings ratio of 16.07, a price-book ratio of 3.72 and a price-sales ratio of 1.11.
According to the Peter Lynch chart below, the stock is trading close to its fair value.
Graphic Packaging’s financial strength was rated 5 out of 10 by GuruFocus as it has poor interest coverage. In addition, its Altman Z-Score suggests the company may be under some financial stress. The company’s profitability and growth was rated 7 of 10 as its operating margin is expanding. It also has a moderate Piotroski F-Score of 5 and a one-star (out of five) business predictability rating.
Of the gurus invested in Graphic Packaging, Steven Cohen (Trades, Portfolio) has the largest position with 0.98% of outstanding shares. Simons, First Pacific and Manning & Napier Advisors are also shareholders.
Gentex
The fund purchased 191,064 shares of Gentex for an average price of $22.76 per share. The trade had an impact of 1.65% on the portfolio.
The Michigan-based auto parts manufacturer has a market cap of $6.57 billion; its shares were trading around $24.05 on Wednesday, down 0.04%, with a price-earnings ratio of 17.15, a price-book ratio of 3.32 and a price-sales ratio of 3.87.
Based on the Peter Lynch chart below, the stock appears to be overpriced as it is trading higher than its fair value.
Gentex’s financial strength was rated 8 out of 10 by GuruFocus, boosted by a comfortable level of interest coverage and an extremely high Altman Z-Score of 15.82. Its profitability and growth was rated 9 of 10 as its operating margin is expanding. It also has a high Piotroski F-Score of 6 and a perfect business predictability rating of five stars.
Royce is the company’s largest guru shareholder with 1.5% of outstanding shares. Other guru shareholders are Columbia Wanger (Trades, Portfolio), Simons, Greenblatt, Cohen, First Pacific, Mario Gabelli (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), David Dreman (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
Matson
FPA bought 96,140 shares of Matson for an average price of $31.27 per share, giving it 1.03% portfolio space.
The Hawaii-based shipping company has a market cap of $1.2 billion; its shares were trading around $28.24 on Wednesday with a price-earnings ratio of 5.22, a price-book ratio of 1.71 and a price-sales ratio of 0.58.
The Peter Lynch chart below shows the stock is trading well below its fair value, suggesting it is undervalued.
GuruFocus rated Matson’s financial strength 5 out of 10. Not only does the company not have sufficient interest coverage, but its Altman Z-Score of 1.82 indicates it is experiencing financial issues. The company’s profitability and growth was rated 6 of 10 as its operating margin is expanding. It also has a moderate Piotroski F-Score of 4 and a one-star business predictability rating.
With 5.38% of outstanding shares, Hotchkis & Wiley is the company’s largest guru shareholder. First Pacific, PRIMECAP Management (Trades, Portfolio), Simons and Leucadia National (Trades, Portfolio) also hold the stock.
Cision
The fund’s smallest new purchase of the quarter was 233,712 shares of Cision for an average price of $11.98 per share. The trade expanded the portfolio 1.02%.
The Chicago-based public relations software company, which went public in 2017, has a market cap of $1.48 billion; its shares were trading around $11.87 on Wednesday, up 0.17%, with a forward price-earnings ratio of 15.20, a price-book ratio of 4.60 and a price-sales ratio of 1.51.
Although GuruFocus does not have enough data to generate a Peter Lynch chart for Cision, the median price-sales chart below shows the stock is trading above its historical value.
As Cision has poor interest coverage and an extremely low Altman Z-Score, GuruFocus rated its financial strength 4 out of 10. Its profitability and growth, however, was rated 5 of 10 as it has a moderate Piotroski F-Score of 6 and an operating margin that outperforms 57% of competitors.
Of the gurus invested in Cision, Ron Baron (Trades, Portfolio) has the largest position with 5.47% of outstanding shares. Other shareholders are Alan Fournier (Trades, Portfolio), Pioneer Investments and Simons.
Other trades
During the quarter, the fund also added to its positions in Capitol Federal Financial Inc. (CFFN, Financial), Tenneco Inc. (TEN, Financial), SM Energy Co. (SM, Financial), ARRIS International PLC (ARRS, Financial), Aaron’s Inc. (AAN, Financial), Rowan Companies PLC (RDC, Financial) and Veeco Instruments Inc. (VECO).
The current portfolio of 25 holdings is largely composed of stocks in the energy and technology sectors. According to its fact sheet, the fund underperformed its benchmark, the Russell 2500, in 2017 with a return of -5.11%. The index returned 16.81%.
Disclosure: No positions.
