Leucadia's Top Trades of 1st Quarter

Out-of-favor stocks top the buy list, including an energy stock that pays one of the highest dividends among peers

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May 21, 2018
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Leucadia National (Trades, Portfolio) has announced its initiation of three positions as part of its first-quarter portfolio.

The asset manager opened positions in struggling media company Discovery Inc. (DISCK, Financial). It also invested in a wireless manufacturer, GCI Liberty (GLIBA, Financial), that raise some red flags on the financial metrics that are scrutinized by GuruFocus screeners. In addition, the Leucadia team bought shares of Dominion Energy Inc. (D, Financial), an energy distributor that boasts of one of the nation’s largest natural gas storage systems.

But Leucadia's largest buy was the SPDR Select Sector Fund Utilities exchange-traded fund (XLU). It bought more than 1.5 million units of the fund, which sit in 5.6% of the portfolio. The asset management firm paid an average of $50 a share. GuruFocus records show an estimated loss on the investment of 2%, which includes quarterly data estimates. The fund has a market cap of $6.8 billion and a dividend yield of more than 3%. On Monday afternoon, it was trading at about $49 a share, near the 52-week low of $47 a share. The 52-week high is over $57 a share.

The New York-based asset management firm holds 73 positions in a portfolio valued at $1.4 billion. Its quarter-over-quarter turnover was 20% for a total of 22 new buys. Years ago, it was often referred to as a Baby Berkshire because it adopted many of the same value strategies as Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial).

A total of 66% of the portfolio is invested in consumer cyclical stocks, while 8.5% is in technology. The fund includes 5.9% in exchange-traded funds, 3.6% in industrials and 3.2% in health care.

Discovery

Discovery Class C shares sit in 1.36% of the portfolio. The average purchase price was $22.39 a share. A total of 980,000 shares were purchased.

The share price of $21.37 was down 2% in trading on Friday afternoon. The stock price has tumbled 31% over the last three years. The 52-week range is $14.99 to $27.16.

The company is trading at 9 times forward earnings with a price-book ratio of 1.09 and a price-sales ratio of 1.72. All three sets of numbers are below the median of its peers in the same sector.

GuruFocus shows a large percentage of its shares are shorted. In fact, it has among the largest number of shorted shares among its industry peers, which include Viacom Inc. (VIA) (VIAB), Live Nation Entertainment Inc. (LYV, Financial) and Dolby Laboratories Inc. (DLB, Financial).

In annualized average earnings growth, it reported 30% over a decade but -29.20% over the last 12 months. In revenue, Discovery reported $6.8 billion compared to $6.4 billion in the prior year. In net income, it reported a loss of $337 million, compared to $1.1 billion in the prior year.

It has $14 billion in debt, roughly twice as much as last year. It has $1.5 billion in free cash flow.

Analyst forecasts show revenues are not expected to grow substantially. In 2020, analysts say revenues will reach $11.3 billion, compared to $10.4 billion in 2018.

Discovery’s Class C shares drew a number of gurus’ attention in the first quarter. Hotchkis & Wiley, John Paulson (Trades, Portfolio) and Tom Gayner (Trades, Portfolio) were among the gurus that expanded their stakes in the company. George Soros (Trades, Portfolio), Leon Cooperman (Trades, Portfolio) and David Dreman (Trades, Portfolio) initiated positions in the first quarter.

It has a market cap of $11.42 billion. GuruFocus rated it 4 out of 10 in financial strength and 8 of 10 in profitability and growth.

GCI Liberty

Class A shares sat in a portfolio space of 1.04% and were purchased at an average price of $55.58 a share for a total of 277,500 shares.

The stock has been trading on a 52-week range at a price of $42.43 to $62.41. In Friday trading, the stock was near its one-year low. It stood at $43.66, or up 1.29%, before market close.

GuruFocus identified a severe warning that it gives to companies who have a Beneish M-score that is higher than -2.22. The score indicates the company might have manipulated its financial results. GuruFocus rates the company 4 out of 10 in financial strength and profitability and growth.

The company has a market cap of $4 billion.

It is trading at 5.63 times earnings. Its price-book ratio is among the highest of its peers and its price-sales ratio is among the lowest.

Revenue stood at $23 million in 2017, compared to $428 million in the prior year. It had net income of $1.2 billion, reports show.

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Dominion Energy

Shares of the Virginia-based company sit in 0.53% portfolio space. A total of 111,000 shares were bought for an average price of $73.84 a share. In Friday trading, shares stood at $63.06, down 0.98%. Its 52-week range is $62.31 to $85.30. In the last 12 months, the stock has lost 20% of its value. Year to date, it is down 21%.

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It is trading at 14.08 earnings and 15.77 times forward earnings. It has a price-book ratio of 2.33 and a price-sales ratio of 3.19. Both ratios are 80% lower than peers in the same sector.

Dominion provides a dividend yield of 4.94%, among the high-end of its peers.

It has seen average annualized earnings grow 3.6% over the last decade. Revenue per share has been on the decline, however, over the last five years.

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In net income, Dominion reported $3 billion last year, compared to $2.1 billion the prior year. In revenue, the company reported $12.6 billion in 2016, up from $11.7 billion the prior year. However, revenues have been on the decline since 2005. A piece of good news is the company’s operating margins have been on the upswing. It reported 32.81% last year, compared to 21% in 2014. In 2007, the margin was 12%.

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Long-term debt was at $31 billion in December 2017, a number that has been gradually expanding since 15 years ago, when it stood at $15.7 billion. Its free cash flow is a loss of $955 million. The number was even larger last year at $1.1 billion.

Dominion drew several new shareholders to its stock in the third quarter. Among them were Soros, Cooperman, Ray Dalio (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Caxton and T. Boone Pickens’ hedge fund.

The company has a market cap of $41 billion and a 4 out of 10 rating in financial strength and 6 of 10 in profitability and growth.