The Top 5 New Buys of First Eagle Investment

Firm releases 1st-quarter portfolio

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May 30, 2018
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First Eagle Investment (Trades, Portfolio) disclosed it established eight new holdings when it released its first-quarter portfolio earlier this month.

The New York-based firm, which was founded in 1864, employs a number of different strategies to achieve its investment goals. According to its website, however, the methods of investment must fall in line with its investing principles, which include in-depth fundamental analysis, a flexible, benchmark-agnostic approach, a focus on absolute returns and preserving capital in market downturns.

Among the companies First Eagle established positions in during the quarter were The Chemours Co. (CC, Financial), T-Mobile US Inc. (TMUS, Financial), ServiceMaster Global Holdings Inc. (SERV, Financial), Chipotle Mexican Grill Inc. (CMG, Financial) and Shell Midstream Partners LP (SHLX, Financial).

Chemours

Having previously exited a small holding of Chemours in the second quarter of 2017, the firm established a new 1.16 million-share stake for an average price of $49.99 per share, giving the position 0.14% portfolio space.

The Wilmington, Delaware-based chemical manufacturer has a market cap of $8.97 billion; its shares were trading around $50.37 on Wednesday with a price-earnings ratio of 10.76, a price-book ratio of 9.16 and a price-sales ratio of 1.48.

The Peter Lynch chart below shows the stock is trading below its fair value, suggesting it is undervalued.

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GuruFocus rated Chemours’ financial strength 5 out of 10. While its level of interest coverage meets Benjamin Graham’s standard of 5, the company’s Altman Z-Score of 2.77 indicates it is under minor financial pressure. Boosted by a high Piotroski F-Score of 7, the company’s profitability and growth scored a 6 of 10 rating. Its operating margin, however, has been declining over the past five years.

Of the gurus invested in Chemours, Steven Cohen (Trades, Portfolio) has the largest position with 0.89% of outstanding shares. During the quarter, Caxton Associates (Trades, Portfolio) also established a holding. Jim Simons (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Tom Russo (Trades, Portfolio) also own the stock.

T-Mobile

After selling its position in T-Mobile in the fourth quarter of 2017, First Eagle initiated a new holding of 719,711 shares for an average price of $62.56 per share, expanding the portfolio 0.11%.

The telecom company, which is headquartered in Bellevue, Washington, recently entered a merger agreement with Sprint Corp. (S, Financial). The company has a market cap of $48.13 billion; its shares were trading around $56.84 on Wednesday with a price-earnings ratio of 10.97, a price-book ratio of 2.12 and a price-sales ratio of 1.20.

According to the Peter Lynch chart below, the stock is undervalued as it is trading below its fair value.

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T-Mobile’s financial strength was rated 5 out of 10. In addition to having low interest coverage, the company’s Altman Z-Score of 1.05 indicates it is in financial distress, which means it could face bankruptcy in the near future. The company’s profitability and growth, however, scored a 6 of 10 rating, driven by an expanding operating margin and a strong Piotroski F-Score of 7. In addition, it has a business predictability rating of one star out of five.

With 0.53% of outstanding shares, Larry Robbins (Trades, Portfolio) is the company’s largest guru shareholder. During the quarter, Steve Mandel (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio) also established positions in the stock. Other guru shareholders include David Tepper (Trades, Portfolio), John Paulson (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Pioneer and Louis Moore Bacon (Trades, Portfolio).

ServiceMaster

First Eagle invested in 804,967 shares of ServiceMaster for an average price of $52 per share, allocating 0.1% of the portfolio to the position.

Headquartered in Memphis, Tennessee, the company, which provides residential and commercial services, has a market cap of $7.77 billion; its shares were trading around $57.40 on Wednesday with a price-earnings ratio of 15.22, a price-book ratio of 6.27 and a price-sales ratio of 2.64.

Based on the Peter Lynch chart below, the stock appears to be trading near its fair value.

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ServiceMaster’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. With a low level of interest coverage and a low Altman Z-Score of 1.76, the company is at risk of going bankrupt in the next couple of years. The company’s operating margin is expanding, however, which is a good sign, and outperforms 85% of competitors. It also has a moderate Piotroski F-Score of 6, which indicates the company is stable.

Simons is the largest guru shareholder of the company with 0.76% of outstanding shares. George Soros (Trades, Portfolio), Pioneer, Gabelli and Paul Tudor Jones (Trades, Portfolio) also hold the stock.

Chipotle

The firm picked up 61,138 shares of Chipotle for an average price of $314.91 per share, dedicating 0.05% of the portfolio to the holding.

The Denver-based restaurant chain has a market cap of $12.13 billion; its shares were trading around $436.50 on Wednesday with a price-earnings ratio of 65.24, a price-book ratio of 8.91 and a price-sales ratio of 2.71.

The Peter Lynch chart below shows the stock is trading significantly higher than its fair value, suggesting it is overpriced.

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Boosted by no debt and a high Altman Z-Score of 14.27, Chipotle’s financial strength was rated 9 out of 10 by GuruFocus. The company’s profitability and growth was rated 8 out of 10. Despite the fact its operating margin has declined over the past several years, it still outperforms 56% of peers. In addition, it has a strong Piotroski F-Score of 8 and a one-star business predictability rating.

Bill Ackman (Trades, Portfolio) is, by far, the company’s largest guru shareholder with 10.37% of outstanding shares. Cohen, Tom Gayner (Trades, Portfolio) and Caxton also established positions during the quarter. Pioneer, Simons, Julian Robertson (Trades, Portfolio) and John Hussman (Trades, Portfolio) also have positions in the stock.

Shell Midstream

First Eagle purchased 733,332 shares of Shell Midstream for an average price of $26.37 per share. The trade had an impact of 0.04% on the portfolio.

The pipeline transportation company, which is headquartered in Houston, has a market cap of $5.04 billion; its shares were trading around $22.51 on Wednesday with a price-earnings ratio of 19.92, a price-book ratio of 12.99 and a price-sales ratio of 8.69.

According to the Peter Lynch chart below, the stock is overpriced as it is trading higher than its fair value.

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Shell Midstream’s financial strength and profitability and growth were both rated 4 out of 10 by GuruFocus. Despite issuing approximately $873.8 million in new long-term debt over the past three years, the company’s Altman Z-Score of 4.61 indicates it is financially stable. While the company’s operating margin is expanding and outperforms 80% of other companies in its industry, it has a low Piotroski F-Score of 3.

With its purchase of 0.33% of outstanding shares, First Eagle became Shell Midstream’s largest shareholder among the gurus. T Boone Pickens (Trades, Portfolio) and Leon Cooperman (Trades, Portfolio) are also shareholders.

Other trades

During the quarter, the firm also started positions in HD Supply Holdings Inc. (HDS, Financial), Cue Biopharma Inc. (CUE, Financial) and Arsanis Inc. (ASNS, Financial).

Made up of 173 holdings, the firm’s portfolio is largely invested in the financial services, basic materials and energy sectors. According to its fact sheet, the First Eagle Global Fund underperformed its benchmark, the MSCI World Index, in 2017 with a return of 13.49%. The index posted a 22.40% return.

Disclosure: No positions.