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Yamil Berard
Yamil Berard
Articles (192) 

Deep-Value Investor Expands Stakes in Long-Term Gains

Arnold Schneider gave more exposure to stocks that have been favorable in the long run

Schneider Capital Management, the investment arm of hedge fund manager  Arnold Schneider (TradesPortfolio), disclosed in the first quarter it had expanded its stake in several holdings, which have been favorable to the portfolio over the long term.

Schneider’s Small Cap Value Fund purchased additional shares of Bermuda-based muni-bond insurer Assured Guaranty Ltd. (NYSE:AGO), boosting the position by more than 70% to total more than 812,000 shares in the first quarter. Schneider has collected an estimated 26% gain since he began buying shares in the third quarter of 2013.

Denver-based energy explorer QEP Resources (NYSE:QEP) made a good run in the portfolio. Since he bought shares in the first quarter of last year, the estimated gain is 31%. So far, the guru owns nearly 3.7 million shares of the stock. In the first quarter, he expanded his stake 13%.

Intevac Inc. (NASDAQ:IVAC) provides night-vision technologies for the defense industry. It produced an estimated gain of 49%. He expanded his holdings by more than 94% after initiating a position in the fourth quarter of 2012. In total, he holds more than 362,000 shares of the California-based company.

Seattle-based regional bank HomeStreet Inc. (NASDAQ:HMST) represented another significant expansion. The hedge fund manager increased his holdings 175.72% to total 459,000 shares. The total estimated gain since he purchased shares in the first quarter of 2012 is 2%.

The small-cap value investor’s firm reported a 13% quarter-over-quarter turnover for a total of 41 stocks in a portfolio valued at $436 million.

His other trades in the first quarter included two new buys, Steel Connect Inc. (NASDAQ:STCN) and real estate investment trust Colony NorthStar (CLNS). He closed five positions, Invacare Corp. (NYSE:IVC), Regions Financial Corp. (RF), Flagstar Bancorp Inc. (NYSE:FBC), Colony Bankcorp Inc. (NASDAQ:CBAN) and U.S. Gold Corp. (NASDAQ:USAU).

The guru’s Small Cap Value Fund is composed of 36.3% energy stocks, 30% financial services, 11% industrials, 6% real estate, 5.5% consumer cyclical and 4.2% health care. Other positions include technology, which is 3.9% of the portfolio, and basic materials, at 2.6%.

Schneider’s firm is based in Pennsylvania and has taken deep dives into value equity investing since 1996. In the first-quarter commentary for its Small Cap Value Fund, the firm’s team members say the fund seeks long-term growth by investing primarily in the common stocks that have market capitalizations lower than the largest company in the Russell 2000 Index and which the Schneider team believes are undervalued.

Schneider, as the firm's president, chief investment officer and principal, is primarily responsible for day-to-day management of the portfolio. The guru bases his fundamental research on a proprietary ranking system that establishes ambitious hurdles for new holdings.

Since the fund’s inception, it has returned about 982.53% compared to the Russell 2000 Value Index, which has returned 508.62% over the same time period.

For the year, the fund has returned 0.04% compared to the Russell 2000’s 5.13%. In the last three months, the fund has returned -4.81% compared to -2.64% for the Russell.

Assured Guaranty

The Peter Lynch chart suggests the stock is trading well below fair market value based on its current stock price of $37.77 a share.

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Assured protects holders of debt instruments and other monetary obligations from defaults in schedule payments in exchange for the insurance premiums the company collects. The company markets its insurance to issuers, underwriters and investors in public finance and structured finance securities.

Assured's products guarantee a number of different types of public finance obligations, issued principally in the United States and the United Kingdom, but also in other regions, such as Australia and Western Europe.

Shares of Assured Guaranty were up 0.41% to $37.77 in Wednesday afternoon trading. The stock is trading near its historical value, based on the median price-sales chart provided by GuruFocus.

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It is trading at 7.36 times earnings and has a forward price-earnings ratio of 13.89 times versus an industry median of 12.47. The industry median on its forward price-earnings ratio is 13.54.

Its price-book ratio is 0.65 times while the industry median is 1.15 times. The company pays a dividend yield of 1.62%.

The company’s revenue and profits have been falling slightly in recent years. But it had reported an average growth in earnings of 36.8% in the last five years. It reported a long-term debt and capital lease obligations of $1.28 billion for the trailing 12 months. It reported free cash flow of $358 million.

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GuruFocus ranks the company 4 out of 10 in financial strength and profitability and growth. It has a market cap of $4.24 billion.

Other gurus who are invested in the stock include Ray Dalio (Trades, Portfolio), Kahn Brothers (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).

QEP Resources

The oil and natural gas explorer and producer is active in the southern and northern regions of the country, including Texas. In trading on Wednesday afternoon, the stock stood at $11.88 a share, down almost 1%. The GuruFocus median price-sales chart indicates it is slightly above its historical value.

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It is trading at 20 times earnings, which compares to an industry median of 12.38. The company is well-run as it has a Piotroski F-Score of 7, indicating strong operations and stability.

In 12 months, the company has seen a growth in earnings of 118%. However, it has experienced losses in the last few years. It has seen a shortfall in profits and declining revenue per share. It reported $2.45 billion in debt over the trailing 12 months.

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It has a market value of $2.8 billion and is ranked 4 out of 10 in financial strength and 5 of 10 in profitability and growth.

Other gurus who hold the stock are Pioneer Investments (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Paul Singer (Trades, Portfolio).

Intevac Inc.

The company provides digital night-vision technologies and products for the defense industry.

A Piotroski F-Score of 2 suggests poor business operations for the company. But it also has some sturdy metrics, including a comfortable interest coverage, a cheap stock price and consistently low price-book and price-sales ratios. GuruFocus, for example, ranks its financial strength 9 out of 10 and its profitability and growth 4 of 10.

GuruFocus' median price-sales chart suggests the stock is trading below its historical value. In Wednesday trading, it stood at $4.65 a share, down 1%.

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The company has struggled in recent years to turn a profit. It reported negative earnings for several years in a row. However, it has seen revenues and net income turn recently. It has seen its revenues increase to $112 million in the trailing 12 months, the highest since 2007. In net income, it reported $4 million in December 2017 after six consecutive years of losses.

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Mario Gabelli (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Jim Simons (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio) are among the shareholders of the company.

HomeStreet

The Peter Lynch chart also shows HomeStreet’s stock is trading below market value. The stock is trading at under $30 a share. It was up 0.17% to $29 a share on Wednesday afternoon.

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The regional bank was founded in 1921, according to its website. It provides consumer and commercial banking, mortgage lending and loans for residential construction, commercial real estate financing, investment and insurance products and services on the West Coast and Hawaii.

The regional bank was under fire late last year after The Seattle Times reported that a major shareholder had accused one of Washington state’s largest banking companies with mismanagement. Charles Griege, owner of Texas-based Blue Lion Capital, which owned 5.6% of HomeStreet, demanded changes in a Nov. 20 letter to the bank’s CEO. The letter says the bank was the third-cheapest public bank in its class and was affected by poor returns, bloated cost structure and inefficient operations.

The stock has a price-book ratio of 1.15 times versus an industry median of 1.24.

It showed two severe warnings, including poor financial strength and mounting debt. In three years, it has issued $231.6 million in debt.

It is ranked 3 out of 10 in financial strength and 2 of 10 in profitability and growth. It has a market cap of $782 million.

New buys

Schneider bought a total of more than 826,000 shares of Steel Connect for an average price of $2.29 a share. The shares sit in 0.4% of the portfolio. The investment has produced an estimated loss of 5% since the shares were purchased, according to GuruFocus.

Steel Connect provides digital and physical supply chain solutions to companies that provide consumer electronics, medical devices, retail and luxury and connected devices. It does business in North America, Europe and the Asia Pacific.

The company has a Piotroski F-Score of 4, which denotes a financial situation that is typical for a stable company.

Its market cap is $129.44 million. GuruFocus ranks its financial strength 3 out of 10 and its profitability and growth 2 of 10.

Its low financial rating is partly due to long-term debt of $448 million over the trailing 12 months. Its free cash flow is -$12.7 million over the same period.

Shares of Colony NorthStar were purchased for an average of $8.14 a share. A total of 10,000 shares were bought and sit in 0.01% of the portfolio space. Colony NorthStar has lost an estimated 27% since the shares were purchased by the guru in the first quarter, according to GuruFocus estimates.

The eye-fetching characteristic of the stock is its dividend of more than 15%. It reported a forward dividend yield of 7.56%.

The company’s properties include health care, industrial and hospitality sectors, equity and debt investments and an institutional and management business.

GuruFocus detected a serious warning sign, which is its Altman Z- Score indicates financial distress. It also bears a Beneish M-Score that indicates it might have manipulated its financial results.

In earnings, it shows an average annual growth of 14.8% over the last five years, and -45.20% over 12 months.

In revenue, the company reported more than $3 billion in December 2017, compared to $938 million the year prior. It reported a gross margin of 90.06% in the trailing 12 months. But operating margins have declined to 23% recently from as much as 78% in 2013. And net income is in the red.

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It has a market cap of $2.97 billion. It has more than $12 billion in long-term debt, results from December 2017 show. It has a free cash flow of -$524 million over the 12 trailing months.

GuruFocus ranks it 4 out of 10 in financial strength and 7 of 10 in profitability and growth.


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