The Third Avenue Value Fund, part of the investment firm founded by the late Martin Whitman (Trades, Portfolio), disclosed it established 10 new positions in the second quarter.
Using a high-conviction strategy, the New York-based fund invests in a variety of undervalued securities that compound at double-digit rates.
The firm’s top five new purchases for the quarter were Koninklijke Boskalis Westminster NV (XAMS:BOKA, Financial), Borr Drilling Ltd. (OSL:BDRILL, Financial), Petroleum Geo-Services ASA (OSL:PGS, Financial), Ocean Rig UDW Inc. (ORIG, Financial) and Arcos Dorados Holdings Inc. (ARCO, Financial).
Koninklijke Boskalis Westminster
The fund invested in 1.08 million shares of Koninklijke for an average price of 26.94 euros ($31.69) per share, giving the stake 3.24% portfolio space.
The engineering and construction company, which is based in the Netherlands, has a market cap of 3.36 billion euros; its shares closed at 25.05 euros on Friday with a price-earnings ratio of 21.78, a price-book ratio of 1.08 and a price-sales ratio of 1.40.
The Peter Lynch chart below shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Koninklijke’s financial strength 7 out of 10. While its interest coverage of 10.05 exceeds Benjamin Graham’s threshold of 5, the company’s Altman Z-Score indicates it is under some financial pressure.
The company’s profitability and growth did not fare as well, scoring a 4 out of 10 rating. GuruFocus notes the company’s operating margin has declined over the past several years and underperforms 93% of competitors. In addition, it has a low Piotroski F-Score of 3, which implies poor business operations, and a business predictability rating of one out of five stars. GuruFocus notes that companies with this rating typically see an average stock gain of 1.1% per year. The rating is also on watch, which means its fundamentals may be changing in the near future.
Of the gurus invested in Koninklijke, Charles de Vaulx (Trades, Portfolio) has the largest position with 1.14% of outstanding shares. The IVA International Fund (Trades, Portfolio) is also a shareholder.
Borr Drilling
Third Avenue purchased 5.4 million shares of Borr Drilling for an average price of 35.3 Norwegian krone ($4.40) per share, expanding the portfolio2.49%.
The Norwegian oil and gas drilling company, which went public in August of 2017, has a market cap of 19.62 billion krone; its shares closed at 37 krone on Friday with a price-book ratio of 1.49.
According to the price chart below, the stock has gained approximately 7% year to date.
Borr’s financial strength was rated 4 out of 10 by GuruFocus as its Sloan ratio indicates it has poor earnings quality. The company’s profitability and growth scored a 2 of 10 rating, pulled down by negative margins and returns.
The fund holds 1.02% of the company’s outstanding shares. No other gurus own the stock.
Petroleum Geo-Services
The fund bought 4.8 million shares of Petroleum Geo-Services for an average price of 25.62 krone per share, allocating 2.1% of the portfolio to the position.
The Norway-based oilfield services company has a market cap of 11.88 billion krone; its shares closed at 35.09 krone on Friday with a price-book ratio of 1.99 and a price-sales ratio of 1.67.
Based on the Peter Lynch chart below, the stock appears to be slightly overvalued since it is trading higher than it s fair value.
Petroleum Geo-Services’ financial strength and profitability and growth were both rated 4 out of 10 by GuruFocus. The company has been issuing new long-term debt over the past several years, dragging its financial position lower. This is supported by an Altman Z-Score of 0.27, which indicates the company is at risk of going bankrupt. The company is also weakened by a declining operating margin and a mediocre Piotroski F-Score of 4.
The company also has a one-star business predictability rating, which is on watch.
The fund holds 1.43% of the company’s outstanding shares.
Ocean Rig UDW
Third Avenue picked up 763,542 shares of Ocean Rig for an average price of $25.32 per share, dedicating 1.86% of the portfolio to the holding.
The offshore drilling contractor, which is headquartered in Greece, has a market cap of $2.73 billion; its shares were trading around $29.83 on Monday with a price-book ratio of 1.20.
The Peter Lynch chart below shows the stock is significantly undervalued as it is trading well below its fair value.
GuruFocus rated Ocean Rig’s financial strength 6 out of 10 as it has insufficient interest coverage. In addition, the Altman Z-Score of 2.35 indicates it is experiencing some financial pressure. The company’s profitability and growth scored a 4 out of 10 rating. While the company’s operating margin is expanding, it still underperforms 80% of same-sector peers. GuruFocus also notes the company’s revenue per share is in decline.
With 20.2% of outstanding shares, Paul Singer (Trades, Portfolio) is Ocean Rig’s largest guru shareholder. Howard Marks (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio) also own the stock.
Arcos Dorados
The fund invested in 971,150 shares of Arcos Dorados for an average price of $9.44 per share. The trade had an impact of 0.89% on the portfolio.
The Uruguay-based company, which is the largest franchisor of McDonald’s restaurants in the world, has a market cap of $1.53 billion; its shares were trading around $7.23 on Monday with a price-earnings ratio of 17.22, a price-book ratio of 3.28 and a price-sales ratio of 0.43.
According to the Peter Lynch chart below, the stock is slightly overvalued as it is trading higher than its fair value.
Arcos Dorados’ financial strength was rated 6 out of 10 by GuruFocus. While the company has poor interest coverage, its Altman Z-Score indicates it is financially strong. The company’s profitability and growth was rated 5 of 10, boosted by an expanding operating margin and a moderate Piotroski F-Score of 6.
Bill Gates (Trades, Portfolio) has the largest holding with 1.45% of the company’s outstanding shares. Other guru shareholders are Jim Simons (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Jeff Auxier (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Ken Fisher (Trades, Portfolio).
Other trades
During the quarter, Third Avenue also established positions in Grupo Cementos de Chihuahua SAB de CV (MEX:GCC, Financial), Nexans (XPAR:NEX), Altrium European Real Estate Ltd. (XAMS:ATRS), CFE SA (XBRU:CFEB) and Santos Brasil Participacoes SA (BSP:STBP3).
The $996 million portfolio, which is composed of 37 holdings, is largely invested in the financial services sector. According to GuruFocus, the fund underperformed the S&P 500 in 2017 with a return of 14.15%. The index posted a 21.71% return.
Disclosure: No positions.
