Spain's Francisco García Paramés Picks Up 5 Stocks in 2nd Quarter

Guru invests in South Korean, Spanish, Dutch and Danish companies

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Aug 09, 2018
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Spanish investor Francisco Garcà­a Paramés (Trades, Portfolio), who heads up Cobas Asset Management, released his second-quarter portfolio this week, listing five new positions.

The renowned value investor, who is known for his time managing funds at Bestinver, founded Cobas in 2017. With the goal of capital preservation and long-term appreciation, Paramés and his team pick stocks of high-quality companies around the world that offer attractive risk-return investment opportunities and have strong management teams, sustainable competitive advantages and are trading at a discount.

The guru established positions in LG Corp. (XKRX:003550, Financial), Bankia SA (XMAD:BKIA, Financial), Frank’s International NV (FI, Financial), Matas AS (OCSE:MATAS, Financial) and LG Electronics Inc. (XKRX:066575, Financial) during the quarter.

LG Corp.

Paramés invested in 168,038 shares of LG Corp. for an average price of 79,021.7 won ($70.59) per share, dedicating 0.94% of the equity portfolio to the position.

The South Korean manufacturer of consumer electronics has a market cap of 12.64 trillion won; its shares closed at 73,300 won on Wednesday with a price-earnings ratio of 5.85, a price-book ratio of 0.76 and a price-sales ratio of 1.2.

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

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GuruFocus rated LG’s financial strength 7 out of 10. While the company has issued 192.1 billion won in new long-term debt over the last three years, it is still at a manageable level due to good interest coverage. The Altman Z-Score of 3.27 also indicates the company is financially strong.

The company’s profitability and growth was rated 6 out of 10. Although the operating margin has declined over the last several years, it still outperforms 89% of competitors. The company is also strengthened by a moderate Piotroski F-Score of 6 and a business predictability ranking of one out of five stars. According to GuruFocus, companies with this rank typically see a gain of 1.1% on average per year.

The guru holds 0.1% of the company’s outstanding shares.

Bankia

The investor picked up 1.5 million shares of Bankia for an average price of 3.51 euros ($4.08) per share, allocating 0.5% of the equity portfolio to the stake.

The Spanish bank has a market cap of 10.19 billion euros; its shares closed at 3.32 euros on Wednesday with a price-earnings ratio of 23.76, a price-book ratio of 0.76 and a price-sales ratio of 2.78.

According to the median price-book chart below, the stock is trading below its historical value.

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Bankia’s financial strength was rated a poor 3 out of 10 by GuruFocus as it is heavily indebted. While the bank has reduced its debt in recent years, it recorded 19.7 billion euros in long-term debt for 2017.

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The company’s profitability and growth scored a 1 out of 10 rating, which was impacted by a net margin that underperforms 69% of competitors and dismal returns. In addition, the bank’s revenue per share has declined over the last five years.

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With 0.07% of outstanding shars, Bestinfond (Trades, Portfolio) is Bankia’s largest guru shareholder.

Frank’s International

The guru established a 738,378-share holding of Frank’s International for an average price of $7.07 per share, giving the position 0.5% space in the equity portfolio.

The oilfield services company, which is based in the Netherlands, has a $2.01 billion market cap; its shares were trading around $8.99 on Thursday with a price-book ratio of 1.86 and a price-sales ratio of 4.37.

The median price-sales chart below shows the stock is trading above its historical value.

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GuruFocus rated Frank’s financial strength 9 out of 10, boosted by a comfortable level of interest coverage and a strong Altman Z-Score of 9.12. The company’s profitability and growth scored a 4 out of 10 rating as its operating margin underperforms 86% of industry peers. It also has a moderate Piotroski F-Score of 4, which suggests operations are stable.

Of the gurus invested in the Dutch company, Hotchkis & Wiley has the largest stake with 6.43% of outstanding shares. First Pacific Advisors (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, George Soros (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) are also shareholders.

Matas

Paramés purchased 633,567 shares of Matas for an average price of 67.8 Danish kroner ($10.53) per share, expanding the equity portfolio by 0.45%.

The Denmark-based drugstore chain has a market cap of 2.01 billion kroner; its shares closed at 53.5 kroner on Wednesday with a price-earnings ratio of 7.22, a price-book ratio of 0.79 and a price-sales ratio of 0.59.

Based on the Peter Lynch chart below, the stock appears to be undervalued since it is trading lower than its fair value.

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Matas’ financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. While the company has sufficient interest coverage, the Altman Z-Score of 1.95 indicates it is under some financial pressure. Though the operating margin has declined over the last five years, it still outperforms 85% of competitors. In addition, the Piotroski F-Score of 4 suggests operations are stable.

The guru holds 1.68% of the Danish company’s outstanding shares.

LG Electronics

The investor bought 121,850 preferred shares of LG Electronics for an average price of 39,517.5 won per share. The trade had an impact of 0.32% on the equity portfolio.

The LG Corp. subsidiary, which makes mobile phones, televisions, air conditioners, refrigerators, washing machines, computers and other home appliances, has a market cap of 12.9 trillion won; its shares closed at 31,500 won on Wednesday with a price-earnings ratio of 4.7, a price-book ratio of 0.53 and a price-sales ratio of 0.23.

The Peter Lynch chart below suggests the stock is undervalued since it is trading below its fair value.

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LG Electronics’ financial strength was rated 6 out of 10 by GuruFocus. While the company’s level of interest coverage meets Benjamin Graham’s standard of 5, the Altman Z-Score of 1.53 implies it is at risk of bankruptcy. Similarly, although the company’s operating margin is expanding and outperforms 53% of industry peers, its profitability and growth was rated 3 out of 10.

Paramés holds 0.07% of the company’s outstanding shares.

Other trades

During the quarter, the guru investor also added to a number of holdings, including Samsung Electronics Co. Ltd. (XKRX:005930), Aryzta AG (XSWX:ARYN) and Renault SA (XPAR:RNO).

He also closed his TechnipFMC PLC (XPAR:FTI) position and reduced several other holdings.

Paramés’ $984 million portfolio, which is composed of 69 holdings, is largely invested in the industrials and consumer cyclical sectors. According to its fact sheet, the Cobas Selección FI Fund outperformed its benchmark by a slim margin in 2017, posting a 10.27% return. The MSCI Europe Total Net Return Index recorded a return of 10.24%.

Disclosure: No positions.