Chris Davis' Top 3 Buys in 2nd Quarter

Top buys include Einhorn's Greenlight Capital Re

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Aug 13, 2018
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Chris Davis (Trades, Portfolio), portfolio manager of the Davis Financial Fund, disclosed on Monday three new positions for the second quarter: Greenlight Capital Re Ltd. (GLRE, Financial), HCP Inc. (HCP, Financial) and Switch Inc. (SWCH, Financial).

Managing a portfolio of 138 stocks, Davis seeks durable, well-managed businesses that can be purchased at value prices and held for the long term. The manager primarily focuses on financial services companies, which currently occupy 38.6% of the portfolio. Other top sectors include technology and consumer discretionary: both have a portfolio weight around 17%.

Greenlight Capital Re

Davis invested in 125,000 shares of Greenlight Capital Re for an average price of $15.24 per share. The guru increased his portfolio 0.01% with this transaction.

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Greenlight Chairman David Einhorn (Trades, Portfolio) said although the company demonstrated “solid execution” by its underwriting team during the quarter, the company’s investment portfolio reported a loss of 3.8% primarily due to headwinds from Brighthouse Financial Inc. (BHF, Financial) and the short position in Tesla Inc. (TSLA, Financial). Despite this, Einhorn still remains confident about his portfolio as the “valuation disconnect” on Greenlight’s largest positions has increased despite generally improving fundamentals.

GuruFocus ranks the company’s profitability 2 out of 10 as net profit margins and returns underperform over 85% of global competitors.

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HCP

Davis invested in 340,000 shares of HCP for an average price of $23.57 per share. The manager increased his portfolio 0.04% with this transaction.

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Irvine, California-based HCP said on Aug. 2 that funds from operations for the June quarter were 45 cents per share, up 10 cents from the prior-year quarter. HCP Chief Investment Officer Scott Brinker said the new $605 million joint venture with Morgan Stanley (MS, Financial) Real Estate Investing demonstrates the REITs ability to structure creative and profitable investments through “strong relationships with capital partners, owners and health systems.”

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Even though the company’s profit margins have declined over the past five years, HCP’s profitability still ranks 7 out of 10 on strong revenue and earnings growth over the past three years. HCP’s three-year revenue growth rate of 4.30% outperforms 62% of global competitors.

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Switch

Davis invested in 82,263 shares of Switch for an average price of $13.68 per share.

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Switch engages in the design, construction and operation of hyperscale data centers. The company’s financial strength ranks a modest 5 out of 10: although the company has a strong Altman Z-score of 3.45, Switch’s debt-to-EBITDA ratio of 6.56 underperforms 88% of global competitors. Despite this, GuruFocus lists one positive investing sign: a dividend yield near a one-year high.

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Disclosure: No positions.