Causeway Capital Management’s Sarah Ketterer (Trades, Portfolio) disclosed seven new positions when she released her second-quarter portfolio this week.
According to its website, the Los Angeles-based firm, which Ketterer founded in 2001 with Harry Hartford, seeks to achieve superior risk-adjusted returns by investing in mispriced equities in both developed and emerging markets.
Ketterer’s top five new buys for the quarter were Dominion Energy Inc. (D, Financial), Zimmer Biomet Holdings Inc. (ZBH, Financial), Leidos Holdings Inc. (LDOS, Financial), iShares MSCI India (INDA, Financial) and KB Financial Group Inc. (KB, Financial).
Dominion Energy
The guru invested in 2.2 million shares of Dominion Energy for an average price of $65.14 per share, dedicating 1.53% of the equity portfolio to the stake.
The Virginia-based power company has a $45.54 billion market cap; its shares were trading around $70.04 on Wednesday with a price-earnings ratio of 15.31, a price-book ratio of 2.52 and a price-sales ratio of 3.48.
The Peter Lynch chart below shows the stock is trading slightly above its fair value, suggesting it is overpriced.
GuruFocus rated Dominion’s financial strength 4 out of 10 as the company has issued approximately $9.6 billion in new long-term debt over the last three years. In addition, the Altman Z-Score of 0.9 indicates the company is at risk of going bankrupt. The company’s profitability and growth scored a 5 out of 10 rating, supported by an expanding operating margin and a moderate Piotroski F-Score of 6. The company also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this ranking see an average increase of 1.1% in stock price per year. The ranking is on watch, however, as Dominion’s revenue per share has been declining.
Of the gurus invested in Dominion, Barrow, Hanley, Mewhinney & Strauss has the largest stake with 0.95% of outstanding shares. George Soros (Trades, Portfolio), Leucadia National (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), John Hussman (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Dodge & Cox are also shareholders.
Zimmer Biomet Holdings
Ketterer picked up 1.2 million shares of Zimmer Biomet for an average price of $112.11 per share, allocating 1.34% of the equity portfolio to the stake.
The medical device manufacturer, which is headquartered in Warsaw, Indiana, has a market cap of $24.9 billion; its shares were trading around $121.93 on Wednesday with a price-earnings ratio of 14.8, a price-book ratio of 2.07 and a price-sales ratio of 3.16.
According to the Peter Lynch chart below, the stock is trading close to its fair value.
Zimmer Biomet’s financial strength was rated 5 out of 10 by GuruFocus as it has poor interest coverage and an Altman Z-Score that suggests it is under minor financial pressure. The company’s profitability and growth fared much better, scoring an 8 out of 10 rating. While the operating margin has declined over the past several years, it still outperforms 71% of industry competitors. In addition, the Piotroski F-Score of 6 indicates operations are stable. The company also has a three-star business predictability rank, which means its shares gain an average of 8.2% per year. GuruFocus says the rank is on watch, however, as Zimmer Biomet’s revenue per share has slowed over the last 12 months.
With 1.4% of outstanding shares, Jana Partners (Trades, Portfolio) is the company’s largest guru shareholder. Other gurus invested in the stock include the Vanguard Health Care Fund (Trades, Portfolio), Hotchkis & Wiley, PRIMECAP Management (Trades, Portfolio), Mairs and Power (Trades, Portfolio), John Rogers (Trades, Portfolio), Richard Snow (Trades, Portfolio) and Gabelli.
Leidos Holdings
The investor established a 949,949-share holding in Leidos for an average price of $62.39 per share, giving the position 0.57% space in the equity portfolio.
Based in Reston, Virginia, the company performs defense, aviation, information technology and biomedical research for government agencies. With a $10.67 billion market cap, its shares were trading around $70.88 on Wednesday with a price-earnings ratio of 24.79, a price-book ratio of 3.13 and a price-sales ratio of 1.10.
Based on the Peter Lynch chart below, the stock appears to be overvalued since it is trading higher than its fair value.
Leidos’ financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. In addition to having poor interest coverage, the company’s Altman Z-Score of 2.66 indicates it is under some financial pressure as its revenue per share is in decline. Supported by a moderate Piotroski F-Score of 6, the operating margin outperforms 58% of industry peers. The company also has a one-star business predictability rank.
With her purchase of 0.63% of Leidos’ outstanding shares, Ketterer became the company’s largest guru shareholder. Pioneer Investments (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Mariko Gordon (Trades, Portfolio), David Dreman (Trades, Portfolio), Caxton and Jeremy Grantham (Trades, Portfolio) also have positions in the stock.
Ishares MSCI India
Having previously closed a position in the exchange-traded fund in the first quarter, Ketterer opened a new 572,000-unit holding of the iShares MSCI India ETF for an average price of $33.93 per unit. The trade had an impact of 0.19% on the portfolio.
The ETF, which tracks the performance of an index composed of Indian stocks, has a $4.9 billion market cap; it was trading around $34.29 per unit on Wednesday with a price-earnings ratio of 20.18 and a price-book ratio of 3.02.
The ETF’s 14-day relative strength index is 54.25, which suggests it is neither overbought nor oversold. Other gurus with positions in the fund include Chase Coleman (Trades, Portfolio), Carl Icahn (Trades, Portfolio), Daniel Loeb (Trades, Portfolio) and Cohen.
KB Financial
The investor purchased 39,560 shares of KB Financial for an average price of $52.86 per share, expanding the equity portfolio by 0.02%.
The South Korean bank has a $17.24 billion market cap; its shares were trading around $43.74 on Wednesday with a price-earnings ratio of 5.68, a price-book ratio of 0.55 and a price-sales ratio of 0.85.
The Peter Lynch chart below suggests the stock is undervalued since it is trading well below its fair value.
As a result of weak cash-to-debt and debt-to-equity ratios, KB’s financial strength was rated 4 out of 10 by GuruFocus. The company’s profitability and growth scored a 3 out of 10 rating as its margins and returns underperform competitors. The company is strengthened, however, by a one-star business predictability rank.
Fisher is the company’s largest guru shareholder with 0.05% of outstanding shares. Pioneer and Dreman also own the stock.
Other trades
Ketterer also established positions in the Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR, Financial) and South Korean bank Shinhan Financial Group Co. Ltd. (SHG, Financial) during the quarter.
The guru’s $9.8 billion portfolio, which is composed of 93 stocks, is largely invested in the technology sector, followed by the financial services sector.
Disclosure: No positions.
