The Oakmark International Small Cap Fund, part of Harris Associates, released its second-quarter portfolio last week, listing two new positions.
Managed by David Herro (Trades, Portfolio), Michael Manelli and Justin Hance, the fund invests in small-cap stocks of foreign companies. With the goal of long-term capital appreciation, the investment team looks for growing companies that are trading at a discount to their estimate of intrinsic value.
The fund established positions in ISS A/S (OCSE:ISS, Financial) and Duerr AG (XTER:DUE, Financial) during the quarter.
ISS
Oakmark invested in 2.04 million shares of ISS for an average price of 217.89 Danish kroner ($34.11) per share, allocating 2.59% of the equity portfolio to the stake.
The facilities support services company, which is headquartered in Denmark, has a market cap of 42.27 billion kroner; its shares closed at 228.90 kroner on Monday with a price-earnings ratio of 24.36, a price-book ratio of 3.06 and a price-sales ratio of 0.54.
The Peter Lynch chart below shows the stock is trading higher than its fair value, suggesting it is overpriced.
GuruFocus rated ISS’s financial strength 6 out of 10. Despite having sufficient interest coverage, the Altman Z-Score of 2.6 indicates the company is under some fiscal pressure. The company’s profitability and growth did not fare as well, scoring a 4 out of 10 rating. While the operating margin is expanding, it underperforms 56% of competitors. In addition, the Piotroski F-Score of 6 implies stable business conditions. The company also has a business predictability rank of one out of five stars. According to GuruFocus, stocks with this rank see an average gain of 1.1% per year. The rank is on watch, however, as the company has reported a decline in revenue per share over the past several years.
The fund holds 1.11% of the company’s outstanding shares.
Duerr
The fund picked up 579,000 shares of Duerr for an average price of 44.09 euros ($51.53) per share, dedicating 0.99% of the equity portfolio to the holding.
The German manufacturer of industrial products for the automobile and aircraft industries has a market cap of 2.83 billlion euros; its shares closed at 40.93 euros on Monday with a price-earnings ratio of 17.49, a price-book ratio of 3.26 and a price-sales ratio of 0.76.
According to the Peter Lynch chart below, the stock is overpriced since it is trading above its fair value.
Duerr’s 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 2.16 suggests it is under some financial stress. Although it has good returns, the operating margin has been declining over the last several years. The Piotroski F-Score of 4 indicates operations are stable. Duerr also has a one-star business predictability rank, which is on watch since the company has seen a slowdown in revenue per share growth over the last 12 months and its assets are building at a faster rate than its revenue.
The fund holds 0.84% of the company’s outstanding shares.
Other trades
During the quarter, the fund also expanded its positions in Ontex Group NV (XBRU:ONTEX, Financial), Randstad NV (XAMS:RAND, Financial), Totvs SA (BSP:TOTS3, Financial), Travis Perkins PLC (LSE:TPK) and Nos Sgps SA (XLIS:NOS), among others.
Oakmark’s $2.7 billion portfolio, which is composed of 57 holdings, is largely invested in the industrials sector. According to the fund’s fact sheet, U.K. stocks have the largest representation in the portfolio, followed by Swiss securities. The fund posted a return of 26.08% in 2017, underperforming its benchmark. The MSCI World Ex. U.S. Small Cap Index posted a 31.54% return.
View the fund’s portfolio here.
Disclosure: No positions.
