The Causeway International Value (Trades, Portfolio) Fund, part of Sarah Ketterer (Trades, Portfolio)’s Causeway Capital Management, disclosed it divested of three holdings when it released its second-quarter portfolio last week.
With the goal of long-term growth of capital and income, the investment team uses a bottom-up approach to look for opportunities among companies in developed countries outside of the U.S.
Causeway exited its positions in Hitachi Ltd. (TSE:6501, Financial), Sinopharm Group Co. Ltd. (HKSE:01099, Financial) and Komatsu Ltd. (TSE:6301, Financial) during the quarter.
Hitachi
The fund cashed in on its remaining 2.8 million shares of Hitachi for an average price of 810.55 yen ($7.30) per share, impacting the equity portfolio by -0.25%. GuruFocus estimates the fund has gained 10% on the investment since the first quarter of 2013.
The Japanese conglomerate has a market cap of 3.46 trillion yen; its shares closed at 716 yen on Monday with a price-earnings ratio of 8.80, a price-book ratio of 1.03 and a price-sales ratio of 0.37.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated Hitachi’s financial strength 7 out of 10 as it has sufficient interest coverage. The Altman Z-Score of 2.04, however, suggests the company is under some financial pressure. Boosted by an expanding operating margin and a high Piotroski F-Score of 7, the company’s profitability and growth scored a 6 out of 10 rating. The company also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank see their stock prices gain an average of 1.1% per year.
The Matthews Japan Fund (Trades, Portfolio) holds 0.17% of the company’s outstanding shares.
Sinopharm Group
Causeway sold 2.5 million shares of Sinopharm for an average price of 34.64 Hong Kong dollars ($4.41) per share. The trade had an impact of -0.16% on the equity portfolio. According to GuruFocus, the fund has gained an estimated 2% on the investment since the fourth quarter of 2017.
The Chinese pharmaceutical company has a HK$108.19 billion market cap; its shares closed at HK$39.10 on Monday with a price-earnings ratio of 17.61, a price-book ratio of 2.59 and a price-sales ratio of 0.33.
According to the Peter Lynch chart below, the stock is overpriced since it is trading slightly above its fair value.
Sinopharm’s financial strength was rated 6 out of 10 by GuruFocus. As a result of issuing approximately 7.4 billion yuan ($1.08 billion) in new long-term debt over the last three years, the Altman Z-Score of 2.56 indicates the company is under some financial stress. Boosted by an expanding operating margin and high Piotroski F-Score of 7, the company’s profitability and growth scored a 7 out of 10 rating. The company also has a three-star business predictability rank. GuruFocus says companies with this rank see their stock prices increase an average of 8.2% per year and have consistent earnings and revenue growth.
Of the gurus invested in Sinopharm, the Matthews Japan Fund (Trades, Portfolio) has the largest position with 2.39% of outstanding shares. Arnold Van Den Berg (Trades, Portfolio) is also a shareholder.
Komatsu
The International Value Fund sold its 302,000 remaining shares of Komatsu for an average price of 3,624.36 yen per share. The trade had an impact of -0.12% on the equity portfolio. GuruFocus data shows the fund profited off its investment as the stock price has appreciated from 1,861.80 yen in the second quarter of 2016.
The Japanese company, which manufactures and sells construction and mining equipment, has a market cap of 2.96 trillion yen; its shares closed at 3,142 yen on Monday with a price-earnings ratio of 13.31, a price-book ratio of 1.75 and a price-sales ratio of 1.14.
Based on the Peter Lynch chart, the stock appears to be undervalued as it is trading below its fair value.
GuruFocus rated Komatsu’s financial strength 6 out of 10. Even though the company has issued approximately 241.2 billion yen in new long-term debt over the last three years, it is still at a manageable level since it has sufficient interest coverage. The Altman Z-Score of 2.43, however, indicates the company is under some financial pressure. The company’s profitability and growth scored a 5 out of 10 rating. Despite declining over the last several years, the operating margin still outperforms 81% of competitors. The company’s other margins and returns are strong as well. It also has a one-star business predictability rank.
The company’s remaining shareholders are the Matthews Japan Fund (Trades, Portfolio), the T. Rowe Price Japan Fund (Trades, Portfolio) and the Signature Select Canadian Fund (Trades, Portfolio).
Other trades
During the quarter, Causeway reduced a number of its other holdings, including GlaxoSmithKline PLC (LSE:GSK, Financial), Schneider Electric SE (XPAR:SU, Financial), Zurich Insurance Group AG (XSWX:ZURN), Encana Corp. (TSX:ECA), Aviva PLC (LSE:AV), Alfa Laval AB (OSTO:ALFA) and AstraZeneca PLC (LSE:AZN).
The fund’s $8.23 billion portfolio, which is composed of 55 stocks, is largely invested in the financial services sector. According to Causeway’s website, the fund has outperformed its benchmark so far this year. The fund has returned -2.4% year to date while the MSCI EAFE has posted a -5.7% return.
Disclosure: No positions.
