Robert Olstein (Trades, Portfolio), leader of Olstein Capital Management, released his third-quarter portfolio this week, listing eight new positions.
The guru’s New York-based firm seeks to produce long-term capital appreciation by investing in undervalued companies that have good financial strength, a competitive edge and are able to generate free cash flow. According to its website, the investment team also takes downside risk into consideration before pursuing a position in the stock.
Olstein’s top five new buys for the quarter were Mohawk Industries Inc. (MHK, Financial), Starbucks Corp. (SBUX, Financial), McDonald’s Corp. (MCD, Financial), Packaging Corp of America (PKG, Financial) and Cracker Barrel Old Country Store Inc. (CBRL, Financial).Â
Mohawk Industries
The guru invested in 35,000 shares of Mohawk Industries for an average price of $196.12 per share, giving it 0.82% space in the equity portfolio.
The Calhoun, Georgia-based flooring manufacturer has a market cap of $9.38 billion; its shares were trading around $125.09 on Thursday with a price-earnings ratio of 10.87, a price-book ratio of 1.25 and a price-sales ratio of 0.96.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated Mohawk’s financial strength 6 out of 10. Although the company has good interest coverage, the Altman Z-Score of 2.97 indicates it is experiencing some financial pressure. The company’s profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin, a moderate Piotroski F-Score of 5, suggesting business conditions are stable, and a business predictability rank of one out of five stars, which is on watch as a result of assets building at a faster rate than revenue. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 1.1% per year.
Of the gurus invested in Mohawk Industries, Lee Ainslie (Trades, Portfolio) has the largest position with 1.99% of outstanding shares. Other guru shareholders are Ruane Cunniff (Trades, Portfolio), Steven Romick (Trades, Portfolio), Steve Mandel (Trades, Portfolio), John Rogers (Trades, Portfolio), Larry Robbins (Trades, Portfolio), Ron Baron (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Tom Gayner (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Ken Fisher (Trades, Portfolio).
Starbucks
Olstein picked up 78,000 shares of Starbucks for an average price of $52.87 per share, dedicating 0.59% of the equity portfolio to the holding.
Based in Seattle, the coffee chain has an $89.23 billion market cap; its shares were trading around $67.86 on Wednesday with a price-earnings ratio of 21.23, a price-book ratio of 76.33 and a price-sales ratio of 3.84.
According to the Peter Lynch chart, the stock is overpriced.
Starbucks’ financial strength was rated 6 out of 10 by GuruFocus. Although the company has issued roughly $7.2 billion in new long-term debt over the last three years, it is manageable due to sufficient interest coverage. In addition, the Altman Z-Score of 4.46 indicates it is in good financial standing. The company’s profitability and growth scored an 8 out of 10 rating as a result of an expanding operating margin, a high Piotroski F-Score of 7 and a one-star business predictability rank.
With 0.8% of outstanding shares, Frank Sands (Trades, Portfolio) is the company’s largest guru shareholder. Pioneer, Jerome Dodson (Trades, Portfolio), Gayner, Diamond Hill Capital (Trades, Portfolio), Smead Capital Management, Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, Ainslie, Mario Gabelli (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Jeff Auxier (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Fisher, Julian Robertson (Trades, Portfolio) and Stahl also hold the stock.
McDonald’s
Having previously closed a position in McDonald’s in the fourth quarter of 2014, the investor opened a new 26,000-share holding for an average price of $160.26 per share. The trade had an impact of 0.58% on the equity portfolio.
The fast-food chain, which is headquartered in Chicago, has a market cap of $142.19 billion; its shares were trading around $184.45 on Thursday with a price-earnings ratio of 27.90 and a price-sales ratio of 6.89.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated McDonald’s financial strength 5 out of 10. While the company has issued approximately $13.9 billion in new long-term debt over the last three years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 5.61 also suggests the company is in good financial health despite seeing a decline in revenue per share over the last 12 months. The fast-food restaurant’s profitability and growth scored a 7 out of 10 rating, driven by an expanding operating margin, a moderate Piotroski F-Score of 6 and a two-star business predictability rank. GuruFocus says companies with this rank typically see their stock prices gain an average of 6% per year.
Spiros Segalas (Trades, Portfolio) has the largest stake in McDonald’s among the gurus with 0.34% of outstanding shares. Pioneer, Simons, Dalio, Greenblatt, Paul Tudor Jones (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Dodge & Cox, Mairs and Power (Trades, Portfolio), Auxier, Jeremy Grantham (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Fisher, Caxton, Stahl and Tom Russo (Trades, Portfolio) are also shareholders.
Packaging Corp of America
After selling out of Packing Corp of America in the first quarter of 2017, Olstein purchased a new 33,000-share holding for an average price of $112.78 per share, impacting the equity portfolio by 0.48%.
The Lake Forest, Illinois-based company, which manufactures containerboard and corrugated packaging, has a $9.3 billion market cap; its shares were trading around $98.45 on Thursday with a price-earnings ratio of 11.63, a price-book ratio of 3.89 and a price-sales ratio of 1.36.
The Peter Lynch chart suggests the stock is undervalued since it is trading below its fair value.
Packaging Corp’s financial strength was rated 5 out of 10 by GuruFocus, supported by sufficient interest coverage and a high Altman Z-Score of 3.67. The company’s profitability and growth scored a 9 out of 10 rating, boosted by a high Piotroski F-Score of 8 and good returns. Although its operating margin is in decline, it still outperforms 88% of industry peers. The company also has a three-star business predictability rank, which, according to GuruFocus, means that not only does it have consistent earnings and revenue growth, but its stock gains an average of 8.2% per year.
With 1.06% of outstanding shares, First Eagle Investment (Trades, Portfolio) is the company’s largest guru shareholder. Pioneer, Cohen, Simons, Dalio and Jones are also shareholders.
Cracker Barrel
The guru bought 22,166 shares of Cracker Barrel for an average price of $149.92 per share, allocating 0.44% of the equity portfolio to the position.
The restaurant and gift store, which is based in Lebanon, Tennessee, has a market cap of $4.03 billion; its shares were trading around $167.70 on Thursday with a price-earnings ratio of 16.27, a price-book ratio of 6.89 and a price-sales ratio of 1.32.
According to the Peter Lynch chart, the stock is trading slightly higher than its fair value.
Supported by good interest coverage and a high Altman Z-Score of 5.62, GuruFocus rated Cracker Barrel’s financial strength 7 out of 10. The company’s profitability and growth scored an 8 out of 10 rating as a result of an expanding operating margin, good returns and a high Piotroski F-Score of 7. The restaurant chain also has a four-star business predictability rank, which is on watch despite having stable earnings and revenue growth. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 9.8% per year.
With 0.23% of outstanding shares, Pioneer has the largest holding in Cracker Barrel. Gabelli is also a shareholder.
Other trades
During the quarter, Olstein also established positions in diesel engine manufacturer Cummins Inc. (CMI, Financial), retailer Big Lots Inc. (BIG, Financial) and electronics manufacturer Flex Ltd. (FLEX, Financial).
The guru’s $747 million portfolio, which is composed of 120 stocks, is largely invested in the consumer cyclical sector, followed by smaller holdings in the industrials, technology and financial services sectors. According to its fact sheet, the Olstein All Cap Value Fund underperformed the Russell 3000 Index in 2017 with a return of 14.29%. The index posted a 21.13% return.
Disclosure: No positions.
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