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Sydnee Gatewood
Sydnee Gatewood
Articles (738) 

Third Avenue Management Buys 1, Sells 4 in 3rd Quarter

Firm established position in AdvanSix

November 13, 2018 | About:

Third Avenue Management (Trades, Portfolio) disclosed in its third-quarter portfolio last week that it established one new position and exited four others.

The New York-based firm, which was founded by the late Martin Whitman, looks for value opportunities among companies that are well financed, have solid fundamentals and are trading at a significant discount to intrinsic value.

Based on these criteria, the firm opened a position in AdvanSix Inc. (NYSE:ASIX) and sold out of its Alleghany Corp. (NYSE:Y), Arcos Dorados Holdings Inc. (NYSE:ARCO), Legg Mason Inc. (NYSE:LM) and Deutsche Bank AG (NYSE:DB) holdings during the quarter.

AdvanSix

Third Avenue invested in 76,658 shares of AdvanSix for an average price of $35.91 per share, allocating 0.15% of the equity portfolio to the position.

The New Jersey-based manufacturer of Nylon 6, a polymer used to produce engineered plastics, fibers, filaments and films, has a market cap of $798.72 million; its shares were trading around $26.80 on Tuesday with a price-earnings ratio of 7.1, a price-book ratio of 1.98 and a price-sales ratio of 0.57.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.

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GuruFocus rated AdvanSix’s financial strength 5 out of 10. In addition to having low cash-to-debt and debt-to-equity ratios, the Altman Z-Score of 2.95 indicates the company is under some fiscal pressure. The company’s profitability and growth scored a 6 out of 10 rating, supported by good margins and returns and a high Piotroski F-Score of 8, which means operating conditions are healthy.

Of the gurus invested in AdvanSix, Steven Cohen (Trades, Portfolio) has the largest holding with 0.36% of outstanding shares. Joel Greenblatt (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) are also shareholders.

Alleghany

The firm divested its 70,805 remaining shares of Alleghany for an average price of $625.32 per share, impacting the equity portfolio by -2.02%. GuruFocus estimates the fund gained 51% on the investment since establishing the holding in the fourth quarter of 2011.

Headquartered in New York City, the investment holding company, which operates a property and casualty insurance business, has a $9.11 billion market cap; its shares were trading around $613.90 on Tuesday with a price-earnings ratio of 10.32, a price-book ratio of 1.06 and a price-sales ratio of 1.27.

According to the Peter Lynch chart, the stock is undervalued.

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Alleghany’s financial strength was rated 5 out of 10 by GuruFocus as a result of issuing new long-term debt over the last several years. Weakened by poor margins and returns, the company’s profitability and growth scored a 4 out of 10 rating. The company also has a business predictability rank of one out of five stars, which, according to GuruFocus, means its stock price gains an average of 1.1% per year.

With 4.46% of outstanding shares, First Eagle Investment (Trades, Portfolio) is the company’s largest guru shareholder. Other guru investors are Chuck Royce (Trades, Portfolio), Chris Davis (Trades, Portfolio), the Third Avenue Value Fund (Trades, Portfolio), Jim Simons' (Trades, Portfolio) Renaissance Technologies, Hotchkis & Wiley, Diamond Hill Capital (Trades, Portfolio), David Carlson (Trades, Portfolio), the CI Can Am Small Cap (Trades, Portfolio) Fund, Pioneer, Zeke Ashton (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Gabelli.

Arcos Dorados

The investment firm sold its 971,150 remaining shares of Arcos Dorados for an average price of $6.80 per share. The trade had an impact of -0.33% on the equity portfolio. GuruFocus data shows the firm lost an estimated 33% on the investment since establishing a position in the second quarter of 2014.

The Uruguayan company, which is the largest franchisee of McDonald’s restaurants in the world, has a $1.47 billion market cap; its shares were trading around $7.03 on Tuesday with a price-earnings ratio of 15.63, a price-book ratio of 3.75 and a price-sales ratio of 0.44.

Based on the Peter Lynch chart, the stock appears to be trading close to its fair value.

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Arcos Dorados’ financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. Despite having insufficient interest coverage and declining revenue per share, the Altman Z-Score of 3.81 indicates the company is in good financial standing. It is also strengthened by an expanding operating margin, good returns and a perfect Piotroski F-Score of 9.

Bill Gates (Trades, Portfolio)’ foundation has the largest stake in Arcos Dorados with 1.46% of outstanding shares. Barrow, Hanley, Mewhinney & Strauss, Jeff Auxier (Trades, Portfolio), Royce and Ken Fisher (Trades, Portfolio) also own the stock.

Legg Mason

Third Avenue sold its 187,411 remaining shares of Legg Mason for an average price of $32.33 per share, impacting the equity portfolio by -0.32%. According to GuruFocus, the firm gained an estimated 23% on the investment since opening the position in the fourth quarter of 2013.

The Baltimore-based investment management company has a market cap of $2.46 billion; its shares were trading around $28.79 on Tuesday with a price-earnings ratio of 8.72, a price-book ratio of 0.64 and a price-sales ratio of 0.82.

The Peter Lynch chart suggests the stock is undervalued.

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As a result of a heavy debt burden and poor interest coverage, GuruFocus rated Legg Mason’s financial strength 5 out of 10. In addition, the Altman Z- Score of 1.38 warns that the company is in distress and in danger of going bankrupt. The company’s profitability and growth fared much better, scoring a 9 out of 10 rating, driven by an expanding operating margin, a high Piotroski F-Score of 8 and a one-star business predictability rank, which is on watch.

Of the gurus invested in Legg Mason, Gabelli has the largest position with 2.39% of outstanding shares. Richard Pzena (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Fisher, Hotchkis & Wiley, Jeremy Grantham (Trades, Portfolio), Auxier, Barrow, Hanley, Mewhinney & Strauss and Pioneer are also shareholders.

Deutsche Bank

The firm divested of its remaining 322,000 shares of Deutsche Bank for an average price of $11.74 per share. The trade had an impact of -0.17% on the equity portfolio. GuruFocus estimates Third Avenue lost roughly 30% on the investment since establishing it in the second quarter of 2017.

The German bank has a $20.36 billion market cap; its shares were trading around $9.83 on Tuesday with a forward price-earnings ratio of 18.28, a price-book ratio of 0.28 and a price-sales ratio of 0.74.

According to the median price-sales chart, the stock is trading below its historical value.

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As a result of declining revenue per share over the last several years and a heavy debt load, Deutsche Bank’s financial strength was rated 4 out of 10 by GuruFocus. The company’s profitability and growth did not fare as well, scoring a 2 out of 10 rating, driven by negative margins and returns that underperform competitors. The company does have one positive factor, however, which is a one-star business predictability rank.

With 1.01% of outstanding shares, Pioneer is the company’s largest guru shareholder. David Dreman (Trades, Portfolio) also holds the stock.

Portfolio performance

Third Avenue’s $1.77 billion portfolio, which is composed of 73 stocks, is largely invested in the financial services and real estate sectors.

According to its fact sheet, the Third Avenue Value Fund (Trades, Portfolio) underperformed its benchmark, the MSCI World Index, in 2017 with a return of 14.15%. The index posted a 23.07% return. In its third-quarter letter, the firm disclosed that for the three months ended Sept. 30, the fund returned -0.47% compared to its benchmark, which posted a 5.10% return.

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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