Southeastern Asset Management, the investment firm founded by Mason Hawkins (Trades, Portfolio) in 1975, disclosed four new positions in its third-quarter portfolio, which was released earlier this month.
The Memphis, Tennessee-based firm, which manages the Longleaf Partners Funds, says on its website that it seeks to achieve long-term capital growth by investing in a concentrated number of undervalued companies that have strong balance sheets and good management teams.
Based on these criteria, Southeastern established positions in Summit Materials Inc. (SUM, Financial), Affiliated Managers Group Inc. (AMG, Financial), Yum China Holdings Inc. (YUMC, Financial) and Lazard Ltd. (LAZ, Financial) during the quarter.
Summit Materials
Hawkins’ firm invested in 9.2 million shares of Summit Materials for an average price of $22.17 per share, dedicating 2.02% of the equity portfolio to the stake.
The Denver-based construction materials company, which produces aggregates, cement and ready-mix concrete and asphalt, has a market cap of $1.65 billion; its shares were trading around $14.74 on Monday with a price-earnings ratio of 17.14, a price-book ratio of 1.22 and a price-sales ratio of 0.79.
The Peter Lynch chart shows the stock is trading slightly above its fair value, suggesting it is overpriced.
Summit’s financial strength and profitability and growth were both rated 4 out of 10 by GuruFocus. As a result of poor interest coverage and declining revenue per share, the Altman Z-Score of 1.46 indicates the company is at risk of bankruptcy. The company is supported by an operating margin that outperforms 60% of industry peers and a moderate Piotroski F-Score of 4, which implies business conditions are stable.
With its purchase of 8.29% of outstanding shares, Southeastern is now the company’s largest guru shareholder. David Tepper (Trades, Portfolio), Ron Baron (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Steven Cohen (Trades, Portfolio), T Boone Pickens (Trades, Portfolio), Jana Partners (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies also own the stock.
Affiliated Managers Group
Southeastern picked up 1.17 million shares of Affiliated Managers Group for an average price of $147.64 per share, allocating 1.93% of the equity portfolio to the position.
The investment management company, which is headquartered in Florida, has a $5.88 billion market cap; its shares were trading around $111.56 on Monday with a price-earnings ratio of 8.76, a price-book ratio of 1.62 and a price-sales ratio of 2.59.
According to the Peter Lynch chart, the stock is undervalued.
GuruFocus rated Affiliated Managers Group’s financial strength 6 out of 10. Although the company has issued roughly $48.5 million in new long-term debt over the last three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.25, however, suggests the company is under some financial pressure. Supported by an expanding operating margin, good returns and a healthy Piotroski F-Score of a perfect 9, the company’s profitability and growth scored a 9 out of 10 rating. Despite seeing a decline in revenue per share over the last three years, it also has a business predictability rank of two out of five stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 6% per year.
Hawkins’ firm is now the company’s largest guru shareholder with 2.23% of outstanding shares. Simons, John Rogers (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Cohen, Chuck Royce (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and David Dreman (Trades, Portfolio) are also shareholders.
Yum China
Having previously sold out of Yum China in the first quarter, the firm established a new 1.9 million-share stake for an average price of $35.63 per share. The trade had an impact of 0.84% on the equity portfolio.
The Chinese company, which operates KFC, Taco Bell and Pizza Hut restaurants, has a market cap of $13.43 billion; its shares were trading around $35.42 on Monday with a price-earnings ratio of 26.64, a price-book ratio of 4.53 and a price-sales ratio of 1.83.
Based on the Peter Lynch chart, the stock appears to be overvalued.
Supported by a comfortable level of interest coverage and a strong Altman Z-Score of 7.76, Yum China’s financial strength was rated 7 out of 10 by GuruFocus. Despite having good margins and returns, the company’s profitability and growth scored a 4 out of 10 rating.
With 0.98% of outstanding shares, the Matthews Pacific Tiger Fund (Trades, Portfolio) is the company’s largest guru shareholder. Pioneer, Simons, Howard Marks (Trades, Portfolio)’ Oaktree, Jones, Ray Dalio (Trades, Portfolio) and Jeff Auxier (Trades, Portfolio) also have positions in the stock.
Lazard
The firm purchased 936,325 shares of Lazard for an average price of $49.72 per share, giving the holding 0.54% space in the equity portfolio.
The Bermuda-based asset management company has a $4.78 billion market cap; its shares were trading around $40.49 on Monday with a price-earnings ratio of 16.26, a price-book ratio of 4.49 and a price-sales ratio of 1.88.
The Peter Lynch chart shows the stock is trading near its fair value.
GuruFocus rated Lazard’s financial strength 5 out of 10 as a result of cash-to-debt and debt-to-equity ratios that underperform industry peers. The company’s profitability and growth scored a 4 out of 10 rating. While the net margin underperforms competitors, it has good returns. In addition, it has a one-star business predictability rank, which, according to GuruFocus, means it sees its stock gain an average of 1.1% per year.
Of the gurus invested in Lazard, John Rogers (Trades, Portfolio) has the largest position with 3.84% of outstanding shares. Fisher, Royce, Simons and Pioneer are also shareholders.
Additional trades
During the quarter, the firm also added to its holdings of General Electric Co. (GE, Financial), Realogy Holdings Corp. (RLGY, Financial), Baidu Inc. (BIDU, Financial), Vipshop Holdings Ltd. (VIPS, Financial) and Mattel Inc. (MAT, Financial).
The firm’s $8.33 billion portfolio, which is composed of 28 stocks, is largely invested in the communication services and industrials sectors. According to its website, the Longleaf Partners Fund underperformed the S&P 500 Index in 2017 with a return of 15.51%. The index posted a 21.71% return.
Disclosure: No positions.
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