The FPA Capital Fund (Trades, Portfolio), part of First Pacific Advisors (Trades, Portfolio), released its fourth-quarter portfolio last week, listing four new positions.
Managed by Arik Ahitov, the Los Angeles-based fund invests in a concentrated number of small- and mid-cap companies to achieve its primary objective of long-term capital growth. The portfolio manager looks for companies with competitive positions, little to no leverage and three-to-one upside-downside scenarios.
Based on these criteria, the fund established holdings in Investors Bancorp Inc. (ISBC, Financial), Ambarella Inc. (AMBA, Financial), Carter’s Inc. (CRI, Financial) and First Hawaiian Inc. (FHB, Financial) during the quarter.
Investors Bancorp
The fund invested in 740,740 shares of Investors Bacorp for an average price of $11.52 per share, dedicating 4.52% of the equity portfolio to the position.
The community bank, which is headquartered in New Jersey, has a market cap of $3.3 billion; its shares were trading around $11.32 on Monday with a price-earnings ratio of 19.86, a price-book ratio of 1.09 and a price-sales ratio of 4.48.
The Peter Lynch chart shows the stock is trading higher than its fair value, suggesting it is overpriced. It is also trading below its median price-book value.
GuruFocus rated Investors Bancorp’s financial strength 6 out of 10 despite the fact it issued $1.4 billion in new long-term debt over the last three years. The bank’s assets are also building at a faster rate than its revenue, which indicates it may be becoming less efficient. The company’s profitability and growth scored a 4 out of 10 rating, weighed down by margins and returns that underperform competitors. The company, however, is strengthened by a business predictability rank of one out of five stars, which GuruFocus says means it typically sees its stock gain an average of 1.1% per year.
Of the gurus invested in Investors Bancorp, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest holding with 0.43% of outstanding shares. Other guru shareholders are Hotchkis & Wiley, First Pacific, Michael Price (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).
Ambarella
FPA picked up 164,012 shares of Ambarella for an average price of $35.36 per share, allocating 3.37% of the equity portfolio to the holding.
The Santa Clara, California-based company, which develops semiconductor processing solutions, has a $1.15 billion market cap; its shares were trading around $35.90 on Monday with a forward price-earnings ratio of 87.72, a price-book ratio of 2.80 and a price-sales ratio of 4.85.
According to the chart, the stock is trading below its median price-sales value, but above its Peter Lynch value.
Boosted by no long-term debt and comfortable interest coverage, Ambarella’s financial strength was rated a perfect 10 out of 10 by GuruFocus. In addition, the Altman Z-Score of 17.39 suggests it is in good fiscal standing. The company’s profitability and growth scored a 7 out of 10 rating. In addition to having a declining operating margin, the company’s returns are negative and underperform industry peers. It also has a Piotroski F-Score of 5, which indicates operations are stable even though revenue per share has declined over the last 12 months.
With 1.4% of outstanding shares, Pioneer Investments (Trades, Portfolio) is the company’s largest guru shareholder. First Pacific and Steven Cohen (Trades, Portfolio) also own the stock.
Carter’s
The portfolio manager purchased 48,583 shares of Carter’s for an average price of $90.48 per share, giving it 2.33% space in the equity portfolio.
The children’s apparel manufacturer, which is based in Atlanta, has a market cap of $3.71 billion; its shares were trading around $81.07 on Monday with a price-earnings ratio of 13.43, a price-book ratio of 4.60 and a price-sales ratio of 1.12, which GuruFocus notes are near multiyear lows.
Based on the Peter Lynch chart, the stock appears to be undervalued.
GuruFocus rated Carter’s financial strength 7 out of 10. Although the company has issued roughly $216.04 million in new long-term debt over the last several years, it has adequate interest coverage. In addition, the Altman Z-Score suggests it is financially stable. The company’s profitability and growth scored an 8 out of 10 rating, boosted by operating margin expansion, a stable Piotroski F-Score of 6 and good returns. The company also has a 4.5-star business predictability rank, which is on watch despite the company having consistent earnings and revenue growth. According to GuruFocus, companies with this rank typically see their stock gain an average of 10.6% per year.
Diamond Hill Capital (Trades, Portfolio) is the company’s largest guru shareholder with 1.11% of outstanding shares. Other gurus with positions in the stock are Pioneer, Bernard Horn (Trades, Portfolio), John Hussman (Trades, Portfolio), First Pacific, Chuck Royce (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Richard Pzena (Trades, Portfolio).
First Hawaiian
The fund established a 145,063-share holding in First Hawaiian for an average price of $24.64 per share. The trade had an impact of 1.92% on the equity portfolio.
The Hawaiian bank has a $3.29 billion market cap; its shares were trading around $24.43 on Monday with a price-earnings ratio of 15.46, a price-book ratio of 1.35 and a price-sales ratio of 4.72.
The chart shows the stock is trading higher than the Peter Lynch value, but below its median price-book value.
Despite having enough cash to cover its debt, First Hawaiian’s financial strength was rated 4 out of 10. The company’s profitability and growth fared even worse, scoring a 2 out of 10 rating even though its net margin outperforms 63% of competitors.
Of the gurus invested in the bank, Hotchkis & Wiley has the largest stake with 2.87% of outstanding shares. Simons’ firm and Jones are also shareholders.
Additional trades
During the quarter, the fund also divested of its ARRIS International PLC (ARRS, Financial) and Spirit Airlines Inc. (SAVE, Financial) holdings.
The fund’s $170 million equity portfolio, which consists of 22 stocks, is largely invested in the energy and technology sectors. According to its website, FPA Capital underperformed the Russell 2500 in 2018 with a return of -17.61%. The index posted a -10% return.
Disclosure: No positions.
Read more here:
