Steven Romick (Trades, Portfolio), manager of the FPA Crescent Fund, disclosed last week his four new buys for fourth-quarter 2018 were Glencore PLC LSE:GLEN, NEXON Co. Ltd. TSE:3659, Signature Bank SBNY and NAVER Corp. XKRX:035420, increasing his exposure in four different countries.
Managing a portfolio of 56 stocks, Romick seeks value in all parts of a company’s capital structure, including common stocks, preferred stocks, corporate bonds and convertible bonds.
Guru warns about not anticipating the worst-case scenario
Romick gave several examples in his Jan. 2 fund literature letter to illustrate the pitfalls of not anticipating the unexpected, including the Mount Vesuvius eruption in Pompeii and the series of wildfires in California, the firm’s headquarters. The FPA Crescent Fund manager also warned how “overzealous homeowners and speculators” during the time leading to the 2008 financial crisis attempted to “move forward using their rear view mirror for direction,” focusing on what has happened instead of what might happen.
Romick then said the firm prefers looking forward through its windshield instead of “using the rear view mirror” unless it wishes to go in reverse. The manager warned that the “excess leverage” of sovereign and U.S. municipal governments can potentially catalyze the next downturn and that understanding this risk today can help mitigate the risk going forward.
Top buy is U.K.-based metals and mining company Glencore
Romick invested in 48,471,780 shares of Glencore PLC for an average price of 3.01 pounds ($3.87) per share. The manager dedicated 1.97% of his equity portfolio to the position.
U.K.-based Glencore produces and markets metals, minerals, energy products and agricultural products to commodity consumers around the world. GuruFocus ranks the company’s profitability 5 out of 10: even though its revenue has declined approximately 12.10% per year over the past five years, Glencore’s return on equity of 12.66% outperforms 86% of global competitors. Additionally, the company has a strong Piotroski F-score of 7, driven by positive indicators like increasing returns on assets, lower leverage, higher gross margins and higher asset turnover year over year.
Other gurus with large holdings in Glencore include David Herro (Trades, Portfolio) and the Signature Select Canadian Fund (Trades, Portfolio).
Nexon
Romick invested in 6,462,900 shares of Nexon for an average price of 1,315.94 yen ($12.16) per share, giving the position 0.91% equity portfolio space.
The Japanese application software company develops and distributes various online and mobile games. GuruFocus ranks the company’s financial strength and profitability 8 out of 10 on several positive indicators, which include a robust Altman Z-score of 14.30, a strong Piotroski F-score of 7 and operating margins that are outperforming over 98% of global competitors despite declining approximately 4.4% per year over the past five years.
Polaris Fund manager Bernard Horn (Trades, Portfolio) is also riding Nexon’s strong profitability, holding 543,500 shares.
Signature Bank
Romick invested in 735,280 shares of Signature Bank for an average price of $112.47 per share, giving the position 0.83% space in the equity portfolio.
The New York-based commercial bank provides various personal banking products and services, which range from brokerage services to insurance. GuruFocus ranks the bank’s financial strength 4 out of 10: while the company has a debt-to-equity ratio of 1.05, Signature Bank has just 4 cents in cash for every $1 in debt. The website also warns that Signature Bank’s long-term debt has increased approximately $2.8 billion over the past three years.
Despite the high leverage, Signature Bank’s price-book ratio is near a five-year low of 1.33 while its price-sales ratio is near a five-year low of 4.25, two signs of possible undervaluation.
Other gurus with holdings in Signature Bank include Jerome Dodson (Trades, Portfolio) and Fairfax Financial Holdings Ltd. TSX:FFH CEO Prem Watsa (Trades, Portfolio).
Naver
Romick invested in 671,403 shares of Naver for an average price of 123,144 won ($109.79) per share, giving the position 0.81% equity portfolio space.
The South Korean online media company provides various internet services, including news, maps, digital comic content, social networking and online payments. GuruFocus ranks the company’s profitability 8 out of 10 on several positive signs, which include profit margins outperforming over 88% of global competitors and returns outperforming over 81% of global competitors. Additionally, the company’s business predictability ranks 3.5 stars, suggesting strong revenue and earnings growth over the past 10 years.
The Matthews Pacific Tiger Fund (Trades, Portfolio) is also riding Naver’s strong profitability.
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Disclosure: No positions.
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