Jeff Ubben (Trades, Portfolio)’s ValueAct Holdings disclosed last week it established three new holdings during the fourth quarter of 2018.
The San Francisco-based firm, which is known to be activist in nature, takes large positions in a concentrated number of undervalued companies and works with them to maximize returns and unlock value. In July 2017, Ubben stepped down as chief investment officer, handing the reins to protégé Mason Morfit. He remains at the firm as CEO.
During the quarter, the firm opened positions in Darling Ingredients Inc. (DAR, Financial), Aramark (ARMK, Financial) and Bloom Energy Corp. (BE, Financial).
Darling Ingredients
The firm invested in 180,358 shares of Darling Ingredients for an average price of $20.30 per share, allocating 0.16% of the equity portfolio to the position.
The Irving, Texas-based company, which manufactures sustainable food, feed and fuel solutions from organic byproducts, has a $3.6 billion market cap; its shares were trading around $21.86 on Thursday with a price-earnings ratio of 22.08, a price-book ratio of 1.60 and a price-sales ratio of 1.02.
The Peter Lynch chart shows the stock is trading higher than its fair value, suggesting it is overpriced.
GuruFocus rated Darling Ingredients’ financial strength 5 out of 10. Weighed down by poor interest coverage and declining revenue per share over the last several years, the Altman Z-Score of 2.10 indicates the company is under some financial pressure. The company’s profitability and growth scored an 8 out of 10 rating. Despite having a declining operating margin that underperforms competitors, the company is supported by a high Piotroski F-Score of 8, which indicates healthy business conditions, and a business predictability rank of 2.5 out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 7.3% per year.
Of the gurus invested in Darling Ingredients, Steven Cohen (Trades, Portfolio) has the largest stake with 2.9% of outstanding shares. Ken Fisher (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Lee Ainslie (Trades, Portfolio), John Hussman (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) are also shareholders.
Aramark
ValueAct picked up 229,230 shares of Aramark for an average price of $35.76 per share, dedicating 0.12% of the equity portfolio to the holding.
The food service company, which is headquartered in Philadelphia, has an $8.03 billion market cap; its shares were trading around $32.59 on Thursday with a price-earnings ratio of 15.75, a price-book ratio of 2.49 and a price-sales ratio of 0.51.
According to the Peter Lynch chart, the stock is trading near its fair value.
Aramark’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. As a result of poor interest coverage and issuing approximately $1.7 billion in new long-term debt over the last several years, the Altman Z-Score of 1.99 suggests the company is under some fiscal stress. Regardless, it is strengthened by operating margin expansion, returns that outperform industry peers and a moderate Piotroski F-Score of 5, which suggests business conditions are stable.
With 1.23% of outstanding shares, Larry Robbins (Trades, Portfolio) is Aramark’s largest guru shareholder. Other guru investors include Pioneer, Joel Greenblatt (Trades, Portfolio), Mario Cibelli (Trades, Portfolio), Mariko Gordon (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Cohen.
Bloom Energy
Ubben’s firm purchased 250,000 shares of Bloom Energy, which went public in July, for an average price of $18.84 per share, giving it 0.06% space in the equity portfolio.
The California-based utility company, which produces clean energy through fuel cell technology, has a $1.39 billion market cap; its shares were trading around $13.02 on Thursday with a price-sales ratio of 0.55.
Based on the price chart, the stock has tumbled roughly 48% since its initial public offering.
GuruFocus rated Bloom Energy’s financial strength 3 out of 10. In addition to a heavy debt load, the Altman Z-Score of -1.44 warns the company is in danger of going bankrupt. The company’s profitability and growth fared even worse, scoring a 1 out of 10 rating as its negative margins and returns underperform a majority of industry peers.
Ron Baron (Trades, Portfolio) is the company’s largest guru shareholder with approximately 3.07 million shares.
Additional trades
During the quarter, ValueAct also expanded its holdings of several other companies, including Citigroup Inc. (C, Financial), Morgan Stanley (MS, Financial), Seagate Technology PLC (STX, Financial), KKR & Co. Inc. (KKR, Financial), Strategic Education Inc. (STRA, Financial), Hawaiian Electric Industries Inc. (HE, Financial) and Trinity Industries Inc. (TRN, Financial).
The firm’s $8.03 billion portfolio, which is composed of 21 stocks, is heavily invested in the financial services sector at 59.58%.
Disclosure: No positions.
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