Delphi Management leader Scott Black (Trades, Portfolio) disclosed 11 new positions in his fourth-quarter 2018 portfolio, which was released last week.
As a disciple of the Graham-Dodd school of value investing, the guru’s Boston-based firm typically takes long positions in companies that have good management teams and exhibit “a low absolute valuation.” According to its website, the firm contacts the management of every company it invests in.
Based on these criteria, Black’s top five new buys for the quarter were Wyndham Hotels & Resorts Inc. (WH, Financial), Morgan Stanley (MS, Financial), Bristol-Myers Squibb Co. (BMY, Financial), Lockheed Martin Corp. (LMT, Financial) and Acuity Brands Inc. (AYI, Financial).
Wyndham Hotels & Resorts
Black’s largest new buy for the quarter was 38,328 shares of Wyndham Hotels, which was spun off of Wyndham Worldwide Corp. (WYN, Financial) in June 2018, for an average price of $48.35 per share, dedicating 1.57% of the equity portfolio to the position.
The New Jersey-based operator of a chain of hotels and resorts has a $5.32 billion market cap; its shares were trading around $54.37 on Monday with a price-earnings ratio of 44.57, a price-book ratio of 3.77 and a price-sales ratio of 2.90.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Wyndham Hotels’ financial strength 5 out of 10. In addition to having poor earnings quality and insufficient interest coverage, the Altman Z-Score of 1.48 warns the company is at risk of going bankrupt. The company’s profitability and growth scored a 6 out of 10 rating, driven by good margins and returns that outperform competitors and a moderate Piotroski F-Score of 6, which indicates operations are stable.
Of the gurus invested in Wyndham Hotels, Barrow, Hanley, Mewhinney & Strauss has the largest stake with 1.66% of outstanding shares. First Eagle Investment (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), John Hussman (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) are also shareholders.
Morgan Stanley
The guru invested in 36,457 shares of Morgan Stanley for an average price of $43.48 per share, allocating 1.31% of the equity portfolio to the holding.
The investment bank, which is headquartered in New York, has a market cap of $71.72 billion; its shares were trading around $42.76 on Monday with a price-earnings ratio of 8.93, a price-book ratio of 1.04 and a price-sales ratio of 1.92.
According to the Peter Lynch and median price-book chart, the stock is undervalued.
Weighed down by $32.2 billion in new long-term debt, Morgan Stanley’s financial strength was rated a poor 3 out of 10 by GuruFocus. The bank’s profitability and growth did not fare much better, scoring a 4 out of 10 rating. While its return on equity outperforms 61% of industry peers, the return on assets underperforms 64%. The company also has a business predictability rank of one out of five stars, which, according to GuruFocus, means it typically sees its stock gain an average of 1.1% per year.
With 1.54% of outstanding shares, Jeff Ubben (Trades, Portfolio)’s ValueAct is the company’s largest guru shareholder. Other top guru shareholders include Richard Pzena (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Pioneer, Diamond Hill Capital (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Hotchkis & Wiley, Mario Gabelli (Trades, Portfolio), George Soros (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio).
Bristol-Myers Squibb
Black picked up 26,373 shares of Bristol-Myers Squibb for an average price of $53.49 per share, giving it 1.24% space in the equity portfolio.
The New York-based pharmaceutical company has an $82.79 billion market cap; its shares were trading around $50.71 on Monday with a price-earnings ratio of 16.74, a price-book ratio of 6.07 and a price-sales ratio of 3.77.
Based on the Peter Lynch chart, the stock appears to be overvalued.
Bristol-Myers Squibb’s financial strength and profitability and growth were both rated 7 out of 10 by GuruFocus. Supported by adequate interest coverage, the robust Altman Z-Score of 5.24 suggests the company is in good fiscal health. Although the operating margin is in decline, it still outperforms 75% of competitors. It also has a moderate Piotroski F-Score of 6 and a one-star business predictability rank, which is on watch as a result of underperforming returns.
The Vanguard Health Care Fund (Trades, Portfolio) is the company’s largest guru shareholder with 3.12% of outstanding shares. Other top guru shareholders are Dodge & Cox, PRIMECAP Management (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Bill Nygren (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Cohen, Pioneer, T Rowe Price, Dalio and Gabelli.
Lockheed Martin
The guru purchased a 4,482-share position in Lockheed Martin for an average price of $301.42 per share. The trade had an impact of 1.06% on the equity portfolio.
The aerospace and defense company, which is based in Maryland, has a market cap of $86.86 billion; its shares were trading around $307.40 on Monday with a price-earnings ratio of 17.48, a price-book ratio of 62.72 and a price-sales ratio of 1.65.
The Peter Lynch chart shows the stock is overpriced.
GuruFocus rated Lockheed’s financial strength 5 out of 10, driven by good interest coverage and a high Altman Z-Score of 3.40. The company’s profitability and growth fared much better with an 8 out of 10 rating. In addition to operating margin expansion, the company is supported by strong returns, consistent earnings and revenue growth and a high Piotroski F-Score of 7, which suggests business conditions are healthy. It also has a four-star business predictability rank, which GuruFocus says means it gains an average of 9.8% per year.
With 0.10% of outstanding shares, Simons’ firm is the company’s largest guru shareholder. Greenblatt, Pioneer, Jeremy Grantham (Trades, Portfolio), Cohen, John Rogers (Trades, Portfolio) and several other gurus also have positions in the stock.
Acuity Brands
Black bought 9,699 shares of Acuity Brands for an average price of $122.65 per share, expanding the equity portfolio 1.01%.
The Atlanta-based company, which provides lighting systems and building management solutions, has a $5.28 billion market cap; its shares were trading around $132.26 on Monday with a price-earnings ratio of 15.07, a price-book ratio of 3.03 and a price-sales ratio of 1.43.
According to the Peter Lynch chart, the stock is trading near its fair value.
Acuity’s financial strength was rated 7 out of 10 by GuruFocus. Although the company has issued approximately $3 million in new long-term debt over the last three years, it is at a manageable level due to good interest coverage. The robust Altman Z-Score of 5.42 also suggests the company is in good fiscal health. The company’s profitability and growth scored a rating of 8 out of 10. In addition to operating margin expansion, the company is supported by returns that outperform industry peers and a moderate Piotroski F-Score of 6. The one-star business predictability rank is on watch since Acuity’s assets are building at a faster rate than its revenue, indicating it may be becoming less efficient.
Of the gurus invested in Acuity, Generation Investment Management has the largest stake with 8.4% of outstanding shares. Charles de Vaulx (Trades, Portfolio), Simons’ firm, Cohen, Pioneer, PRIMECAP, Ronald Muhlenkamp (Trades, Portfolio) and Rogers, among others, also own the stock.
Additional trades
During the quarter, Black also established positions in KLA-Tencor Corp. (KLAC, Financial), Parker Hannifin Corp. (PH, Financial), Royal Dutch Shell PLC (RDS.A, Financial), Cisco Systems Inc. (CSCO, Financial), Covenant Transportation Group Inc. (CVTI, Financial) and Camden National Corp. (CAC, Financial).
The guru’s $110.42 million equity portfolio, which is composed of 86 stocks, is largely invested in the consumer cyclical and financial services sectors.
Disclosure: No positions.
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