The Oakmark Intl Small Cap (Trades, Portfolio) Fund, part of Harris Associates, released its fourth-quarter 2018 portfolio last week, listing three new holdings.
Managed by David Herro (Trades, Portfolio), Michael Manelli and Justin Hance, the Chicago-based fund seeks long-term capital appreciation by investing in foreign, small-cap companies that are trading at a discount to its estimate of intrinsic value.
Based on these criteria, the fund established positions in Pirelli & C. S.p.A. (MIL:PIRC, Financial), Kimberly-Clark de Mexico SAB de CV (MEX:KIMBERA, Financial) and Bucher Industries AG (XSWX:BUCN, Financial) during the quarter.
Pirelli & C
The fund invested in 2.02 million shares of Pirelli & C for an average price of 6.17 euros ($7.01) per share, dedicating 1.04% of the equity portfolio to the stake.
The Italian tire manufacturer has a market cap of 5.97 billion euros; its shares closed at 5.97 euros on Monday with a price-earnings ratio of 45.92, a price-book ratio of 1.36 and a price-sales ratio of 2.27.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
Pirelli’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. Although the company has issued 2.4 billion euros 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 0.82, however, warns the company is in danger of going bankrupt.
Although the operating margin is in decline, it still outperforms 99% of competitors. The company’s returns, however, underperform industry peers. Pirelli also has a moderate Piotroski F-Score of 5, which indicates operations are stable. The business predictability rank of one out of five stars is on watch as a result of declining revenue per share and a loss in operating income over the last several years. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.
With its purchase of 0.20% of outstanding shares, Oakmark became the company’s largest guru shareholder. The Signature Select Canadian Fund (Trades, Portfolio) also owns the stock.
Kimberly-Clark de Mexico
Oakmark picked up 5.7 million shares of Kimberly-Clark de Mexico for an average price of 30.49 pesos ($1.60) per share, allocating 0.72% of the equity portfolio to the stake.
The Mexican company, which is a subsidiary of consumer goods giant Kimberly-Clark Corp. (KMB, Financial), has a $5.13 billion market cap; its U.S.-listed shares (KCDMY, Financial) were trading around $8.32 on Tuesday with a price-earnings ratio of 23.39, a price-book ratio of 24.59 and a price-sales ratio of 2.51.
According to the Peter Lynch chart, the stock is overvalued.
As a result of issuing approximately 3.5 billion pesos in new long-term debt over the last three years, GuruFocus rated Kimberly-Clark de Mexico’s financial strength 5 out of 10. Despite having low interest coverage, the Altman Z-Score of 3.44 suggests the company is in good fiscal health.
The company’s profitability and growth fared much better, scoring an 8 out of 10 rating. Although the operating margin is in decline, it still outperforms 89% of competitors. The consumer goods manufacturer is also supported by strong returns that outperform industry peers, consistent earnings and revenue growth and a moderate Piotroski F-Score of 6. The company also has a four-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 9.8% per year.
Bucher Industries
After selling out of Bucher Industries in first-quarter 2018, the International Small Cap Fund purchased a new 32,000-share holding for an average price of 276.01 Swiss francs ($276.18) per share. The trade had an impact of 0.68% on the equity portfolio.
The Swiss company, which produces a wide range of machinery, vehicles and industrial systems for agriculture, automation and manufacturing, has a market cap of 3.47 billion francs; its shares closed at 340.2 francs on Monday with a price-earnings ratio of 16.39, a price-book ratio of 2.37 and a price-sales ratio of 1.13.
Based on the Peter Lynch chart below, the stock appears to be overvalued.
Bucher’s financial strength was rated 7 out of 10 by GuruFocus, driven by comfortable interest coverage and a robust Altman Z-Score of 3.43.
The company’s profitability and growth scored a 6 out of 10 rating. Although the operating margin is in decline, it still outperforms 61% of competitors. Bucher is also supported by strong returns, a moderate Piotroski F-Score of 5 and a one-star business predictability rank.
The fund holds 0.31% of outstanding shares.
Additional trades
During the quarter, Oakmark also boosted its holdings of ConvaTec Group PLC (LSE:CTEC, Financial), Sulzer AG (XSWX:SUN), Outotec Oyj (OHEL:OTE1V), Ansell Ltd. (ASX:ANN) and Hays PLC (LSE:HAS).
The fund’s $1.25 billion equity portfolio, which is composed of 57 stocks, is largely invested in the industrials sector. According to its fact sheet, the International Small Cap Fund posted a -23.73% return for 2018, underperforming the MSCI World ex. U.S. Small Cap Index’s return of -18.07%.
Disclosure: No positions.
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