Bestinfond (Trades, Portfolio), formerly run by Francisco Garcàa Paramés, disclosed last week its top five buys for the first quarter included two new positions in U.S. holdings and one increased bet in major U.K. retailer Next PLC (LSE:NXT, Financial).
Managed by Beltran de la Lastra, the fund seeks long-term capital appreciation through a strict application of key value investing principles shared by legends like Benjamin Graham, Peter Lynch and Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio).
De la Lastra said in his quarterly letter that 2019 “started in the same vein” as 2018 did: market volatility. Despite this, the fund manager underscored that volatility is “not always synonymous” with market corrections. Sharp price movements, regardless of direction, can lead to high volatility.
Bestinver’s International portfolio reported a 14% gain for the quarter according to opening figures for the second quarter. The $1.58 billion equity portfolio contains 104 positions as of quarter-end, of which 10 are new positions. De la Lastra said the industrials sector, which represents 25.27% of the equity portfolio, consists of companies with long business cycles and companies with short business cycles.
The fund’s top five buys for the quarter were Schlumberger Ltd. (SLB, Financial), Dollar General Corp. (DG, Financial), Tesco PLC (LSE:TSCO, Financial), Next and Epiroc AB (OSTO:EPI A).
Schlumberger
De la Lastra purchased 731,841 shares of Schlumberger, giving the position 1.80% equity portfolio space. Shares averaged $43.16 during the quarter.
The fund manager said Bestinver believes the market “does not understand particularly well” companies with longer business cycles as the market focuses on short-term results for normalized earnings. According to GuruFocus, Schlumberger’s financial strength ranks a moderately-strong 6 out of 10: Even though debt ratios are underperforming approximately half of global competitors, the company's Piotroski F-score of 6 suggests solid business operations.
De la Lastra said companies like Schlumberger are “decently priced” and that their robust, niche businesses reduce the risk of capital loss.
Dollar General
De la Lastra purchased 227,524 shares of Dollar General, giving the holding 1.53% equity portfolio space. Shares averaged $116.19 during the quarter.
The Goodlettsville, Tennessee-based discount retailer offers a broad selection of food and general merchandise, typically for about $5 or less, through convenient and small format stores. GuruFocus ranks the company’s profitability 8 out of 10: Even though the operating margin has declined over the past five years, Dollar General’s profit margins are still outperforming over 82% of global competitors. Additionally, GuruFocus ranks the company’s business predictability 4.5 stars out of five on strong and consistent revenue and earnings growth over the past 10 years.
Tesco
De la Lastra purchased 7,307,766 shares of Tesco, giving the stake 1.23% equity portfolio space. Shares averaged 2.23 pounds ($2.84) during the quarter.
The British grocery store operates over 6,700 stores in the U.K. and Ireland. GuruFocus ranks Tesco’s financial strength 6 out of 10: Although the company has a strong Piotroski F-score of 7, its debt ratios underperform over 70% of global competitors. Additionally, the company’s interest coverage of 7.06 is just slightly above Graham’s required threshold of 5.
Next
De la Lastra added 280,372 shares of Next, increasing the position 1,618.22% and his equity portfolio 1.13%.
The fund manager said in his letter that Brexit, which started in July 2016, warned investors to remain alert to possible threats and opportunities. De la Lastra then said the market “gave the chance” to invest in British cyclical stocks like Next due to Brexit in 2019: While the companies have “challenging” businesses and thus require “extremely attractive” prices, such companies still have good margin of safety. According to the GuruFocus DCF Calculator, Next’s margin of safety based on the discounted earnings model is 17.39%.
GuruFocus ranks Next’s profitability 8 out of 10 on several positive signs, including operating margins that are outperforming 94.07% of global competitors despite contracting 1.8% per year over the past five years. Next’s business predictability ranks three stars out of five on consistent revenue growth over the past 10 years.
Epiroc
De la Lastra added 2,654,225 shares of Epiroc, increasing the stake 243.16% and his equity portfolio 1.03%. Shares averaged 89.14 Swedish kroner ($9.22) during the quarter.
GuruFocus ranks the Swedish farm and construction equipment company’s financial strength 7 out of 10 on several positive indicators, which include a strong Piotroski F-score of 8 and a solid Altman Z-score of 4.36.
Disclosure: No positions.
Read more here:
- Daniel Loeb’s Top 6 Buys in 1st Quarter
- Leon Cooperman’s Top 5 Buys in 1st Quarter
- Seth Klarman Introduces 7 New Positions in 1st Quarter
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