Investor Donald Smith (Trades, Portfolio), leader of Donald Smith & Co., released his second-quarter portfolio earlier this week, listing three new holdings.
Using a deep-value, bottom-up approach, the guru’s New York-based firm typically invests in out-of-favor stocks that are trading at a discount to tangible book value. According to the firm’s website, the portfolio managers look for opportunities among companies that are in the bottom decile of price-tangible-book ratios and have a positive earnings outlook over the next two to four years.
Based on these criteria, Smith established positions in Great Panther Mining Ltd. (GPL, Financial), Americas Silver Corp. (USAS, Financial) and Bonanza Creek Energy Inc. (BCEI, Financial) during the quarter.
Great Panther Mining
The guru invested in 7.48 million shares of Great Panther Mining, allocating 0.25% of the equity portfolio to the stake. The stock traded for an average price of 81 cents per share during the quarter.
The Canadian miner has a $247.2 million market cap; its shares were trading around 77 cents on Thursday with a price-book ratio of 0.81 and a price-sales ratio of 1.96.
The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued.
Weighed down by a low cash-debt ratio, GuruFocus rated Great Panther’s financial strength 4.1 out of 10. In addition, the Altman Z-Score of 0.65 warns the company could be at risk of going bankrupt.
The company’s profitability and growth scored a 3 out of 10 rating on the back of negative margins and returns that underperform a majority of competitors as well as a low Piotroski F-Score of 2, which indicates weak operating conditions. The business predictability rank of one out of five stars is on watch as a result of the revenue per share declining over the past three years. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
With his purchase of 2.40% of outstanding shares, Smith is now the company’s largest guru shareholder. Jim Simons' (Trades, Portfolio) Renaissance Technologies also owns the stock.
Americas Silver
Smith picked up 2.33 million shares of Americas Silver, dedicating 0.22% of the equity portfolio to the position. Shares traded for an average price of $1.81 during the quarter.
The miner, which is headquartered in Canada, has a market cap of $272.11 million; its shares were trading around $3.21 on Thursday with a price-book ratio of 1.80 and a price-sales ratio of 2.51.
According to the median price-sales chart, the stock is undervalued.
Americas Silver’s financial strength was rated 5.2 out of 10 by GuruFocus. As a result of issuing approximately $17.07 million in new long-term debt over the past three years, the company has low interest coverage. In addition, the Altman Z-Score of 1.49 warns the company could be in danger of bankruptcy.
The company’s profitability and growth did not fare as well, scoring a 2 out of 10 rating. Although the operating margin is expanding, it still underperforms a majority of industry peers. Americas Silver is also being weighed down by negative returns and a low Piotroski F-Score of 3, which suggests poor operations. The one-star business predictability rank is on watch as a result of declining revenue per share over the past three years.
The guru holds 2.82% of the miner’s outstanding shares.
Bonanza Creek Energy
The investor purchased 100,000 shares of Bonanza Creek Energy, giving the holding 0.08% space in the equity portfolio. During the quarter, the stock traded for an average per-share price of $21.85.
The Denver-based oil and gas producer has a $445.18 million market cap; its shares were trading around $22.05 on Thursday with a price-earnings ratio of 3.05, a price-book ratio of 0.55 and a price-sales ratio of 1.58.
Based on the Peter Lynch chart, the stock appears to be undervalued.
GuruFocus rated Bonanza Creek Energy’s financial strength 6.4 out of 10. Although the company has comfortable interest coverage, the Altman Z-Score of 2.04 suggests it is under some financial pressure as its revenue per share has declined over the past three years.
The company’s profitability and growth scored a 3 out of 10 rating despite being supported by strong margins and returns that outperform over half of its competitors.
Of the gurus invested in Bonanza Creek, Howard Marks' (Trades, Portfolio) Oaktree Capital has the largest stake with 7.69% of outstanding shares. Hotchkis & Wiley, Chuck Royce (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss are also shareholders.
Additional trades
During the quarter, Smith also boosted a number of holdings, including Iamgold Corp. (IAG, Financial), Celestica Inc. (CLS, Financial), Era Group Inc. (ERA, Financial), Tutor Perini Corp. (TPC, Financial), Diamond S Shipping Inc. (DSSI, Financial), Korea Electric Power Corp. (KEP, Financial) and Pyxus International Inc. (PYX, Financial), among others.
The guru’s $2.51 billion equity portfolio, which is composed of 60 stocks, is largely invested in the industrials sector, followed by smaller positions in the financial services and basic materials sectors.
Disclosure: No positions.
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