Arnold Schneider (Trades, Portfolio), leader of Schneider Capital Management, disclosed four new positions in his second-quarter portfolio, which was released last week.
With the belief that value investing delivers the best performance over time, the guru’s Pennsylvania-based firm uses independent, fundamental analysis to identify undervalued securities with potential for positive change. It then applies a proprietary ranking system that establishes ambitious return hurdles for new holdings and factors in downside risk.
Based on these criteria, Schneider established positions in Univar Inc. (UNVR, Financial), McDermott International Inc. (MDR, Financial), OFG Bancorp (OFG, Financial) and SM Energy Co. (SM, Financial) during the quarter.
Univar
The guru invested in 523,560 shares of Univar, dedicating 2.74% of the equity portfolio to the holding. The stock traded for an average price of $21.85 per share during the quarter.
The Illinois-based manufacturer of specialty chemicals has a $3.16 billion market cap; its shares were trading around $18.49 on Friday with a price-earnings ratio of 56.77, a price-book ratio of 1.62 and a price-sales ratio of 0.31.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Univar’s financial strength 4.5 out of 10 on the back of poor interest coverage and a low Altman Z-Score of 1.69, which warns it could be at risk of going bankrupt.
The company’s profitability and growth scored a 4 out of 10 rating. Although the operating margin is expanding, it still underperforms over half of its competitors. Despite being weighed down by poor returns and recording a decline in revenue per share over the last five years, Univar is supported by a moderate Piotroski F-Score of 6, which indicates business conditions are stable.
Of the gurus invested in Univar, Seth Klarman (Trades, Portfolio) has the largest stake with 5.63% of outstanding shares. Steven Cohen (Trades, Portfolio) also established a position during the quarter, while First Pacific Advisors (Trades, Portfolio), Larry Robbins (Trades, Portfolio) and Jim Simons' (Trades, Portfolio) Renaissance Technologies added to their holdings. Steven Romick (Trades, Portfolio), Ron Baron (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) are also shareholders.
McDermott International
Schneider picked up 677,119 shares of McDermott International, allocating 1.55% of the equity portfolio to the stake. Shares traded for an average price of $7.99 during the quarter.
The oilfield services company, which is headquartered in Houston, has a market cap of $797.79 million; its shares were trading around $4.39 on Friday with a forward price-earnings ratio of 6.33, a price-book ratio of 1.55 and a price-sales ratio of 0.09.
According to the median price-sales chart, the stock is undervalued.
Weighed down by poor interest coverage and a low cash-debt ratio, McDermott’s financial strength was rated 3.3 out of 10 by GuruFocus. In addition, the Altman Z-Score of -0.47 warns the company could be in danger of bankruptcy.
The company’s profitability and growth scored a 3 out of 10 rating. In addition to weak margins and returns that underperform a majority of industry peers, McDermott has a low Piotroski F-Score of 2 that suggests operating conditions are poor. The business predictability rank of one out of five stars is on watch. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
With 2.30% of outstanding shares, Hotchkis & Wiley is the company’s largest guru shareholder. Prem Watsa (Trades, Portfolio) also owns the stock.
OFG Bancorp
Having previously exited a position in OFG Bancorp in the third quarter of 2018, the investor entered a new 76,053-share holding. The trade had an impact of 0.43% on the equity portfolio. During the quarter, the stock traded for an average price of $19.91 per share.
The Puerto Rican bank has a $1.06 billion market cap; its shares were trading around $20.87 on Friday with a price-earnings ratio of 12.06, a price-book ratio of 1.07 and a price-sales ratio of 2.57.
Based on the Peter Lynch chart, the stock appears to be undervalued.
GuruFocus rated OFG’s financial strength 5 out of 10 on the back of a high cash-debt ratio that outperform a majority of competitors.
The bank’s profitability and growth did not fare as well, scoring a 1 out of 10 rating as margins and returns are underperforming over half of its industry peers. Despite recording a decline in revenue per share over the past five years, OFG has a one-star business predictability rank.
Simons’ firm is the bank’s largest guru shareholder with 0.89% of outstanding shares. Cohen also opened a position in the stock during the quarter, while Jeremy Grantham (Trades, Portfolio) added to his holding. Barrow, Hanley, Mewhinney & Strauss and Richard Snow (Trades, Portfolio) also hold the stock.
SM Energy
After closing a position in SM Energy in fourth-quarter 2018, Schneider opened a new 138,320-share holding, expanding the equity portfolio 0.41%. During the quarter, the stock traded for an average per-share price of $14.53.
The Denver-based oil and gas producer has a market cap of $1.11 billion; its shares were trading around $9.84 on Friday with a price-earnings ratio of 25.11, a price-book ratio of 0.44 and a price-sales ratio of 0.65.
The Peter Lynch chart suggests the stock is overvalued.
SM Energy’s financial strength was rated 3.5 out of 10 by GuruFocus. In addition to weak interest coverage, the company is weighed down by an Altman Z-Score of 0.74, which warns the company could go bankrupt.
The company’s profitability and growth scored a 4 out of 10 rating on the back of low margins and returns that underperform a majority of competitors and revenue per share that has declined over the last five years. SM Energy is supported, however, by a moderate Piotroski F-Score of 5 as well as a one-star business predictability rank.
Of the gurus invested in SM Energy, Simons’ firm has the largest stake with 0.91% of outstanding shares. Pioneer Investments (Trades, Portfolio) also established a position during the quarter, while Paul Tudor Jones (Trades, Portfolio) added to his holding. Jeff Auxier (Trades, Portfolio) is also a shareholder.
Additional trades
During the quarter, Schneider added to several other holdings, including Transocean Ltd. (RIG, Financial), Kulicke & Soffa Industries Inc. (KLIC, Financial), Venator Materials PLC (VNTR, Financial), Olin Corp. (OLN, Financial), MidWest One Financial Groupo Inc. (MOFG, Financial) and Synovus Financial Corp. (SNV, Financial).
The guru’s $421 million equity portfolio, which is composed of 43 stocks, is largely invested in the financial services and energy sectors.
According to the firm’s website, the Schneider Small Cap Value Fund returned -9.30% for the three months ended June 30. The Russell 2000 Value Index posted a 1.38% return for the same period.
Disclosure: No positions.
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