Oaktree Capital Management, the firm founded by legendary investor Howard Marks (Trades, Portfolio), disclosed earlier this week it curbed its stake in StoneMor Partners LP (STON, Financial) by 11.77%.
On its website, the guru’s Los Angeles-based alternative asset management firm says it focuses on delivering superior results while observing its six-tenet investment philosophy: risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing.
According to GuruFocus Real-Time Picks, a Premium feature, the firm divested of 527,197 shares of the Trevose, Pennsylvania-based company on Oct. 28, bringing its total holding to 3.95 million shares. The stock traded for an average price of $1.09 per share.
GuruFocus estimates Oaktree has lost 86% on the investment since the fourth quarter of 2016.
The company, which owns and operates funeral homes and cemeteries across the U.S., has a $43.52 million market cap; its shares were trading around $1.10 on Thursday with a price-sales ratio of 0.12, which GuruFocus noted were near 10-year lows.
The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued.
On Oct. 25, StoneMor announced a special meeting in regard to voting on its previously announced merger and reorganization agreement. The meeting will occur on Dec. 20.
The company will report its third-quarter results after the market closes on Nov. 7.
StoneMor’s financial strength and profitability were both rated 2 out of 10 by GuruFocus. As a result of issuing approximately $76.7 million in new long-term debt and recording an operating loss over the past three years, the company has a low cash-debt ratio of 0.12. In addition, the Altman Z-Score of 0.16 warns the company is in financial distress and could be in danger of going bankrupt.
The company is also being weighed down by negative margins and returns that underperform a majority of competitors. StoneMor also has a Piotroski F-Score of 2, which indicates it has poor operating conditions. Despite recording a decline in revenue per share over the last five years, the company has a business predictability rank of one out of five stars. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
Oaktree holds 9.98% of Stonemor’s outstanding shares, which now represents 0.10% of the equity portfolio.
Portfolio composition
Oaktree’s $4.18 billion equity portfolio, which was composed of 82 stocks as of the end of the second quarter, is heavily invested in the industrials sector, followed by smaller positions in the financial services and utilities sectors. Consumer cyclical stocks, the sector which Stonemor is part of, make up 7% of the portfolio.
Other consumer cyclical stocks Marks’ firm currently holds include Huya Inc. (HUYA, Financial), Clear channel Outdoor Holdings Inc. (CCO, Financial), Grupo Televisa SAB (TV, Financial), Caesars Entertainment Corp. (CZR, Financial), Century Communities Inc. (CCS, Financial), Townsquare Media Inc. (TSQ, Financial), Yeti Holdings Inc. (YETI, Financial), Liberty Braves Group (BATRK, Financial), Alibaba Group Holding Ltd. (BABA, Financial) and Yum China Holdings Inc. (YUMC, Financial).
Disclosure: No positions.
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