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Bernard Horn Goes 2 for 2 in 3rd Quarter

Polaris Capital Management's Bernard Horn (Trades, Portfolio) released his third-quarter portfolio last week, revealing he established two new positions and exited two others.


With the goal of capital appreciation and strong risk-adjusted returns, the guru's Boston-based firm invests in discounted but high-quality stocks in developed as well as emerging markets.

Based on these criteria, the guru opened positions in The Toronto-Dominion Bank (TSX:TD) and Mondi PLC (LSE:MNDI) during the quarter. He also exited his Standard Chartered PLC (LSE:STAN) and Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) holdings.

Toronto-Dominion Bank

Horn invested in 102,800 shares of Toronto-Dominion, allocating 1.39% of the equity portfolio to the position. The stock traded for an average price of 75.1 Canadian dollars ($56.78) per share during the quarter.

The Canadian bank has a CA$132.09 billion market cap; its shares were trading around CA$72.88 on Tuesday with a price-earnings ratio of 11.66, a price-book ratio of 1.61 and a price-sales ratio of 3.27.

The Peter Lynch chart shows the stocks is trading below its fair value, suggesting it is undervalued.

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GuruFocus rated Toronto-Dominion's financial strength 4 out of 10 as a result of issuing approximately CA$1.9 billion in new long-term debt over the past three years.

The company's profitability did not fare much better, scoring a 5 out of 10 rating. The bank is supported by margins and returns that outperform at least half of its competitors and a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.

Of the gurus invested in Toronto-Dominion, the Leith Wheeler Canadian Equity (Trades, Portfolio) Fund has the largest stake with 0.15% of outstanding shares. The Mawer Canadian Equity Fund (Trades, Portfolio) also has a position in the stock.

Mondi

The investor picked up 258,939 shares of Mondi, dedicating 1.15% of the equity portfolio to the holding. During the quarter, the stock traded for an average per-share price of 16.64 British pounds ($21.88).

The packaging and paper manufacturer, which is headquartered in Austria, has a market cap of 8 billion pounds; its shares were trading around 16.47 pounds on Tuesday with a price-earnings ratio of 9.52, a price-book ratio of 1.81 and a price-sales ratio of 1.19.

According to the Peter Lynch chart, the stock is undervalued.

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Mondi's financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately 441.5 million euros ($448.4 million) in new long-term debt over the past three years, it is at a manageable level due to comfortable interest coverage. In addition, the Altman Z-Score of 3.31 indicates it is in good financial standing.

The company's profitability fared much better, scoring an 8 out of 10 rating on the back of operating margin expansion, strong margins that outperform a majority of competitors, consistent earnings and revenue growth and a high Piotroski F-Score of 8, which suggests conditions are healthy. Mondi also has a two-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 6% per year.

Horn holds 0.05% of the company's outstanding shares.

Standard Chartered

The guru divested of his 660,755 remaining shares of Standard Chartered, impacting the equity portfolio by -1.31%. Shares traded for an average price of 6.71 pounds during the quarter.

The British financial services company has a market cap of 21.68 billion pounds; its shares were trading around 6.78 pounds on Tuesday with a price-earnings ratio of 56.5, a price-book ratio of 0.56 and a price-sales ratio of 1.94.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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GuruFocus rated Standard Chartered's financial strength 2 out of 10 on the back of a large debt load.

The company's profitability scored a 3 out of 10 rating as its margins and returns underperform a majority of competitors. Despite recording a decline in revenue per share over the past five years, Standard Chartered has a one-star business predictability rank.

With 0.36% of outstanding shares, the Tweedy Browne (Trades, Portfolio) Global Value Fund is the company's largest guru shareholder. Bestinfond (Trades, Portfolio) also has a position in the stock.

Teva Pharmaceutical Industries

Horn sold his 60,900 remaining shares of Teva, impacting the equity portfolio by -0.12%. During the quarter, the stock traded for an average price of $7.68 per share.

The Israel-based pharmaceutical company has a $10.72 billion market cap; its shares were trading around $9.82 on Tuesday with a price-book ratio of 0.77 and a price-sales ratio of 0.6.

The median price-sales chart suggests the stock is trading above its historical value.

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Teva's financial strength was rated 3 out of 10 by GuruFocus on the back of low interest coverage. In addition the Altman Z-Score of 0.04 warns the company is in financial distress and could be at risk of going bankrupt.

The company's profitability scored a 6 out of 10 rating. Although the operating margin is in decline, it still outperforms over half of its industry peers. Teva is also being weighed down by negative returns and declining revenue per share. It also has a moderate Piotroski F-Score of 4, which indicates conditions are stable, and a one-star business predictability rank.

The Vanguard Health Care Fund (Trades, Portfolio) is the company's largest guru shareholder with a 5.76% stake. Other top guru investors are Warren Buffett (Trades, Portfolio), David Abrams (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Lee Ainslie (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Michael Price (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Francis Chou (Trades, Portfolio).

Additional trades and portfolio performance

During the quarter, Horn also added to his holdings of Babcock International Group PLC (LSE:BAB), Magna International Inc. (TSX:MG), Cineworld Group PLC (LSE:CINE) and Inchcape PLC (LSE:INCH), as well as reduced a number of positions.

The guru's $431 million equity portfolio, which is composed of 81 stocks, is largely invested in the financial services sector with a weight of 28.98%.

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According to GuruFocus data, the Polaris Global Value Fund returned -12.66% in 2018, underperforming the S&P 500's return of -4.57%.

Disclosure: No positions.

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This article first appeared on GuruFocus.


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