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Biggest 4th-Quarter Buys of Donald Smith's Firm

Donald Smith (Trades, Portfolio) & Co. recently announced its portfolio updates for the fourth quarter of 2019.

The firm, which was founded by Donald Smith in 1980, specializes in out-of-favor stocks that are trading at a discount to their tangible book value. The portfolio managers look for stocks with good earnings expectations and maintain concentrated funds in order to focus on their best ideas. After Smith passed away in late 2019, he was succeeded as CEO by Richard Greenberg, who is also the co-chief investment officer along with Jon Hartsel.


As of the quarter's end, the firm's equity portfolio is valued at $2.74 billion.

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The firm's top holdings are AerCap Holdings NV (AER) at 11.56%, Air France-KLM (AFLYY) at 8.53% and Gold Fields Ltd. (GFI) at 8.19%. In terms of sector weightings, it is most heavily invested in industrials, basic materials and financial services stocks.

Based on the firm's investing criteria, it established new positions in The Mosaic Co. (NYSE:MOS) and Flex LNG Ltd. (NYSE:FLNG) during the fourth quarter. It also more than doubled its existing holdings in Bonanza Creek Energy Inc. (NYSE:BCEI).

The Mosaic Co.

During the quarter, the firm invested in 1,705,224 shares of The Mosaic Co., impacting the equity portfolio by 1.35%. Shares traded at an average price of $19.84 during the quarter.

Based in Tampa, Florida, The Mosaic Co. is the world's largest producer of potash and phosphate fertilizers. Mosaic mines phosphate from land in Florida and Peru and potash from New Mexico. It is also in the process of establishing a joint phosphate venture in Saudi Arabia, which, when complete, is expected to yield the company 25% of the annual mining volume of three million tons.

As of Feb. 11, Mosaic has a market cap of $7.73 billion, a price-book ratio of 0.78 and a price-sales ratio of 0.5. According to the Peter Lynch chart, the stock is trading near its fair value.

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GuruFocus has assigned Mosaic a financial strength score of 5 out of 10 and a profitability score of 7 out of 10. It has a cash-debt ratio of 0.13, an Altman-Z score of 1.78, an operating margin of 7.61% and a three-year revenue growth rate of 0.2%. Recent quarter have seen increases in revenue, but net income has plunged into the negatives, further driving down share prices.

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Flex LNG Ltd.

The firm established another new position in Flex LNG, buying 1,663,941 shares. The trade had a 0.66% impact on the equity portfolio. During the quarter, shares traded at an average price of $9.91.

Flex LNG is a Bermuda-based shipping company that owns a fleet of liquid natural gas (LNG) carrier ships. Some of the company's 13-strong fleet has been completed, while the rest are expected to be completed by 2021. Thus, its profitability has not really kicked off yet, but given the increasing global natural gas trade, its state-of-the-art carrier ships show strong potential.

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As of Feb. 11, Flex has a market cap of $587.8 million, a price-earnings ratio of 31.1 and a price-book ratio of 0.52. Since its debut on the New York Stock Exchange in mid-2019, shares have fallen 33.09%.

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GuruFocus has assigned the stock a financial strength score of 4 out of 10 and a profitability score of 2 out of 10. The company has a cash-debt ratio of 0.08, an Altman Z-Score of 0.14, a current ratio of 1.33 and an operating margin of 41.89%. However, as the stock is fairly new, there is little past performance to base its prospects on.

Bonanza Creek Energy Inc.

The firm added 452,302 shares, or 136.51%, to its position in Bonanza Creek Energy, impacting the equity portfolio by 0.39%. Shares traded at an average price of $19.72 during the quarter.

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Bonanza Creek Energy is an independent oil and gas exploration company based in Denver. It has assets mainly in the Rocky Mountain regions of Colorado. The company's guidance for 2020 earnings includes the costs for expanding its oil gathering pipeline system, which will depress earnings in the short term but significantly reduce costs in the years to come.

As of Feb. 11, Bonanza has a market cap of $371.23 million, a price-earnings ratio of 2.11 and a price-book ratio of 0.4. According to the Peter Lynch chart, the stock is trading below its fair value.

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Bonanza has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 5 out of 10. It is still in the process of recovering from heavy losses in 2016 and 2017, which has resulted in a cash-debt ratio of 0.07, an Altman Z-Score of 1.89 and significant revenue decline from pre-2016 levels.

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Disclosure: Author owns no shares in any of the stocks mentioned.

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This article first appeared on GuruFocus.