Bill Smead's Value Fund Buys 2 and Sells 2 Stocks in 1st Quarter

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- By Holly LaFon

Bill Smead, value investor and founder of Smead Capital Management, established two positions and disposed to two positions in the first quarter, his Smead Value Fund (Trades, Portfolio) reported last week.


Managers of the Smead Value Fund (Trades, Portfolio) look for strong, high-quality companies with a value lens, considering themselves partial owners of the businesses in which they own stock. The concentrated, Seattle-based mutual fund held only 26 stocks in its portfolio at the end of the first quarter, with an aggregate value of $1.12 billion.

During the first quarter, Smead selected Cummins Inc. (CMI) and Booking Holding Inc. (BKNG) as new holdings. It also exited its positions in Tegna Inc. (TGNA) and Nordstrom Inc. (JWN).

The fund's largest investment is in financial services, which encompasses 21.23% of its stocks. Consumer cyclical, the second-largest sector, represents 30.02%, followed by health care at 17.47%.

Last week, Smead told Forbes that the tech-driven market risked reaching a top and running out of buyers in the next six to 12 months. He also saw signs that the market "wants to revert to the mean."

In a first-quarter letter from the previous month, Smead also said that if the tech boom goes bust, he will continue his method for choosing stocks:

"Second, we will stick to our eight criteria for common stock selection which have never changed or wavered. These criteria are anchored in the standards and morals which have proven true over all recorded stock market history. When the demographics and easy money explode together, having your own capital, generating high free cash flow and showing consistent profitability could shine as interest rates rise. When tech goes through one of its many cyclical downturns, we will smile as we watch investors around us wail and gnash their teeth," he wrote.

New buys

Cummins Inc. (CMI)

In the first quarter, Smead purchased 78,119 shares of Cummins Inc., giving it 1.07% portfolio weight. The stock's first-quarter share price averaged $143.

Cummins Inc. has a market cap of $25.02 billion; its shares were traded around $158.89 with a price-earnings ratio of 10.32 and price-sales ratio of 1.03. The trailing 12-month dividend yield of Cummins Inc stocks is 2.82%. The forward dividend yield of Cummins Inc stocks is 2.76%. Cummins Inc. had an annual average earnings growth of 10.80% over the past 10 years. GuruFocus rated Cummins Inc. the business predictability rank of 3.5-star.

Booking Holdings Inc. (BKNG)

Smead purchased 6,851 shares of Booking Holdings, giving it 1.04% portfolio weight. The stock's first-quarter share price averaged $1,797.

Booking Holdings Inc. has a market cap of $76.94 billion; its shares were traded around $1,777.26 Monday with a price-earnings ratio of 20.22 and price-sales ratio of 5.80. Booking Holdings Inc. had an annual average earnings growth of 30.60% over the past 10 years. GuruFocus rated Booking Holdings Inc. the business predictability rank of 3.5-star.

Sales

Tegna Inc. (TGNA)

Smead sold 2,274,619 shares of Tegna Inc. in the first quarter when the price averaged around $12. He started the position in the first quarter of 2018 when the price averaged around $14.

Tegna Inc. has a market cap of $3.33 billion; its shares were traded around $15.37 Monday with a price-earnings ratio of 8.20 and P/S ratio of 1.52. The trailing 12-month dividend yield of Tegna Inc. is 1.81%. The forward dividend yield of Tegna Inc. stocks is 1.74%. Tegna Inc. had an annual average earnings growth of 1.80% over the past five years.

Nordstrom Inc. (JWN)

Smead sold 461,247 shares of Nordstrom Inc. in the first quarter when the price averaged around $47. He started the position in the first quarter of 2018 when the price averaged around $49.

Nordstrom Inc. has a market cap of $5.83 billion; its shares were traded around $37.60 Monday with a price-earnings ratio of 11.30 and price-sales ratio of 0.41. The trailing 12-month dividend yield of Nordstrom Inc. is 3.92%. The forward dividend yield of Nordstrom Inc. is 3.76%. Nordstrom Inc. had an annual average earnings growth of 6.10% over the past 10 years.

See Bill Smead's Smead Value Fund (Trades, Portfolio) here.

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