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Brandes Investments' Top 4 Position Boosts in 3rd Quarter

- By James Li

Brandes Investment Partners, founded by Charles Brandes (Trades, Portfolio), disclosed last week that the firm's top four position boosts for the third quarter were in Embraer SA (ERJ), Adecoagro SA (AGRO), PDL BioPharma Inc. (PDLI) and YPF SA (YPF).

Brandes, a Benjamin Graham disciple, seeks to invest in out-of-favor companies at discounts to their intrinsic values. The firm detailed in its third-quarter letter the managers have been reminded of the importance of behavior economics and investor psychology in assessing the periodic divergence between price and value. As value managers, Brandes Investment Partners observed several advantages of contrarian investing, which include the ability to seek global opportunities, observe business cycles and capture potential returns based on the relationship between price and value.

Embraer SA

The firm invested in 1,863,954 shares of Embraer, a Brazilian aerospace and defense company. Shares averaged $20.31 during the quarter; the transaction increased the holding 11.55%.


Embraer designs and manufactures regional aircraft with fewer than 130 seats, business jets and defense and security products and services. GuruFocus ranks the company's profitability 6 out of 10: although the company's business predictability ranks 2.5 stars, its revenue has decreased over the trailing 12 months while profit margins have declined over the past five years. Other severe warning signs include a weak Piotroski F-score of 3 and increasing long-term debt over the past three years.


Despite modest profitability, Embraer's price-book ratio is near a 10-year low of 0.85 and ranks higher than 79% of global competitors. The company is also trading slightly below its 10-year median price-sales value.



The firm invested in 3,347,090 shares of Adecoagro, boosting the position 76.67%. Shares averaged $8.08 during the quarter.


The Luxembourg-based agricultural company engages in farming crops and other agricultural products. GuruFocus ranks the company's profitability 7 out of 10 on several good indicators, which include a 3.5-star business predictability rank and operating margins that outperform 64% of global competitors. Even though revenues have decelerated over the trailing 12 months, Adecoagro's three-year compound annual growth rate of sales outperforms 69% of global farm products companies.


The website also lists the positive investing sign of low price valuations: the company trades near a five-year low with a price-sales ratio near a 10-year low of 0.85.

PDL BioPharma

The firm invested in 3,663,908 shares of PDL BioPharma, boosting the position 1,343.02%. Shares averaged $2.45 during the quarter.


The Incline Village, Nevada-based biotech company said on Nov. 6 that revenues for the quarter increased 8% from the prior-year quarter on higher product sales. According to outgoing CEO John McLaughlin, who announced his intent to step down at year-end, the consolidated revenues included $42 million in royalty rights revenues stemming from the increased fair value of the royalty rights from Assertio Therapeutics Inc. (ASRT) as a result of PDL's purchase of the remaining interest in royalty payments of the asset.


GuruFocus ranks the company's financial strength 7 out of 10: despite a weak Piotroski F-score of 3, PDL's debt-to-equity ratio of 0.17 ranks higher than 64% of global biotech companies. Additionally, the company has a cash-to-debt ratio of 3.27 and interest coverage just above Graham's safe threshold of 5.

Other gurus with holdings in PDL include Caxton Associates (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Chuck Royce (Trades, Portfolio), our keynote speaker at next year's value conference.


The firm invested in 586,648 shares of YPF, an Argentine oil and gas company. Shares averaged $15.57 during the quarter; the transaction boosted the holding 8.02%.


YPF engages in the exploration, production, refining, marketing and distribution of crude oil and natural gas. The company disclosed last week that revenues for the quarter were 121.2 billion Argentine pesos ($3.409 billion) driven on double-digit growth in diesel, gasoline and natural gas revenues. GuruFocus ranks YPF's profitability 8 out of 10 on several positive investing signs: YPF's three-year revenue growth rate outperforms 93% of competitors while the company's three-year EBITDA growth rate outperforms 81% of global competitors. The company's business predictability ranks 3.5 stars out of five on consistent revenue and earnings growth over the past 10 years.


Disclosure: No positions.

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This article first appeared on GuruFocus.