Causeway International Value Fund's Top Trades of the 1st Quarter
The Causeway International Value (Trades, Portfolio) Fund released its portfolio for the first quarter earlier this week, listing two new positions.
The fund, which is part of Sarah Ketterer (Trades, Portfolio)'s Los Angeles-based Causeway Capital Management, was founded in 2001. Executing a bottom-up investment strategy based on fundamental research, the portfolio managers look for value opportunities among mid- to large-cap companies in developed international markets to achieve long-term capital growth.
Sticking to these criteria, the fund established holdings in Banco Bilbao Vizcaya Argentaria SA (XMAD:BBVA) and Komatsu Ltd. (TSE:6301) during the quarter. Other notable trades included the sale of Royal Dutch Shell PLC (LSE:RDSB) and KDDI Corp. (TSE:9433) as well as an increase of the Cie Financiere Richemont SA (XSWX:CFR) stake.
Banco Bilbao Vizcaya Argentaria
Causeway invested in 15.8 million shares of Banco Bilbao Vizcaya Argentaria, allocating 1.11% of the equity portfolio to the stake, after previously selling out in the first quarter of 2014. The stock traded for an average price of 4.37 euros ($4.91) per share during the quarter.
The Spanish bank that is known as BBVA has a market cap of 21.3 billion euros; its shares closed at 3.16 euros on Wednesday with a price-earnings ratio of 316, a price-book ratio of 0.49 and a price-sales ratio of 0.94.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated BBVA's financial strength 3 out of 10 on the back of a low cash-debt ratio that is underperforming in comparison to its history as well as its industry.
Weighed down by margins and returns that underperform a majority of competitors, the bank's profitability scored a 4 out of 10 rating. Although its revenue has been in decline for the past five years, the company also has a business predictability rank of one out five stars. According to GuruFocus, companies with this rank typically return 1.1% per annum over a 10-year period.
The fund holds 0.24% of BBVA's outstanding shares.
Komatsu
Having previously exited a position in Komatsu in the second quarter of 2018, the fund entered a new 2.57 million-share holding, dedicating 0.95% of the equity portfolio to it. Shares traded for an average price of 2,260.32 yen ($20.79) each during the quarter.
The Japanese company, which manufactures construction, mining, forestry, military and industrial equipment, has a market cap of 2.16 trillion yen; its shares closed at 2,288 yen on Wednesday with a price-earnings ratio of 10.41, a price-book ratio of 1.2 and a price-sales ratio of 0.84.
According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 7 out of 10 also supports this assessment.
Komatsu's financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately 472.4 billion yen in new long-term debt over the past three years, it is at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 1.9, however, indicates the company is under some financial pressure.
The company's profitability fared better, scoring an 8 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 5, which implies conditions are stable. Komatsu also has a three-star business predictability rank, which is on watch as a result of a decline in revenue per share over the past 12 months. GuruFocus says companies with this rank typically return 8.2% on average annually.
Of the gurus invested in Komatsu, David Herro (Trades, Portfolio) has the largest stake with 2.52% of outstanding shares. The T. Rowe Price Japan Fund (Trades, Portfolio) also holds the stock.
Royal Dutch Shell
In its largest trade of the quarter, Causeway exited its stake in Royal Dutch Shell, selling 5.6 million Class B shares. The trade had an impact of -2.42% on the equity portfolio. The London-listed stock traded for an average per-share price of 18.14 pounds ($22.83) during the quarter.
GuruFocus estimates the fund gained 14.13% on the investment.
The oil and gas giant, which is headquartered in the Netherlands and incorporated in England, has a market cap of 106.88 billion pounds; its shares closed at 13.42 pounds on Wednesday with a price-earnings ratio of 13.82, a price-book ratio of 0.72 and a price-sales ratio of 0.42.
Based on the Peter Lynch chart, the stock appears to be undervalued. The GuruFocus valuation rank of 7 out of 10 aligns with this observation.
Weighed down by a low cash-debt ratio and weak interest coverage, GuruFocus rated Royal Dutch Shell's financial strength 5 out of 10. The Altman Z-Score of 1.97 suggests it is under some stress. The return on invested capital is also eclipsed by the weighted average cost of capital, which indicates the company earns less than it spends.
The company's profitability scored a 6 out of 10 rating, driven by margins and returns that outperform over half of its competitors, a moderate Piotroski F-Score of 4 and a one-star business predictability rank that is on watch as a result of a decline in revenue per share over the past five years.
No gurus currently hold the stock.
KDDI
With an impact of -1.56% on the equity portfolio, the International Value Fund sold its remaining 3.6 million shares of KDDI. During the quarter, the stock traded for an average price of 3,233.52 yen per share.
According to GuruFocus, the fund gained an estimated 58.24% on the investment.
The Tokyo-based telecommunications company has a market cap of 7.28 trillion yen; its shares closed at 3,165 yen on Wednesday with a price-earnings ratio of 11.47, a price-book ratio of 1.7 and a price-sales ratio of 1.42.
The Peter Lynch chart suggests the stock is undervalued. The GuruFocus valuation rank of 5 out of 10, however, indicates it is more fairly valued.
KDDI's financial strength was rated 6 out of 10 by GuruFocus. Despite issuing 403.5 billion yen in new long-term debt over the past several years, it is at a manageable level due to comfortable interest coverage. The Altman Z-Score of 2.47 indicates it is under some financial pressure, however, as its revenue per share growth has slowed over the past year.
The company's profitability scored an 8 out of 10 rating. Although its margins are contracting, they still outperform a majority of industry peers. It is also supported by strong returns, a moderate Piotroski F-Score of 5 and a one-star business predictability rank.
Bernard Horn (Trades, Portfolio) is the company's largest guru shareholder.
Cie Financiere Richemont
The fund boosted its stake in Cie Financiere Richemont by 334.3%. It invested in 1.3 million shares, bringing its total holding to 1.7 million shares. The trade had a 1.58% impact on the equity portfolio. Shares traded for an average price of 68 Swiss francs ($71.09) each during the quarter.
GuruFocus estimates the investment, which represents 2.05% of the fund's total assets managed, has posted a loss of 1.67% for Causeway.
Commonly known as Richemont, the Swiss holding company, which has luxury goods brands like Cartier, Van Cleef & Arpels and Montblanc under its umbrella, has a market cap of 34.65 billion francs; its shares closed at 61.32 francs on Wednesday with a price-earnings ratio of 34.22, a price-book ratio of 1.91 and a price-sales ratio of 2.27.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 6 out of 10, however, leans more toward undervaluation.
GuruFocus rated Richemont's financial strength 6 out of 10. Although the company has issued approximately 3.8 billion euros in new long-term debt over the past three years, it is at a manageable level as a result of sufficient interest coverage. The Altman Z-Score of 3.06 also indicates it is in good standing despite recording a decline in revenue per share over the past year and assets building up at a faster rate.
The company's profitability scored an 8 out of 10 rating. Although the margins are in decline, the still outperform a majority of competitors. Richemont also has strong returns, a moderate Piotroski F-Score of 5 and a 3.5-star business predictability rank. GuruFocus data shows companies with this rank return an average of 9.3% annually.
Herro is the company's largest guru shareholder with a 0.93% stake. Charles de Vaulx (Trades, Portfolio), the IVA International Fund (Trades, Portfolio) and Steven Romick (Trades, Portfolio) also have positions in the stock.
Additional trades and portfolio composition
During the quarter, the International Value Fund also divested of its holdings in East Japan Railway Co. (TSE:9020), Lloyds Banking Group PLC (LSE:LLOY), Gildan Activewear Inc. (TSX:GIL), Cobham PLC (LSE:COB), Ingenico Group SA (XPAR:ING) and SK Innovation Co. Ltd. (XKRX:096770). It also added to or reduced several other positions.
Around 40% of Causeway's $4.4 billion equity portfolio, which is composed of 67 stocks, is invested in the industrials and financial services sectors, followed by smaller holdings in the health care and communication services spaces.
According to Causeway Capital's website, the fund returned 20.1% in 2019, slightly underperforming the MSCI EAFE Index's 22.7% return.
Disclosure: No positions.
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This article first appeared on GuruFocus.
