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Chris Davis' 3rd-Quarter Buys

Davis Selected Advisors recently disclosed its portfolio updates for the third quarter of 2019. During the quarter, the advisory firm established new positions in Expedia Group Inc. (NASDAQ:EXPE), Cabot Oil & Gas Corp. (NYSE:COG) and CyrusOne Inc. (NASDAQ:CONE) and sold out of its shares in Liberty Expedia Holdings Inc. (NASDAQ:LEXEA), Costco Wholesale Corp. (NASDAQ:COST) and Futu Holdings Ltd. (NASDAQ:FUTU). Major additions to existing positions included Bank of America Corp. (NYSE:BAC) and Charles Schwab Corp. (NYSE:SCHW), while major reductions included Loews Corp. (NYSE:L) and Adient PLC (NYSE:ADNT).


Founded in 1969, Davis Selected Advisors is an employee-owned investment management firm based in Tuscon, Arizona. The current chairman, Chris Davis (Trades, Portfolio), joined the firm in 1989 and serves as the portfolio manager for the Large Cap Value Portfolios and a research team member for other portfolios. The firm's investment strategy aims to purchase durable, well-managed businesses at value prices.

As of the quarter's end, the equity portfolio is valued at $19.88 billion. The firm's top holdings are Wells Fargo & Co. (WFC) at 6.97%, Capital One Financial Corp. (COF) at 6.25% and New Oriental Education & Technology Group Inc. (EDU) at 5.92%. In terms of sector weighting, the firm is most heavily invested in financials (40.4%).

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Expedia Group Inc.

On July 26, Expedia acquired Liberty Expedia Holdings in an all-stock transaction, converting all of Davis' 266,654 shares of Liberty Expedia to 92,047 shares of Expedia. Expedia shares were trading at an average price of $132.14 each during the period.

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Expedia is an American web-based travel booking company that is based around a travel metasearch engine, allowing clients to find travel amenities at a discounted price. Its websites include CarRentals.com, Hotels.com, Hotwire.com, Travelocity and trivago. As of Nov. 19, the stock has a market cap of $13.72 billion.

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Expedia's revenue is doing better than ever, coming in at $3.6 billion for the recent quarter. The company has a GuruFocus financial strength score of 5 out of 10 and a profitability score of 8 out of 10. It has a price-earnings ratio of 28.42, a price-sales ratio of 1.2, a cash-debt ratio of 1.17 and an operating margin of 8.48%. Its three-year revenue growth rate is 13.8%, but its three-year Ebitda growth rate is -1.7%.

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The online travel company's stock price took a nosedive on Thursday due to its struggle against Alphabet's (GOOG)(GOOGL) Google, dropping approximately 30.64% to a value of $95.60 per share as of Nov. 19 in its worst single-day performance on record. In the earnings conference call, Expedia disclosed that it experienced weakness in search engine optimization volumes related to a shift in high-cost marketing channels, implying that it is in Google's interests to divert web traffic to its own travel sites. Google has also reduced the efficiency of SEO by pushing "free" links further down the page, prioritizing companies that have paid more money to Google for marketing.

Cabot Oil & Gas Corp.

Davis established a new position of 707,142 shares in Cabot Oil & Gas, impacting the equity portfolio by 0.06%. Shares were trading at an average price of $19.21 during the quarter.

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Cabot is am oil and gas company with assets exclusively in the continental U.S. It is currently focused on divesting itself of unprofitable assets and narrowing its operations, using the cash from divestitures to pay down its debt. The company has a market cap of $7.02 billion as of Nov. 19.

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Cabot's stock has reached the undervalued range in recent quarters, according to the Peter Lynch chart. The company has had a rough time recently, with its share price dropping 21% over the past five years and 33% since its revenue began falling after the fourth quarter of 2018.

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Despite its highly cyclical revenue, the company has maintained financial stability. Cabot has a GuruFocus financial strength score of 5 out of 10 and a profitability score of 6 out of 10. It has a price-earnings ratio of 8.84, a cash-debt ratio of 0.07, an operating margin of 45.83% and a net margin of 34.865. If the company reaches the point where it can ramp up production and profits again, it could provide good value for shareholders.

CyrusOne Inc.

Davis bought 42,250 shares of CyrusOne, impacting the equity portfolio by 0.02%. During the quarter, shares traded at an average price of $66.76 each.

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Headquartered in Dallas, CyrusOne is a real estate investment trust that invests in carrier-neutral data centers and provides colocation services. It owns more than 45 data centers throughout North America, Europe, South America and Asia. As of Nov. 19, the company has a market cap of $7.44 billion.

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In typical Wall Street fashion, CyrusOne's stock tanked after posting disappointing third-quarter earnings. After posting $12.6 million in net income for the quarter, the REIT issued earnings per share guidance for full-year 2019 of $3.10 to $3.20 compared to analyst estimates of $3.51. However, this is not necessarily a cause to worry. CyrusOne's dedicated investors know that large data centers rarely show their full value through earnings shortly after an acquisition, but such enormous projects, when successful, can be hugely profitable over time.

GuruFocus has assigned CyrusOne a financial strength score of 3.9 out of 10 and a profitability score of 3.7 out of 10. The company has a price-sales ratio of 7.65, a cash-debt ratio of 0.05, an interest coverage of 0.75 and a current ratio of 1.43. Much like a small biotech, this is a company that looks awful on the books but may provide high rewards to investors after transitioning to a state of profitability growth.

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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.