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Donald Smith Buys 3 Stocks in 1st Quarter

- By Sydnee Gatewood

Guru Donald Smith (Trades, Portfolio), leader of Donald Smith & Co., released his first-quarter portfolio last week, listing three new holdings.


Using a deep-value, bottom-up approach, the guru's New York-based firm typically invests in out-of-favor stocks that are trading at a discount to tangible book value. According to the firm's website, the portfolio managers look for opportunities among companies that are in the bottom decile of price-tangible book ratios and have a positive earnings outlook over the next two to four years.

Based on these criteria, Smith established positions in CorePoint Lodging Inc. (CPLG), Diamond S Shipping Inc. (DSSI) and Green Plains Inc. (GPRE) during the quarter.

CorePoint Lodging

As previously disclosed in a Schedule 13D filing with the Securities and Exchange Commission, Smith invested in 3 million shares of CorePoint Lodging, allocating 1.28% of the equity portfolio to the stake. The stock traded for an average price of $12.89 per share during the quarter.

The Irving, Texas-based hotel and motel real estate investment trust, which was spun off of La Quinta Holdings Inc. in second-quarter 2018 before it merged with Wyndham Hotels & Resorts Inc. (WH), has a $784.25 million market cap; its shares were trading around $13.17 on Monday with a price-book ratio of 0.59 and a price-sales ratio of 1.13.

While the stock has tumbled approximately 52% from its initial public offering, GuruFocus estimates it has gained 7% year to date.

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CorePoint's financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. In addition to declining revenue per share and a low cash-debt ratio, the Altman Z-Score of 0.75 warns the company could be in danger of going bankrupt.

While the REIT is weighed down by negative margins and returns that underperform a majority of competitors, the moderate Piotroski F-Score of 5 suggests CorePoint's operations are stable.

With his purchase of 5.04% of outstanding shares, Smith became the company's largest guru shareholder. Other guru investors who own the stock are Jim Simons' (Trades, Portfolio) Renaissance Technologies, Paul Tudor Jones (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).

Diamond S Shipping

The guru gained a 492,575-share holding of Diamond S Shipping, dedicating 0.20% of the equity portfolio to the position. The shares traded for an average price of $10.68 during the quarter.

The energy shipping company, which is headquartered in Greenwich, Connecticut, was formed by a stock-for-stock merger between Capital Product Partners LP's (CPLP) crude and product tanker business and DSS Holdings LP, which closed March 28. With a market cap of $534.54 million, a price-book ratio of 0.88 and a price-sales ratio of 3.27, the shares were trading around $13.40 on Monday.

Since its market debut on March 28, GuruFocus estimates the stock has climbed approximately 22%.

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GuruFocus rated Diamond S Shipping's financial strength 6 out of 10. Even though it has insufficient interest coverage, the Altman Z-Score of 4.63 indicates the company is in good fiscal health.

Despite being supported by margins and returns that outperform a majority of industry peers, the company's profitability and growth did not fare as well, scoring a 4 out of 10 rating.

According to GuruFocus data, Smith is currently the only guru invested in the stock.

Green Plains

The investor picked up 243,118 shares of Green Plains, impacting the equity portfolio by 0.16%. During the quarter, the stock traded for an average price of $14.96 per share.

The Omaha, Nebraska-based producer of ethanol has a $650.33 million market cap; its shares were trading around $15.57 on Monday with a price-earnings ratio 78.50, a price-book ratio of 0.68 and a price-sales ratio of 0.17.

According to the Peter Lynch chart, the stock is overpriced since it is trading above its fair value.

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GuruFocus rated Green Plains' financial strength 5 out of 10. As a result of issuing approximately $276.07 million in new long-term debt over the last three years, the Altman Z-Score of 2.67 indicates it is under some fiscal pressure.

The company's profitability and growth scored a 6 out of 10 rating. Although its margins and returns are underperforming competitors, Green Plains' Piotroski F-Score of 6 suggests operating conditions are stable. In addition, it has a business predictability rank of one out of five stars. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.

Smith is the company's largest guru shareholder with 0.59% of outstanding shares. Steven Cohen (Trades, Portfolio), Simons' firm and Grantham also have positions in the stock.

Additional trades and portfolio composition

During the quarter, Smith also boosted multiple holdings, including Eldorado Gold Corp. (EGO), Gold Fields Ltd. (GFI), Verso Corp. (VRS), Avianco Holdings SA (AVH) and Jefferies Financial Group Inc. (JEF).

The guru's $2.61 billion equity portfolio, which is composed of 60 stocks, is largely invested in the industrials and financial services sectors.

Disclosure: No positions.

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This article first appeared on GuruFocus.