U.S. Markets close in 3 hrs 52 mins

Donald Smith Trims Photronics, Beazer Homes Positions

- By Sydnee Gatewood

Donald Smith (Trades, Portfolio), leader of Donald Smith & Co., disclosed that he trimmed his holdings of Photronics Inc. (PLAB) and Beazer Homes USA Inc. (BZH) on March 25.

Favoring unpopular companies trading at a discount to tangible book value, the guru's New York-based firm picks stocks using a deep-value, bottom-up approach. It looks for companies that are in the bottom docile of price-tangible book ratios and have a positive earnings outlook for the next two to four years.


According to GuruFocus Real-Time Picks, a Premium feature, Smith slashed his Photronics stake by 34.87%, selling 1.25 million shares for an average price of $9.25 per share. He now holds 2.35 million shares, which represent 1.29% of his equity portfolio.

GuruFocus estimates Smith has gained 35% on the investment since the second quarter of 2010.


The Brookfield, Connecticut-based company, which manufactures semiconductor photomasks, has a $615.53 million market cap; its shares were trading around $9.18 on Wednesday with a price-earnings ratio of 15.58, a price-book ratio of 0.83 and a price-sales ratio of 1.26.

The Peter Lynch chart shows the stock is trading near its fair value, suggesting it is slightly overpriced.


The company, which celebrated 50 years in business earlier this month, reported its first-quarter 2019 results on Feb. 21. Photronics posted earnings of 8 cents per share. Revenue grew 1% year-over-year to $124.7 million.

Photronics' financial strength and profitability and growth were both rated 7 out of 10 by GuruFocus. Although the company has good interest coverage and cash-debt ratio, the Altman Z-Score of 2.81 indicates it is under some fiscal pressure.

Although the operating margin is expanding, the company's returns underperform competitors. Photronics is also supported by a high Piotroski F-Score of 8, which indicates operating conditions are healthy, and 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.

Of the gurus invested in Photronics, Barrow, Hanley, Mewhinney & Strauss has the largest position with 5.94% of outstanding shares. Other shareholders are Jim Simons (Trades, Portfolio)' Renaissance Technologies, Chuck Royce (Trades, Portfolio), Hotchkis & Wiley, Paul Tudor Jones (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio).

Beazer Homes

The guru curbed his Beazer Homes stake by 11.05%, selling 373,028 shares for an average price of $11.66 per share. He now holds 3 million shares, accounting for 1.18% of the equity portfolio.

According to GuruFocus, Smith has lost an estimated 27% on the investment since fourth-quarter 2017.


The homebuilder, which is headquartered in Atlanta, has a $378.57 million market cap; its shares were trading around $11.78 on Wednesday with a price-earnings ratio of 4.10, a price-book ratio of 0.61 and a price-sales ratio of 0.18.

According to the Peter Lynch chart, the stock is undervalued.


On Feb. 4, the company reported its results for the first quarter of 2019. It posted earnings of 23 cents per share on $401 million in homebuilding revenue, which grew 9% from the prior-year quarter.

GuruFocus rated Beazer's financial strength 4 out of 10. Weighed down by a low cash-debt ratio of 0.07, the Altman Z-Score of 2.06 suggests the company is under some financial pressure.

The company's profitability and growth fared much better, scoring a 7 out of 10 rating as a result of operating margin expansion, a moderate Piotroski F-Score of 6, which suggests conditions are stable, and a one-star business predictability rank. Returns, however, are underperforming industry peers.

With 10.50% of outstanding shares, Smith is the company's largest guru shareholder. Other top investors are Royce, Charles Brandes (Trades, Portfolio) and Simons' firm.


Smith's $2.72 billion equity portfolio, which is composed of 61 stocks as of fourth-quarter 2018, is largely invested in the industrials and financial services sectors.

His five largest holdings as of the fourth quarter were AerCap Holdings NV (AER), Air France-KLM (AFLYY), Micron Technology Inc. (MU), Unum Group (UNM) and Kinross Gold Corp. (KGC).

Disclosure: No positions.

Read more here:

  • McDonald's Personalizes Drive-Thru Menu by Buying Tech Startup Dynamic Yield
  • With a Potential Recovery Ahead, Consider These Semiconductor Companies
  • Wasatch International Growth Fund Buys 5 New Stocks in 4th Quarter

This article first appeared on GuruFocus.