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First Pacific Advisors' Low-Key 3rd-Quarter Buys

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GuruFocus.com
·4 min read
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- By Margaret Moran

First Pacific Advisors (Trades, Portfolio) recently released its portfolio updates for the third quarter of 2020, which ended on Sept. 30.


The Los Angeles-based investing management firm emphasizes a research-based, low-risk value investing strategy that seeks to increase capital in the long term while avoiding a high chance of loss. With 88 employees and 31 investment professionals led by Chief Financial Officer J. Richard Atwood, First Pacific invests through several funds, including the FPA Capital Fund (Trades, Portfolio), the FPA Crescent Fund, the FPA International Value Fund and the FPA Paramount Fund.

During the quarter, the firm's buying was minor compared to its selling, but it did pick up some new holdings primarily in the beaten-down energy sector, the most significant of which were Magellan Midstream Partners LP (NYSE:MMP), MasTec Inc. (NYSE:MTZ) and Shell Midstream Partners LP (NYSE:SHLX).

Magellan Midstream Partners

The firm established a holding of 56,081 shares in Magellan Midstream Partners, impacting the equity portfolio by 0.03%. During the quarter, shares traded for an average price of $39.61.

Based in Tulsa, Oklahoma, Magellan is a midstream master limited partnership that owns petroleum and ammonia pipelines in the Mid-Continent oil province of the U.S. Its primary operations are in the transportation, storage and distribution of these products.

On Dec. 10, shares of Magellan Midstream traded around $45.76 for a market cap of $10.24. According to the GuruFocus Value chart, the stock is modestly undervalued.

GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 9 out of 10. While the Altman Z-Score of 1.79 indicates the company may face liquidity issues in the next couple of years, the interest coverage ratio of 4.41 shows that it can continue making the interest payments on its debt in the short term. The company's return on invested capital remains consistently above its weighted average cost of capital, indicating it is creating value.

MasTec

The firm also picked up 44,857 shares of MasTec, impacting the equity portfolio by 0.03%. Shares traded for an average price of $43.03 during the quarter.

MasTec is an infrastructure engineering and construction company that specializes in the engineering and building of alternative and renewable energy power plants, including natural gas power plants, wind farms and solar energy facilities.

On Dec. 10, shares of MasTec traded around $66.92 for a market cap of $4.97 billion. According to the GF Value chart, the stock is significantly overvalued.

GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.16 is lower than 82% of other companies in the construction industry, but the Altman Z-Score of 3.06 is a sign that it is not in immediate danger of bankruptcy. The company has a three-year revenue growth rate of 14.5% and a three-year Ebitda growth rate of 26%.

Shell Midstream Partners

The firm bought 141,802 shares of Shell Midstream Partners, impacting the equity portfolio by 0.02%. During the quarter, shares traded for an average price of $10.95.

This company is a master limited partnership formed by Royal Dutch Shell (NYSE:RDS.A) to own and operate pipelines and other midstream assets. It primarily owns oil pipelines offshore and onshore in Texas and Louisiana to connect Gulf Coast refineries to markets.

On Dec. 10, shares of Shell Midstream traded around $11.25 for a market cap of $4.43 billion. According to the GuruFocus Value chart, the stock is fairly valued.

GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rating of 7 out of 10. The interest coverage ratio of 1.87 shows the company is on shaky ground in terms of keeping up with the interest payments on its debt, and the Altman Z-Score of 2.17 also puts the company's financial health in a grey area. The company's operating margin has declined even as its net margin has soared, though both metrics remain well above more than 91% of other companies in the industry.

Portfolio overview

As of the quarter's end, the firm held 143 common stock positions valued at a total of $7.19 billion. Its top holdings were Comcast Corp. (NASDAQ:CMCSA) with 6.81% of the equity portfolio, Broadcom Inc. (NASDAQ:AVGO) with 5.29% and American International Group Inc. (NYSE:AIG) with 5.19%.

In terms of sector weighting, the firm was most invested in communication services, financial services and technology.

First Pacific Advisors' Low-Key 3rd-Quarter Buys
First Pacific Advisors' Low-Key 3rd-Quarter Buys

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

Read more here:

  • 3 'Magic Formula' Stocks Popular Among Gurus

  • Top 3rd-Quarter Buys of Lee Ainslie's Maverick Capital

  • The 5 Most-Sold Guru Stocks of the 3rd Quarter



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This article first appeared on GuruFocus.