U.S. Markets close in 44 mins

FPA Capital Fund Establishes 3 Positions in 3rd Quarter

- By Sydnee Gatewood

The FPA Capital Fund (Trades, Portfolio), part of First Pacific Advisors (Trades, Portfolio), released its third-quarter portfolio this week, listing three new positions.


Managed by Arik Ahitov, the Los Angeles-based fund invests in a concentrated number of small and mid-cap companies with competitive positions, little to no leverage and three-to-one upside-downside scenarios. The fund's primary objective is long-term growth of capital.

The value-focused fund established holdings in Frank's International NV (FI), Dana Inc. (DAN) and Arrow Electronics Inc. (ARW) during the quarter.

Frank's International

Having closed a position in Frank's International in the second quarter, the fund opened a new 1.03 million-share stake for an average price of $8.43 per share. The stake was given 4.07% space in the fund's equity portfolio.

The oilfield services company, which is headquartered in the Netherlands, has a $1.98 billion market cap; its shares were trading around $8.83 on Wednesday with a price-book ratio of 1.89 and a price-sales ratio of 4.18.

The median price-sales chart shows the stock is trading above its historical value.

669014083.png

Boosted by no debt and a high Altman Z-Score of 10.15, Frank's financial strength was rated 10 out of 10 by GuruFocus. The company's profitability and growth did not fare as well, scoring a 5 out of 10 rating as a result of poor margins and returns and declining revenue per share. The Dutch company does have a moderate Piotroski F-Score of 5, however, which indicates business conditions are stable.

Of the gurus invested in Frank's International, Hotchkis & Wiley has the largest position with 6.75% of outstanding shares. First Pacific, Francisco Garcia Parames (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, George Soros (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) are also shareholders.

Dana

FPA invested in 413,784 shares of Dana for an average price of $20.13 per share, allocating 3.5% of the equity portfolio to the position. The fund previously closed a position in the stock in the fourth quarter of 2017.

The Maumee, Ohio-based company, which supplies driveline, sealing and thermal-management technologies to the auto industry, has a market cap of $2.48 billion; its shares were trading around $17.15 on Wednesday with a price-earnings ratio of 13.17, a price-book ratio of 2.19 and a price-sales ratio of 0.35.

According to the Peter Lynch chart, the stock is undervalued since it is trading slightly below its fair value.

1331972061.png

GuruFocus rated Dana's financial strength 5 out of 10. While the company has sufficient interest coverage, the Altman Z-Score of 2.28 indicates it is under minor fiscal pressure. The company's profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin, a moderate Piotroski F-Score of 5 and a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 1.1% per year.

With 2.61% of outstanding shares, Mario Gabelli (Trades, Portfolio) is the company's largest guru shareholder. Royce, Jim Simons (Trades, Portfolio)' Renaissance Technologies, Ken Fisher (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Pioneer Investments (Trades, Portfolio), Hotchkis & Wiley, Paul Tudor Jones (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Greenblatt also own the stock.

Arrow Electronics

After exiting Arrow Electronics in the second quarter, the fund established a new 43,202-share position for an average price of $76.81 per share, dedicating 1.44% of the equity portfolio to the holding.

Based in Centennial, Colorado, the electronic components distributor has a $6.1 billion market cap; its shares were trading around $69.77 on Wednesday with a price-earnings ratio of 12.45, a price-book ratio of 1.17 and a price-sales ratio of 0.23.

Based on the Peter Lynch chart, the stock appears to be undervalued.

746170563.png

Arrow's financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. While the company has issued approximately $1.1 billion in new long-term debt, it is at a manageable level. In addition, the Altman Z-Score of 3.11 suggests the company is financially sound. The company is also supported by an expanding operating margin, a moderate Piotroski F-Score of 4 and a one-star business predictability rank.

Richard Pzena (Trades, Portfolio) is the company's largest guru shareholder with 0.35% of outstanding shares. First Pacific, Simons, Grantham, Pioneer, Scott Black (Trades, Portfolio), Charles Brands, Ray Dalio (Trades, Portfolio)'s Bridgewater Associates and Barrow, Hanley, Mewhinney & Strauss are also invested in the stock.

Other trades

During the quarter, the fund also added to its positions in Western Digital Corp. (WDC), Patterson-UTI Energy Inc. (PTEN), Noble Energy Inc. (NBL), Gentex Corp. (GNTX), AGCO Corp. (AGCO), Graphic Packaging Holding Co. (GPK) and Allegiant Travel Co. (ALGT).

The fund's $221 million equity portfolio, which is composed of 20 stocks, is largely invested in the energy and technology sectors. According to its website, the fund has underperformed its benchmark year to date with a return of 0.85%. The Russell 2500 has posted a 10.41% return.

Disclosure: No positions.

This article first appeared on GuruFocus.