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Mason Hawkins' Southeastern Buys 1, Sells 2 in 3rd Quarter

Southeastern Asset Management, the investment firm founded by Mason Hawkins (Trades, Portfolio) in 1975, disclosed it established one new position and exited two others in its third-quarter portfolio, which was released last week.


To achieve long-term capital growth, the Memphis, Tennessee-based firm, which manages the Longleaf Partners Funds, invests in a concentrated number of undervalued companies that have strong balance sheets and good management teams.

Based on these criteria, the firm entered a position in Venator Materials PLC (NYSE:VNTR) as well as divested of its holdings in Allergan PLC (NYSE:AGN) and Alta Mesa Resources Inc. (AMRQQ) during the quarter.

Venator Materials

Hawkins' firm invested in 1.15 million shares of Venator Materials, dedicating 0.05% of the equity portfolio to the stake. The stock traded for an average price of $3.20 per share during the quarter.

The U.K.-based chemical manufacturing company, which produces a broad range of pigments and additives, has a $436.92 million market cap; its shares were trading around $4.10 on Tuesday with a forward price-earnings ratio of 7.89, a price-book ratio of 0.51 and a price-sales ratio of 0.21.

The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued.

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GuruFocus rated Venator Materials' financial strength 4.1 out of 10 on the back of low debt ratios and poor interest coverage. In addition, the Altman Z-Score of 1.28 warns the company could be at risk of going bankrupt as its revenue per share has been in decline for the past 12 months.

The company's profitability fared even worse, scoring a 2 out of 10 rating. In addition to margins and returns that underperform a majority of competitors, Venator has a low Piotroski F-Score of 3, which indicates operating conditions are in bad shape.

Of the gurus invested in Venator Materials, Arnold Schneider (Trades, Portfolio) has the largest stake with 3.44% of outstanding shares. Jim Simons (Trades, Portfolio)' Renaissance Technologies also holds the stock.

Allergan

Having trimmed its position in Allergan for the past several quarters, Southeastern sold its remaining 1.28 million shares. The trade had an impact of -3.54% on the equity portfolio. Shares traded for an average price of $162.97 during the quarter.

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GuruFocus estimates the firm lost an estimated 8.74% on the investment since establishing it in the fourth quarter of 2017.

The Irish pharmaceutical company, which is in the process of being acquired by AbbVie (ABBV), has a market cap of $60.57 billion; its shares were trading around $184.50 on Tuesday with a forward price-earnings ratio of 11, a price-book ratio of 1.04 and a price-sales ratio of 3.86.

According to the median price-sales chart, the stock is overvalued.

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Weighed down by debt, Allergan's financial strength was rated 4 out of 10 by GuruFocus. In addition, the Altman Z-Score of 0.87 warns the company could be in danger of bankruptcy.

The company's profitability scored a 5 out of 10 rating. While it has negative margins and returns that underperform a majority of industry peers, Allergan is supported by a moderate Piotroski F-Score of 6, which suggests operations are stable. As a result of recording a slowdown in revenue per share growth over the past 12 months, the business predictability rank of one out of five stars is on watch. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.

With 1.10% of outstanding shares, Simons' firm is Allergan's largest guru shareholder. Other top guru investors include Daniel Loeb (Trades, Portfolio), John Paulson (Trades, Portfolio), David Tepper (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), David Carlson (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), NWQ Managers (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Larry Robbins (Trades, Portfolio), Arnold Van Den Berg (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Robert Bruce (Trades, Portfolio), Bernard Horn (Trades, Portfolio),Lee Ainslie (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jeff Auxier (Trades, Portfolio) and Richard Snow (Trades, Portfolio).

Alta Mesa Resources

The firm sold all 1.19 million shares of Alta Mesa Resources, which filed for bankruptcy in September and is facing headwinds from potential fracking lawsuits. During the quarter, the stock traded for an average per-share price of 12 cents.

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According to GuruFocus, the firm lost an estimated 92.7% on the investment since establishing it in the first quarter of 2018.

The oil and gas exploration company, which is headquartered in Houston, has a $7.04 million market cap; its shares were trading around 2 cents on Tuesday with a price-sales ratio of 0.01.

Based on the median price-sales chart, the stock is undervalued.

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Weighed down by poor interest coverage and low debt ratios, GuruFocus rated Alta Mesa's financial strength 3.2 out of 10. In addition, the Altman Z-Score of -7.21 warns the company is in distress as it has filed for bankruptcy as well as recorded a decline in revenue per share over the past 12 months.

The company's profitability fared even worse with a 2 out of 10 rating. While the operating margin outperforms half of its competitors, Alta Mesa's returns are negative and underperform a majority of industry peers. It also has a moderate Piotroski F-Score of 5.

No gurus currently have positions in the stock.

Additional trades and portfolio performance

During the quarter, the firm also added to several other positions: Realogy Holdings Corp. (NYSE:RLGY), Park Hotels & Resorts Inc. (NYSE:PK), Lazard Ltd. (NYSE:LAZ), Dillard's Inc. (NYSE:DDS) and Baidu Inc. (NASDAQ:BIDU).

Southeastern's $5.73 billion equity portfolio, which is made up of 27 stocks, is largely invested in the communication services and industrials sectors.

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According to its website, the Longleaf Partners Fund returned -17.98 in 2018. The S&P 500 Index posted a return of -4.57% over the same period.

Disclosure: No positions.

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This article first appeared on GuruFocus.