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Olstein Capital Management's Most Promising 3rd-Quarter Buys

Last week, Olstein Capital Management disclosed its third-quarter 2019 portfolio updates. During the quarter, the fund established new positions in The Middleby Corp (NASDAQ:MIDD), Corteva Inc. (NYSE:CTVA), Booking Holdings Inc. (NASDAQ:BKNG) and Vishay Intertechnology Inc. (NYSE:VSH). Major additions to existing positions included Spirit Airlines Inc. (NYSE:SAVE) and Dine Brands Global Inc. (NYSE:DIN), while major sells included Hologic Inc. (NASDAQ:HOLX) and Janus Henderson Group PLC (NYSE:JHG).


According to its website, Olstein Capital Management follows an "accounting-driven, value-oriented investing philosophy" that focuses on stocks with strong fundamentals that are trading at a discount. The 25-year-old mutual fund follows the analytical and valuation methods of Robert Olstein (Trades, Portfolio), its co-founder and publisher of the "Quality of Earnings Report."

As of the quarter's end, the mutual fund's equity portfolio is valued at $639 million. Its top holdings are Discovery Inc. (DISCK) at 2.06%, CVS Health Corp. (CVS) at 1.84% and Citizens Financial Group Inc. (CFG) at 1.8%. In terms of sector weighting, the fund is most heavily invested in industrials (20.58%), financial services (19.97%) and consumer cyclical (16.51%).

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The Middleby Corp.

During the quarter, Olstein Capital Management bought 35,000 shares of Middleby, impacting the equity portfolio by 0.64%. The stock was trading at an average price of $122.70 during the quarter, approximately 4.75 times the price at which it sold out of the company in 2010.

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Middleby provides equipment and solutions for industrial and residential kitchens. Its products include commercial food processing equipment such as donut conveyor belts, large ovens, espresso makers and food warmers, as well as industrial kitchen appliances and premium residential kitchen products. The company has a current market cap of $6.66 billion and an enterprise value of $8.6 billion.

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According to the Peter Lynch chart, the company has a history of trading at a fair price to its intrinsic value. That seems to hold true especially in recent years, as the stock price has tended to increase and decrease pretty consistently with quarterly earnings. The stock has 55.71% institutional ownership and 3.97% institutional ownership.

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Middleby has a GuruFocus financial strength rating of 4 out of 10 and a profitability score of 9 out of 10. As of Nov. 11, it has a price-earnings ratio of 19.61, a price-book ratio of 3.56 and an operating margin of 17.41%. It has a cash-to-debt ratio of 0.04, which is lower than 94.93% of industry competitors, and an Altman Z-score of 3.01.

Middleby does not pay a dividend, but it does have a three-year average share buyback ratio of 0.9, higher than 87.6% of competitors. The company's three-year revenue growth rate is 15.2%, and its three-year Ebitda growth rate is 19%.

Corteva Inc.

The fund bought 134,999 shares of Corteva, impacting the equity portfolio by 0.59%. Shares were trading at an average price of $28.92 during the quarter.

Corteva is an agriscience company formed from DuPont Pioneer, DuPont Crop Protection and Dow AgroSciences. With a focus specifically on agriculture, the company aims to improve crop yields through technology, agricultural chemicals, genetically modified organisms, digital solutions and more efficient farming practices. The company currently has a market cap of $19.53 billion and an enterprise value of $21.40 billion.

As a recent spinoff from DowDuPont (DD), Corteva has yet to deliver much in the way of revenue, and its net income for the previous two quarters was in the negatives. However, since the company is still in its early stages and is backed by DowDuPont, analysts have high expectations for the stock in the upcoming years.

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Corteva has a GuruFocus financial strength score of 7.1 out of 10 and a profitability score of 2 out of 10. As of Nov. 11, it has a price-earnings ratio of 16.69, a price-book ratio of 0.79 and an operating margin of 15.41%. Its cash-to-debt ratio of 0.56 is better than 54.55% of industry competitors, though its Altman Z-score of 1.28 is firmly in the distress zone.

The company has 0.77% institutional ownership and 0.13% institutional ownership. It has a dividend yield of 0.51% and a dividend payout ratio of 0.19. Since its spinoff from DowDuPont in May of 2019, the company has not yet initiated share buybacks.

Booking Holdings Inc.

The fund also bought 500 shares of Booking Holdings, impacting the equity portfolio by 0.15%. During the quarter, the stock was trading at an average price of $1936.45 per share.

Booking Holdings is a world leader in online travel services, providing booking services for everything from flights and cars to hotels and vacation packages. Gross bookings have increased every year since 2008, with over $92.7 billion in gross bookings during the 2018 fiscal year. The company's stock has a market cap of $78.13 billion and an enterprise value of $81.72 billion.

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According to the Peter Lynch chart, Booking Holdings is currently trading at a fair value. The company posted strong results for its most recent quarter, with revenue of $5.04 billion, net income of $1.95 billion and earnings per share of $45.54, which beat analyst expectations by 4.7%.

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Booking Holdings has a GuruFocus financial strength score of 6 out of 10 and a profitability score of 10 out of 10. It has a price-earnings ratio of 19.21, a price-book ratio of 13.65 and an operating margin of 35.58%. It has a cash-to-debt ratio of 0.83 and an equity-to-asset ratio of 0.28.

The company has 95.73% institutional ownership and 2.89% ownership, making it rarer for the company to be underpriced. It does not pay a dividend. The three-year average share buyback ratio is 2.2, higher than 91.49% of industry competitors.

Vishay Intertechnology Inc.

Olstein Capital Management bought 35,000 shares of Vishay Intertechnology, impacting the equity portfolio by 0.09%. Shares were trading at an average price of $16.40 during the quarter, slightly below the price of $17.58, which the fund sold its previous holdings of the company at in 2017.

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Vishay is an American producer of discrete semiconductors and passive electronic components. Through research and development, engineering and strategic acquisitions, the company provides new and innovative base components for the advancement of end products. As of Nov. 11, it has a market cap of $2.81 billion and an enterprise value of $2.62 billion.

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According to the Peter Lynch chart, Vishay is currently trading below its fair value, providing a good buying opportunity. The company recently posted strong earnings results for the third quarter of 2019, with revenue of $3.034 billion, net income of $345.76 million and earnings per share of 21 cents.

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Vishay Intertechnology has a GuruFocus financial strength score of 7 out of 10 and a profitability score of 7 out of 10. It has a price-earnings ratio of 11.2, a price-book ratio of 1.89 and an operating margin of 12.88%. Its cash-to-debt ratio is 1.33, ranked in the middle of industry competitors, and its Altman-Z score is 2.87.

The company has 20.13% institutional ownership and 1.15% insider ownership. It has a dividend yield of 1.84%, a dividend payout ratio of 0.21 and a forward dividend yield of 1.93. Its three-year average share buyback ratio is 0.8, which is higher than 86.52% of industry competitors.

Disclosure: Author owns no share in any of the stocks mentioned.

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This article first appeared on GuruFocus.