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- By Margaret Moran
Sarah Ketterer (Trades, Portfolio), the CEO and fundamental portfolio manager of Causeway Capital Management, recently released the firm's portfolio updates for the fourth quarter of 2020, which ended on Dec. 31.
Causeway Capital Management was founded in 2001 by Ketterer and Harry Hartford. The Los Angeles-based firm chooses stocks from among large and mid-cap companies in developed markets around the world. Their screens use quantitative, value-oriented metrics and a "risk score" to find potential investment opportunities. After screening, the investment team chooses the stocks that have the most favorable risk-adjusted returns, price-earnings ratios and dividend yields.
Based on the above criteria, the firm's biggest sells for the quarter were Linde PLC (NYSE:LIN) and Baidu Inc. (NASDAQ:BIDU), while its biggest buys were Concentrix Corp. (CNXC) and Fiserv Inc. (NASDAQ:FISV).
The firm sold out of its remaining 1,056,844-share investment in Linde (NYSE:LIN), impacting the equity portfolio by -4.68%. During the quarter, shares traded for an average price of $245.63.
Linde is a multinational chemicals and engineering company headquartered in Dublin, Ireland. By market share and revenue, it is the world's largest industrial gas production company. It mainly produces atmospheric and process gasses for a wide variety of applications.
On Feb. 17, shares of Linde traded around $248.42 for a market cap of $130.30 billion and a price-earnings ratio of 52.71. The GuruFocus Value chart rates the stock as modestly overvalued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.23 is lower than the industry median of 0.72, but the Altman Z-Score of 2.71 indicates that the company is not likely to face bankruptcy in the near future. The return on invested capital has been below the weighted average cost of capital in recent years, indicating declining profitability.
The firm reduced its top holding, Baidu (NASDAQ:BIDU), by 1,266,237 shares, or 31.26%, for a remaining stake of 2,785,043 shares. The trade had a -2.98% impact on the equity portfolio. Shares traded for an average price of $148.88 during the quarter.
Baidu is a Chinese internet and technology giant that specializes in artificial intelligence, internet services, search engines and related products. It has access to the world's largest domestic addressable population of internet users.
On Feb. 17, shares of Baidu traded around $311.01 for a market cap of $106.14 billion and a price-earnings ratio of 31.42. The GuruFocus Value chart rates the stock as significantly overvalued.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. The interest coverage ratio of 4.70 is lower than 85% of competitors, but the Altman Z-Score of 4.42 indicates the company is not likely to face liquidity issues. The three-year revenue growth rate is 14.4%, but the three-year Ebitda growth rate is only 0.5%.
The firm's biggest new buy of the quarter was for 774,608 shares of Concentrix (CNXC). The trade impacted the equity portfolio by 1.44%. During the quarter, shares traded for an average price of $97.66.
Concentrix is a provider of customer experience solutions and technology for businesses. Its focus is on creating "brand experiences" for clients to draw in customers and keep them loyal to the brand by making it stand out from competitors.
On Feb. 17, shares of Concentrix traded around $113.56 for a market cap of $5.87 billion and a price-earnings ratio of 40.33. Since the company spun off from Synnex Corp. (NYSE:SNX) on Dec. 1, the share price has risen 42%.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 2 out of 10. The interest coverage ratio of 7.64 indicates the company can still continue making payments on its debt, though the Altman Z-Score of 1.95 suggests it is in some danger of facing liquidity issues. The operating margin of 8.82% is higher than 66% of industry peers and surpasses the company's own historical median of 5.88%.
The firm also established a new position of 651,244 shares in Fiserv Inc. (NASDAQ:FISV), impacting the equity portfolio by 1.39%. Shares traded for an average price of $107.82 during the quarter.
Based in Brookfield, Wisconsin, Fiserv is a multinational provider of financial services technology to corporate clients in the financial world, including banks, credit unions, thrifts, leasing and finance companies, insurance companies and securities processing organizations.
On Feb. 17, shares of Fiserv traded around $119.79 for a market cap of $74.60 billion and a price-earnings ratio of 79.53. According to the GuruFocus Value chart, the stock is modestly undervalued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio of 1.94 means the company could have issues paying the interest on its debt if it cannot increase profits, though the Piotroski F-Score of 5 out of 9 is typical of a financially stable company. The ROIC has recently dipped below the WACC, indicating the company is not currently creating value.
As of the quarter's end, the equity portfolio contained positions in 80 stocks and was valued at $5.32 billion. The firm made eight new buys, sold out of nine stocks and added to or reduced its positions in several other holdings for a turnover rate of 9%.
The firm's top holdings were Baidu with 11.32% of the equity portfolio, Taiwan Semiconductor Manufacturing (TSM) with 10.38% and Ryanair Holdings PLC (NASDAQ:RYAAY) with 10.32%. In terms of sector weighting, the firm was most invested in technology, consumer cyclical and communication services.
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.
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This article first appeared on GuruFocus.