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Third Avenue Value Fund's Top 5 Buys in the 3rd Quarter

The Third Avenue Value Fund (Trades, Portfolio), founded by legendary investor Marty Whitman, disclosed this week its top five buys for the third quarter were Bank of Ireland Group PLC (LSE:BIRG), Mohawk Industries Inc. (NYSE:MHK), Borr Drilling Ltd. (OSL:BDRILL), Tidewater Inc. (NYSE:TDW) and Subsea 7 SA (OSL:SUBC).

Portfolio managers Matthew Fine and Michael Fineman said in their second-quarter shareholder letter, Third Avenue Management (Trades, Portfolio) "arrives at investment decisions through a bottom-up fundamental analysis." The fund seeks to invest in undervalued securities across industries, regions and market caps.


As of quarter-end, the $637 million equity portfolio contains 28 stocks with a turnover ratio of 5%. The fund's top three sectors in terms of weight are materials, industrials and financial services, with weights of 27.28%, 17.01% and 15.45%.

Bank of Ireland

Having established a 2,115,653-share stake in the second quarter, the fund added 3,593,077 shares of Bank of Ireland in the third quarter, increasing the position 169.83% and its equity portfolio 2.49%. Shares of the Irish bank averaged 5.55 euros ($6.15) during the June quarter and 4.77 euros ($5.28) during the September quarter. Based on GuruFocus estimates, the fund has a loss of approximately 12.63% on the stock since the second quarter.


Bank of Ireland provides financial services like mortgages, business and corporate lending, term loans, leasing, foreign exchange, life assurance and pensions. According to GuruFocus, the bank has an equity-to-asset ratio of 0.07, which is near its 10-year high of 0.08, and a debt-to-equity ratio of 1.06, which is close to a 10-year low.


The fund managers noted in their second-quarter letter that while Bank of Ireland has started fortifying its balance sheet, it has just started "investing in operating efficiencies that are likely to improve cost-to-income and profitability ratios further." Despite this, the letter said, the shares offer a "premium to long-term equity market returns" from an earnings yield prospective.


The fund added 45,121 shares of Mohawk, increasing the position 55.09% and the equity portfolio 0.88%. Shares averaged $144.11 during the quarter.


The Calhoun, Georgia-based company manufactures a wide range of flooring products, which include carpets, rugs, ceramic tile, laminate and wood. GuruFocus ranks Mohawk's financial strength 6 out of 10 and profitability 7 out of 10 on several positive investing signs, which include strong interest coverage of 21% and operating margins that have increased approximately 10.10% per year on average over the past five years and are outperforming 70.40% of global competitors. Despite this, Mohawk's debt-to-Ebitda ratio of 2.3 outperforms just 51% of global home furnishings companies.


Steven Romick (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio) also have holdings in Mohawk.


Borr Drilling

The fund added 355,990 shares of Borr Drilling, increasing the position 23.74% and its equity portfolio 0.54%. Shares averaged 86.17 Norwegian kroner ($9.40) during the quarter.


The Oslo-based company owns and operates jack-up rigs of modern and high-specification designs that provide drilling services to energy companies. According to GuruFocus, Borr's debt-to-equity ratio of 1.15 underperforms 67.65% of competitors.



The fund added 121,151 shares of Tidewater, increasing the position 7.41% and the equity portfolio 0.44%. Shares averaged $22.63 during the quarter.


The Houston-based company provides large offshore service vessels to the energy industry. GuruFocus ranks the company's financial strength 5 out of 10: Cash-to-debt and equity-to-asset ratios are outperforming approximately 70% of global competitors despite the company having a weak Piotroski F-score of 2 and an Altman Z-score that suggests possible financial distress.


Subsea 7

The fund added 135,230 shares of Subsea 7, increasing the position 17.99% and the equity portfolio 0.23%. Shares averaged 101.43 Norwegian kroner ($11.06) during the quarter.


The U.K.-based company provides subsea engineering and construction services. GuruFocus ranks Subsea 7's financial strength 7 out of 10: Even though the company has a moderately-weak Altman Z-score of 2.03, its interest coverage and debt ratios are outperforming over 72% of global competitors.


Disclosure: No positions.

Read more here:

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  • Chuck Royce's Firm Curbs 3 Positions in September

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This article first appeared on GuruFocus.