Southeastern Asset Management recently disclosed its portfolio updates for the third quarter of 2019.
Founded by Mason Hawkins (Trades, Portfolio) in 1975, the Memphis, Tennessee-based firm manages the Longleaf Partners Funds. The firm employs a fundamental, bottom-up appraisal process based on in-house research in order to select a concentrated portfolio of quality investments that have strong balance sheets, good management teams and attractive valuations.
The firm established new positions in Williams Companies Inc. (WMB, Financial), Trip.com Group Ltd. (TCOM, Financial), Nokia Oyj (NOK, Financial) and WideOpenWest Inc. (WOW, Financial) during the quarter.
Williams Companies
The firm’s biggest new buy for the quarter was for 8,225,413 shares of Williams Companies. The trade impacted the equity portfolio by 3.25%. Shares traded at an average of $22.90 apiece during the quarter.
Williams Companies is an energy company based in Tulsa, Oklahoma. It mainly processes and transports natural gas, though it also has some petroleum and electricity generation assets.
On Feb. 21, shares of the company traded around $21.39 apiece for a market cap of $26.17 billion and a price-earnings ratio of 166.08. According to the Peter Lynch chart, the stock may be overvalued.
GuruFocus has assigned Williams Companies a financial strength score of 3 out of 10 and a profitability score of 6 out of 10. The cash-debt ratio of 0.01 and Altman Z-score of 0.46 indicate that the company may have trouble paying its debt. Revenue has improved over the past few years despite the oversupply of natural gas in the U.S., though net income was in the negatives for 2019.
Trip.com Group
Southeastern invested in 1,191,281 shares of Trip.com, impacting the equity portfolio by 0.67%. During the quarter, shares of the company traded at an average price of $32.32.
Trip.com Group is a Chinese online travel agency that provides services such as hotel reservation, transportation, packaged tours and corporate travel management.
On Feb. 21, shares of Trip.com traded around $33.02 for a market cap of $19.38 billion and a price-earnings ratio of 37.42. According to the Peter Lynch chart, the stock is trading near its fair value.
The company has a GuruFocus financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The Altman Z-score of 1.15 is in the distress zone, though the cash-debt ratio of 0.77 and current ratio of 1.02 indicates that there is no immediate danger of bankruptcy in the next quarter. Both revenue and net income have shown strong growth in recent years.
Nokia Oyj
Southeastern also established a new holding of 3,250,000 shares in Nokia, impacting the equity portfolio by 0.20%. Shares traded at an average price of $3.91 during the quarter.
Nokia is a Finnish telecommunications company based in Espoo. Founded in 1865, the company is a regional leader in information technology, consumer electronics and 5G.
On Feb. 21, shares of Nokia traded around $4.16 for a market cap of $23.38 billion. GuruFocus has assigned the company a financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10.
The Altman Z-score is 1.27, but the cash-debt ratio of 1.16 and current ratio of 1.39 indicate that the company can service its short-term debt.
Nokia’s return on capital of 32.27% is beating 81.45% of competitors. The three-year revenue growth rate is 0.2% and the three-year Ebitda growth rate is 67.3%.
WideOpenWest
The firm invested in 445,065 shares of WideOpenWest, impacting the equity portfolio by 0.08%. During the quarter, shares traded at an average price of $6.34.
WideOpenWest, more commonly known by its customers as WOW!, is an internet, cable and phone company headquartered in Englewood, Colorado. By number of customers, it is the sixth-largest cable operator in the U.S.
On Feb. 21, shares of WOW! traded around $7.45 apiece for a market cap of $627.05 million and a price-earnings ratio of 13.28 million. GuruFocus has assigned the company a financial strength rating of 2 out of 10 and a profitability rating of 5 out of 10.
WOW! has an Altman Z-score of 0.53, interest coverage of 1.35% and a current ratio of 0.55, indicating financial distress.
The company’s operating margin of 16.85% is beating 82.74% of competitors, though revenue has been decreasing at a rate of 0.6% per year over the past three years.
Porfolio overview
At the quarter’s end, Southeastern’s equity portfolio consisted of 29 positions valued at $6 billion. The top holdings were CenturyLink Inc. (CTL, Financial) with 15.76% of the equity portfolio, General Electric Co. (GE, Financial) with 8.09% and CNX Resources Corp. (CNX, Financial) with 7.24%.
In terms of sector weighting, the firm was most invested in communication services and industrials.
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. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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