The Smead Value Fund (Trades, Portfolio) disclosed its equity portfolio for its fiscal first quarter, which ended Feb. 28, earlier this week.
Part of Phoenix-based Smead Capital Management, the fund is managed by Bill Smead and Cole Smead. Taking a contrarian approach to stock picking, the fund managers look for large-cap stocks that meet the following criteria: serve an economic need, have a strong competitive advantage, have a long history of profitability and strong operating metrics, generate high levels of free cash flow, are undervalued, have a strong balance sheet, show insider ownership and have a history of management being shareholder-friendly.
Based on these criteria, the NPORT-P filing shows the fund entered one new position during the quarter and added to a slew of other existing investments. Its most notable trades for the three-month period included a new stake in APA Corp. (APA, Financial) and increased bets on Warner Bros. Discovery Inc. (WBD, Financial), Bank of America Corp. (BAC, Financial), Ovintiv Inc. (OVV, Financial) and Occidental Petroleum Corp. (OXY, Financial).
It did not sell out of or reduce any holdings.
Investors should be aware portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Smead will also be one of the speakers at the GuruFocus Value Conference, which is being held at the Hilton Omaha hotel on May 4 and 5 in Omaha, Nebraska. Tickets are still available, but seats are limited! Reserve your spot today.
APA
The fund invested in 2.33 million shares of APA (APA, Financial), allocating 2.03% of the equity portfolio to the stake. The stock traded for an average price of $43.57 per share during the quarter.
The Houston-based oil and gas producer, which is the holding company of Apache Corp., has an $11.10 billion market cap; its shares were trading around $35.68 on Wednesday with a price-earnings ratio of 3.33, a price-book ratio of 26.24 and a price-sales ratio of 1.08.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 79 out of 100, the GF Score indicates the company is likely to have average performance going forward. While it received high ratings for profitability, GF Value and momentum, the growth and financial strength ranks were more moderate.
Of the gurus invested in APA, Hotchkis & Wiley has the largest stake with 3.44% of its outstanding shares. Bill Nygren (Trades, Portfolio) also has a notable position.
Warner Bros. Discovery
Smead upped its position in Warner Bros. Discovery (WBD, Financial) by 87.41%, buying 5.08 million shares. The transaction had an impact of 1.80% on the equity portfolio. Shares traded for an average price of $12.62 each during the quarter.
The fund now holds 10.89 million shares, which account for 3.87% of the equity portfolio. GuruFocus estimates it has lost 20.27% on the investment so far.
The media and entertainment company, which is headquartered in New York, has a market cap of $31.18 billion; its shares were trading around $12.80 on Wednesday with a price-book ratio of 0.66 and a price-sales ratio of 0.72.
According to the GF Value Line, the stock is a possible value trap currently. For this reason, potential investors should do thorough research before making a decision.
The GF Score of 88, however, implies the company has good outperformance potential on the back of high ratings for profitability, growth, GF Value and momentum as well as a low financial strength rank.
With a 1.29% stake, Hotchkis & Wiley is the largest guru shareholder of Warner Bros. Discovery. Other top guru investors include Seth Klarman (Trades, Portfolio), Nygren, Mason Hawkins (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Robert Olstein (Trades, Portfolio).
Bank of America
The Value Fund boosted the Bank of America (BAC, Financial) holding by 25.03%, picking up 1.10 million shares. The transaction impacted the equity portfolio by 0.86%. During the quarter, the stock traded for an average per-share price of $34.33.
Smead’s fund now holds, in total, 5.50 million shares, which occupy 4.28% of the equity portfolio. GuruFocus data shows it has lost an estimated 20.30% on the investment to date.
The Charlotte, North Carolina-based bank has a $229.49 billion market cap; its shares were trading around $28.79 on Wednesday with a price-earnings ratio of 8.64, a price-book ratio of 0.91 and a price-sales ratio of 2.40.
Based on the GF Value Line, the stock appears to be modestly undervalued currently.
The GF Score of 72 means Bank of America will likely have average performance in the future. The company recorded a high rating for GF Value, while profitability, growth and momentum were more moderate and the financial strength rank was low.
Warren Buffett (Trades, Portfolio) has the largest stake in Bank of America with 12.63% of its outstanding shares. Dodge & Cox, Fisher, PRIMECAP Management (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Li Lu (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Nygren and a number of other investors also own the stock.
Ovintiv
The fund increased the Ovintiv (OVV, Financial) stake by 23.7%, or 793,411 shares. The transaction impacted the equity portfolio by 0.77%. The stock traded for an average price of $48.99 per share during the quarter.
It now holds a total of 4.14 million shares, representing 4.02% of the equity portfolio. GuruFocus found Smead has lost 30.05% on the investment over its short lifetime.
The oil and gas producer headquartered in Denver has a market cap of $8.71 billion; its shares were trading around $35.62 on Wednesday with a price-earnings ratio of 2.52, a price-book ratio of 1.14 and a price-sales ratio of 0.74.
The GF Value Line suggests the stock is significantly undervalued currently.
The GF Score of 80 indicates the company is likely to have average performance going forward, driven by high ratings for profitability, momentum and GF Value as well as more moderate growth and financial strength ranks.
Holding 11.10% of its outstanding shares, Dodge & Cox is Ovintiv’s largest guru shareholder. The stock is also being held by Hotchkis & Wiley, Daniel Loeb (Trades, Portfolio) and Steven Cohen (Trades, Portfolio), among others.
Occidental Petroleum
Expanding the Occidental Petroleum (OXY, Financial) position by 7.70%, Smead purchased 436,558 shares. The transaction had an impact of 0.58% on the equity portfolio. During the quarter, shares traded for an average price of $63.69 each.
It now holds a total of 6.11 million shares, making it the fund’s largest holding with a weight of 8.12%. GuruFocus says Smead has gained around 24.91% on the investment.
The Houston-based oil and gas producer has a $54.78 billion market cap; its shares were trading around $60.99 on Wednesdaywith a price-earnings ratio of 4.81, a price-book ratio of 2.70 and a price-sales ratio of 1.63.
According to the GF Value Line, the stock is modestly overvalued currently.
The GF Score of 70 is supported by high ratings for profitability and momentum, middling marks for growth and financial strength and a low GF Value rank. As such, the company has poor performance potential.
Buffett is Occidental Petroleum’s largest guru shareholder with a 23.57% stake. Dodge & Cox, Cohen and Jim Simons (Trades, Portfolio)’ Renaissance Technologies also have large holdings.
Additional trades and portfolio composition
During the quarter, Smead also added to its positions in Lennar Corp. (LEN, Financial), Merck & Co. Inc. (MRK, Financial), Simon Property Group Inc (SPG, Financial), American Express Co. (AXP, Financial) and ConocoPhillips (COP, Financial), among others.
The Value Fund’s $4.40 billion equity portfolio, which is composed of 25 stocks, is most heavily invested in the consumer cyclical, energy, financial services and health care sectors.
