Steven Romick (Trades, Portfolio), co-manager of the FPA Crescent Fund, disclosed last week that the fund’s top five buys for the first quarter were Booking Holdings Inc. (NASDAQ:BKNG), DuPont de Nemours Inc. (NYSE:DD), Westinghouse Air Brake Technologies Corp. (NYSE:WAB), LG Corp. (XKRX:003550) and Swire Pacific Ltd. (HKSE:00019).

The fund’s $6.53 billion equity portfolio contains long and short positions. Romick and his fellow fund managers seek value in all parts of a company’s capital structure, investing in out-of-favor securities with low cyclically-adjusted price-earnings ratios.


Guru updates market views in a special March commentary letter

The fund managers said in a March 16 update letter that while the fund started the year with a net equity exposure of approximately 57{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312}, it increased its exposure to approximately 67{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} given “better risk / rewards” in several securities. The fund said it removed some market hedges and “purchased [shares in] new companies with strong balance sheets.”

Despite increasing its equity exposure, the fund warned that equities “are not cheap yet”: While the cyclically-adjusted price-earnings ratio of the Standard & Poor’s 500 Index reached near 31 at the end of February, the ratio currently stands at 22.5, approximately 1.5 times higher than the historical average of 17.


Guru portfolio summary

As of quarter-end, the fund’s equity portfolio contains 67 stocks, of which 15 represent new holdings. The portfolio, which had a turnover ratio of 18{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} for the quarter, has weights of 29.03{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312}, 23.35{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} and 18.40{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} in communication services, financial services and technology, its top three sectors in terms of market weight.


The fund purchased 95,194 shares of Booking, giving the position 1.96{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} weight in the equity portfolio. Shares averaged $1,767.55 during the first quarter.


The Norwalk, Connecticut-based company offers booking services for hotel rooms, airline tickets, rental cars, restaurant reservations, cruises and other vacation packages. GuruFocus ranks Booking’s profitability 10 out of 10 on several positive investing signs, which include consistent revenue growth, profit margins outperforming over 95{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global competitors and a return on assets that outperforms over 98{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global travel and leisure companies.


Booking’s financial strength ranks 6 out of 10: Although the company has a strong Altman Z-score of 5.7, Booking’s debt-to-equity ratio is underperforming over 79{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global peers on the back of increasing debt levels over the past three years.


Gurus with large holdings in Booking include Dodge & Cox, Pioneer Investments (Trades, Portfolio) and Yacktman Asset Management (Trades, Portfolio).



The fund purchased 3,249,578 shares of DuPont, giving the stake 1.70{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} weight in the equity portfolio. Shares averaged $49.25 during the March quarter.


The Wilmington, Delaware-based company generates products that serve the automotive, electronics and communication industries. GuruFocus ranks the company’s financial strength 5 out of 10: Although the company has a moderately high Piotroski F-score of 5, debt ratios are underperforming over 50{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global competitors.


Westinghouse Air Brake Technologies

The fund purchased 2,035,062 shares of Westinghouse Air Brake Technologies, giving the position 1.50{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} weight in the equity portfolio. Shares averaged $69.10 during the first quarter.


The Pittsburgh-based company provides value-added, technology-based products and services for the rail industry. GuruFocus ranks the company’s financial strength 5 out of 10: Debt-to-equity ratios are outperforming over 65{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global competitors despite an interest coverage ratio less than Benjamin Graham’s safe threshold of five.



The fund purchased 1,772,486 shares of LG, giving the holding 1.31{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} weight in the equity portfolio. Shares averaged 68,736.10 won ($56.53) during the first quarter.


LG engages in the electronics, chemicals, telecom and service businesses. GuruFocus ranks the South Korean consumer electronics company’s financial strength 8 out of 10 on several positive investing signs, which include a solid Altman Z-score of 3.37 and a debt-to-equity ratio that outperforms 81.29{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global competitors.


Swire Pacific

The fund purchased 10,152,602 shares of Swire Pacific, giving the position 0.99{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} weight in the equity portfolio. Shares averaged 67.54 Hong Kong dollars ($8.71) during the first quarter.


Swire Pacific, a Hong Kong-based conglomerate, has interests in property, aviation, beverage, marine service, trading and industrials. GuruFocus ranks the company’s profitability 7 out of 10: Even though returns are underperforming over 55{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global competitors, Swire’s operating and net profit margins are outperforming over 78{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global conglomerates.


Disclosure: No positions.

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About the author:

James Li

I am an editorial researcher at GuruFocus. I have a Master’s in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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