Oaktree Capital Management recently disclosed its 13F portfolio updates for the third quarter of 2022, which ended on Sept. 30.
Founded by Howard Marks (Trades, Portfolio) and several fellow investors in 1995, Oaktree Capital Management is a global investing firm that specializes in alternative and credit strategies. The Los Angeles-based firm now has over 39 portfolio managers and 950 employees in offices around the globe. Marks is the co-chairman and chief financial officer. The core investment philosophy of the firm has six tenets: risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing.
In the third quarter, the firm’s top trades (as per its 13F filing) included new buys for Sitio Royalties Corp. (STR, Financial) and PagSeguro Digital Ltd. (PAGS, Financial) as well as the sale of its Super Micro Computer Inc. (SMCI, Financial) stake.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Sitio Royalties
The firm took a stake worth 12,935,120 shares of Sitio Royalties (STR, Financial), giving it a weight of 3.51% in the equity portfolio. During the quarter, shares changed hands at an average price of $25.40.
Sitio Royalties is a mineral royalty company that buys oil and gas mineral and royalty interests operated by a diversified set of companies in the Permian and other productive U.S. basins. The company’s current form was created from Falcon Minerals’ acquisition of Desert Peak Minerals and subsequent rebranding. In September, Sitio Royalties entered an agreement to merge with Brigham Minerals Inc. (MNRL, Financial), another mineral royalty company.
Since its listing as Sitio Royalties this past August, the stock is up 16% to trade around $32.23 per share for a market cap of $408.76 million and a price-earnings ratio of 29.51.
Sitio Royalties’ operating and net margins are solid, as shown in the chart below. In fact, it is outperforming 94% of other oil and gas companies on this front, though that’s not surprising considering the highly profitable nature of the business. The stock also offers a dividend yield of 2.22%
PagSeguro Digital
Oaktree also snapped up 1,507,880 shares of PagSeguro Digital (PAGS, Financial), giving it a weight of 0.24% in the equity portfolio at the quarter’s average share price of $13.35.
PagSeguro is a Brazilian financial services company that provides payment processing software for e-commerce websites and mobile applications as well as point of sale terminals. This disruptive fintech player is focused primarily on consumers, individual entrepreneurs, micro-merchants, small companies and medium-sized companies in Brazil, which have long been underserved by the country’s traditional banking system.
As of Nov. 16, PagSeguro traded around $12.73 per share for a market cap of $4.18 billion and a price-earnings ratio of 16.51. The GF Value chart rates the stock as a potential value trap because of the steep drop in share price combined with signs that the business fundamentals are deteriorating, such as an operating margin of -17.28%.
Despite its margin troubles, the company has grown its top and bottom lines steadily over the past few years, though there has been a recent turndown on the earnings front. The three-year revenue per share growth rate is 19.1% versus the three-year earnings per share without non-recurring items growth rate of -5.5%.
Super Micro Computer
The firm sold out of its 650,000-share position in Super Micro Computer (SMCI, Financial), which previously took up 0.34% of the equity portfolio. Shares averaged $56.96 apiece for the quarter.
Super Micro Computer, which does business under the Supermicro brand name, is a California-based information technology company that provides application-optimized server and storage solutions, including complete serves, storage systems and modular blade serves. It is the leading server and storage vendor in the U.S. and also boasts of its focus on energy-efficient computing, which helps save customers’ resources. The company’s highly successful transition from a products model to a solutions model has resulted in strong growth and a rally in the share price.
On Wednesday, shares of Super Micro Computer traded around $82.25 for a market cap of $4.37 billion and a price-earnings ratio of 10.11. The GF Value chart rates the stock as significantly overvalued.
Not only has the company grown spectacularly in recent years, as shown by the three-year earnings per share without non-recurring items growth rate of 56.4%, it has also become a value creator, as the return on invested capital has been significantly higher than the weighted average cost of capital in recent quarters.
See also
Oaktree’s other notable trades in the quarter included reductions to Chesapeake Energy Corp. (CHK, Financial), Petroleo Brasileiro SA Petrobras (PBR, Financial) and PG&E Corp. (PCG, Financial).
As of the quarter’s end, Oaktree held 260 common stock positions valued at a total of $8.15 billion. The turnover for the quarter was 5%.
The top holding was TORM PLC (TRMD, Financial) with 13.54% of the equity portfolio, followed by Chesapeake Energy with 11.32% and Vistra Corp. (VST ) with 6.54%.
By sector weighting, the firm had the biggest portions of its portfolio allocated to energy, financial services and industrials.
