Steven Scruggs (Trades, Portfolio), who manages the FPA Queens Road Small Cap Value Fund, disclosed its second-quarter portfolio earlier this week.
Part of Los Angeles-based First Pacific Advisors (Trades, Portfolio), the fund pursues long-term capital appreciation by applying a fundamental, bottom-up research process to invest in a diversified portfolio of small-cap companies. The stock picking strategy stems from Benjamin Graham’s principles of finding companies that trade at a discount to intrinsic value.
Keeping these considerations in mind, the NPORT-P filing revealed Scruggs established three new positions during the three months ended June 30, sold out of two stocks and added to or trimmed a number of other existing investments. Notable trades included a new holding in Levi Strauss & Co. (LEVI, Financial), an increased bet on Axos Financial Inc. (AX, Financial), a reduction of the MasTec Inc. (MTZ, Financial) position and the divestment of Carter’s Inc. (CRI, Financial). The Kimball International Inc. (KBAL, Financial) investment was dissolved following an acquisition.
Investors should be aware that, just like 13F reports, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these limited filings can provide valuable information.
Levi Strauss
The guru invested in 205,353 shares of Levi Strauss (LEVI, Financial), allocating 0.65% of the equity portfolio to the position. The stock traded for an average price of $14.50 per share during the quarter.
The San Francisco-based apparel company, which is known for inventing blue jeans, has a $5.44 billion market cap; its shares were trading around $13.70 on Tuesday with a price-earnings ratio of 12.52, a price-book ratio of 2.81 and a price-sales ratio of 0.91.
The GF Value Line suggests the stock is significantly overvalued based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 78 out of 100, the GF Score indicates the company is likely to have average performance going forward. While it received high ratings for value and profitability, its growth, financial strength and momentum ranks are more moderate.
Of the gurus invested in Levi Strauss, Chuck Royce (Trades, Portfolio) has the largest stake with 0.11% of its outstanding shares. Scruggs holds 0.05%.
Axos Financial
Scruggs increased the Axos Financial (AX, Financial) holding by 100.64%, picking up 101,137 shares. The transaction impacted the equity portfolio by 0.87%. Shares traded for an average price of $38.72 each during the quarter.
The guru now holds 201,631 shares in total, occupying 1.73% of the equity portfolio. GuruFocus estimates he has gained 17.13% on the investment so far.
The bank holding company headquartered in Las Vegas, which operates through Axos Bank, Axos Clearing LLC and Axos Invest, has a market cap of $2.63 billion; its shares were trading around $44.55 on Tuesday with a price-earnings ratio of 9.68, a price-book ratio of 1.43 and a price-sales ratio of 3.18.
According to the GF Value Line, the stock is modestly undervalued currently.
The GF Score of 86 implies the company has good outperformance potential, driven by high ratings for growth, value and momentum and more moderate profitability and financial strength ranks.
With 0.47% of its outstanding shares, Royce is Axos Financial’s largest guru shareholder. First Eagle Investment (Trades, Portfolio) also owns the stock.
MasTec
The investor curbed the MasTec (MTZ, Financial) investment by 32.20%, shedding 50,635 shares. The transaction had an impact of -1.10% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $97.88.
Scruggs now holds 106,607 shares, giving it 2.74% space in the equity portfolio. GuruFocus found he has gained an estimated 88.21% on the investment to date.
The Coral Gables, Florida-based infrastructure engineering and construction company has a $9.19 billion market cap; its shares were trading around $116.50 on Tuesday with a price-book ratio of 3.47 and a price-sales ratio of 0.86.
Based on the GF Value Line, the stock appears to be fairly valued currently.
The GF Score of 89 means the company has good outperformance potential on the back of high ratings for profitability, growth and momentum as well as more moderate financial strength and value ranks.
Richard Pzena (Trades, Portfolio) is MasTec’s largest guru shareholder with 0.70% of its outstanding shares. Other top guru investors are Steven Cohen (Trades, Portfolio), Ronald Muhlenkamp (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Royce, Joel Greenblatt (Trades, Portfolio) and Jefferies Group (Trades, Portfolio).
Carter’s
Scruggs exited the fund’s 58,772-share investment in Carter’s (CRI, Financial), which impacted the equity portfolio by -0.97%. The stock traded for an average price of $67.63 per share during the quarter.
GuruFocus data shows he lost about 28.34% on the investment over its lifetime.
The manufacturer of baby and children’s clothing, which is headquartered in Atlanta, has a market cap of $2.77 billion; its shares were trading around $73.41 on Tuesday with a price-earnings ratio of 12.97, a price-book ratio of 3.48 and a price-sales ratio of 0.89.
The GF Value Line suggests the stock is modestly undervalued currently.
Supported by high profitability and value ranks, the GF Score of 82 indicates the company has good outperformance potential. It also raked in moderate ratings for growth, financial strength and momentum.
Holding 0.97% of outstanding shares, Jim Simons (Trades, Portfolio)’ Renaissance Technologies is Carter’s largest guru shareholder. The stock is also being held by Cohen, Royce, Arnold Van Den Berg (Trades, Portfolio), Bernard Horn (Trades, Portfolio), Mario Cibelli (Trades, Portfolio) and a number of other gurus.
Kimball International
The guru’s 248,837-share position in Kimball International (KBAL, Financial) was dissolved, impacting the equity portfolio by -0.71%. During the quarter, shares traded for an average price of $12.35 each.
GuruFocus says Scruggs lost around 1.85% on the investment.
The Jasper, Indiana-based furniture company, which specializes in furnishings for the workplace, health and hospitality markets, was acquired by HNI Corp. (HNI, Financial) on June 1.
According to the terms of the agreement, Kimball shareholders received $9 in cash and 0.1301 shares of HNI per share owned. As such, Scruggs now has a 32,373-share holding in HNI.
Other gurus who benefited from the acquisition included Renaissance Technologies, Hotchkis & Wiley, Mario Gabelli (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Royce, Jeremy Grantham (Trades, Portfolio) and Cohen.
Additional trades and performance
During the quarter, Scruggs also entered positions in Knife River Holding Co. (KNF, Financial) and HNI as well as added to a number of holdings, including Sprouts Farmers Market Inc. (SFM, Financial), Servisfirst Bancshares Inc. (SFBS, Financial), Synaptics Inc. (SYNA, Financial) and UGI Corp. (UGI, Financial).
Nearly half of the guru’s $459 million equity portfolio, which is composed of 53 stocks, is invested in the financial services and technology sectors.
According to FPA’s website, the Queens Road Small Cap Value Fund returned -9.16% in 2022, outperforming the Russell 2000 index’s return of -14.48%.
