Scott Black's Top 5 Holdings in the Third Quarter

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Nov 11, 2014
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Scott Black (Trades, Portfolio) founded Delphi Management in 1980, a conservative value investing firm with a portfolio worth $702 million in the quarter ended Sept. 30.

The firm is a disciple of the Graham-Dodd school of thought and contacts the management of each company before investing its client’s funds. Its two products are the all-capitalization portfolio, and the small/mid-capitalization portfolio, which has an emphasis on companies with market caps below the high end of the Russell 2500 Value Index.

Black has more than 40 years of financial experience; he received his bachelor’s in applied mathematics and economics from Johns Hopkins University and an MBA in finance from Harvard Business School.

Black purchased 15 new positions during the third quarter; Delphi’s portfolio now holds 115 stocks. FedEx (FDX, Financial) and Comcast rose to the top five holdings in terms of percentage weighting, pushing Walt Disney (DIS, Financial) and Oracle (ORCL, Financial) out of the top five from last quarter.

The following are Black’s top five holdings for the third quarter in order of portfolio weighting:

Berkshire Hathaway (BRK.B, Financial)

Berkshire Hathaway remains Black’s top holding since the second quarter 2013. Black added 170 shares of Berkshire to up the total to 156,126 shares. Warren Buffett (Trades, Portfolio)’s firm comprises 3.1% of Delphi’s portfolio.

Of the top five positions, Berkshire is the only one in which Black added shares.

The insurance firm trades close to its true valuation, when comparing the stock price to the Peter Lynch earnings line, though it is still slightly overvalued.

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The following chart shows Berkshire’s revenue and net income:

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Actavis PLC (ACT, Financial)

Black reduced his position in Actavis by 3,681 shares, leaving a total of 45,177. This is the fifth consecutive quarter that Black has unloaded the shares at a steadily increasing price. The company comprises 1.6% of the portfolio.

Actavis is a pharmaceutical company with a broad portfolio of medicines whose principal treatment areas are the central nervous system, women’s health, urology, cardiovascular, respiratory, and anti-infective therapeutic.

The stock has risen 46% year-to-date and the Peter Lynch chart suggests the company has become grossly overvalued.

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While Actavis’ gross margin has been expanding, the operating margin was in the red in FY 2013 at -4.88%.

FedEx (FDX, Financial)

FedEx is another holding that Black has been selling off for several quarters at an increasingly higher price. Black sold 451 shares of the shipping company at an average price of $151.83 per share. Delphi now holds 68,560 shares which accounts for 1.6% of the portfolio.

FedEx’s four business segments are FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services.

Net income has remained much of the same over the years, though revenue has increased steadily.

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FedEx’s five-year dividend growth rate is 8.1%, which is ranked higher than 86% of companies in the shipping and logistics industry.

Comcast (CMCSK, Financial)

Black sold 2,009 shares of Comcast at an average price of $54.58 per share. Comcast comprises 1.5% of the portfolio at 191,863 shares.

Comcast’s two main businesses are Comcast Cable and NBC Universal. GuruFocus rates its business predictability as a perfect five stars since revenue per share has increased every year since FY 2004.

The following chart shows the relation between revenue and net income over the years:

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Comcast’s operating and net margin are expanding, recording at 20.98% and 10.54%, respectively.

Check Point Software Technology (CHKP, Financial)

Black sold 308 shares of Check Point at an average price of $68.10 per share, leaving a total of 149,071 shares.

Check Point develops and markets software for information technology security. Its unified security architecture enables end-to-end security, and allows users to manage it from a single unified console.

Its business predictability is rated at 4.5/5 stars, and the margin of safety is -9% according to its DCF fair valuation.

When comparing Check Point’s stock price to the Peter Lynch earnings line, the graph indicates the company may be overvalued.

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Check Point holds no debt and has comfortable operating and net margins. In FY 2013, it was 54.58% and 46.83%, respectively.

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