Investissement Brandes, the firm founded by
Charles Brandes (Trades, Portfolio) in 1974, revealed last week that it had increased its stake in Graham Corp. (DRG, financial) of 6.21%.
Following Benjamin Graham’s value investing style, the San Diego-based investment firm takes positions in disadvantaged stocks that have attractive total return potential and holds them until the market recognizes their true value.
According to GuruFocus Real-Time Picks, a premium feature based on 13D, 13G and Form 4 filings, the company invested in 63,112 shares of the Batavia, New York-based industrial products maker on August 31, which had a 0.01% impact on the equity portfolio. The stock traded at an average price of $9.83 per share on the day of the trade.
He now owns 1.07 million shares in total, or 0.25% of the equity portfolio. Data from GuruFocus shows that the company has lost around 19.30% on investment since its inception in the first quarter of 2020.
The company, which manufactures vacuum and heat transfer equipment for the defense, space, energy and process industries, has a market capitalization of $105.01 million; its shares were trading around $9.89 on Monday with a forward price-to-earnings ratio of 124.07, a price-to-book ratio of 1.08 and a price-to-sales ratio of 0.76.
The GF value line suggests that the stock is currently significantly undervalued based on historical ratios, past financial performance and analysts’ future earnings projections.
The GF score of 70 out of 100, however, indicates that the company has low performance potential. While Graham received high marks for profitability, financial strength, GF value and momentum received medium marks and growth received low marks.
Graham announced its financial results for the first quarter of fiscal 2023 on July 29. For the three months ended June 30, revenue increased 79% from the prior year quarter to $36.1 million. The company posted adjusted net income of $1.3 million, or 12 cents per share, which improved from a loss of 28 cents a year ago.
In a statement, Chairman and CEO Daniel Thoren praised the company’s improved performance as it “addressed supply chain challenges and actively managed costs.”
“The extent of our sales and orders further validates the changes we have made to enable a more sustainable business with expanded opportunities,” he said. “Our improvement in profitability is the result of the deliberate decisions we make as a team to defer costs, manage the project schedule to improve the mix, and take the prize where it’s earned.”
GuruFocus rated Graham’s financial strength at 6 out of 10. The Altman Z-Score of 2.15 warns that the company is under some pressure as assets are accumulating at a faster rate than revenues are growing . Moreover, the Sloan ratio is indicative of poor earnings quality.
The company’s profitability scored 7 out of 10 despite a declining gross margin and negative returns on equity, assets and capital that underperform compared to competitors. Its moderate Piotroski F-Score of 4 out of 9 means conditions are typical of a stable business. Graham’s predictability rating of one out of five stars is also one to watch. GuruFocus research found that companies in this ranking have an average return of 1.1% per year over a 10-year period.
Of the gurus invested in Graham, Brandes holds the largest stake with 10.16% of his shares outstanding.
chuck royce (Businesses, Portfolio),
Jim Simons (Businesses, Portfolio)’ Renaissance Technologies,
Mario Gabelli (Businesses, Portfolio),
Robert Olstein (Businesses, Portfolio), Hotchkis & Wiley and
Diamond Hill Capital (Trades, Portfolio) also own the stock.
Composition and performance of the portfolio
The company’s 13F filing shows that other industrials stocks it holds in the second quarter include Emerson Electric Co. (EMR, Financial), China Yuchai International Ltd. (CYD, Financial), Flowserve Corp. (FSL, Financial), Gates Industrial Corp. PLC (GTES, Financial) and Hurco Companies Inc. (HURC, Financial).
Brandes’ $4.09 billion equity portfolio, consisting of 164 stocks as of June 30, is primarily invested in the health care and financial services sectors.
According to GuruFocus, the company returned 27.72% in 2021, slightly below the 28.70% return of the S&P 500.
Investors should be aware that 13F filings do not provide a complete picture of a company’s holdings as the reports only include its positions in US stocks and US certificates of deposit, but they can still provide valuable insight. Additionally, reports only reflect trades and holdings as of the most recent portfolio deposit date, which may or may not be held by the reporting company today or even when this article was published.