Charles Brandes (Trades, Portfolio) founded Brandes Investment Partners in 1974, which manages a variety of global equity and fixed-income assets for investors worldwide.
Brandes and the firm follow Ben Graham’s value investing approach. Brandes even met the legendary father of value investing at the beginning of his career while working the front desk of a small brokerage firm in California. According to the firm’s website, Brandes’ conversations and correspondence with Graham would solidify his conviction to follow the value investing strategy.
The following chart shows the performance of the U.S. Value Equity Fund in relation to the S&P 500.
During the fourth quarter, the fund purchased 14 new holdings. The following are the five largest new buys in terms of portfolio impact.
Arcos Dorados Holdings (ARCO, Financial)
Brandes’ largest new purchase during the quarter was 5,929,997 shares Arcos Dorados Holdings at an average price of $6.07 per share.
Arcos Dorados is the largest operator of McDonald’s (MCD, Financial) restaurants in Latin America and the Caribbean and the world’s largest McDonald’s franchisee.
The operating margin has been declining over time, recording at 2.85% for the trailing 12 months.
The current ratio for the trailing 12 months is 0.8, indicating the company cannot cover its short-term obligations with cash on hand.
Diluted EPS for the trailing 12 months is $-0.42.
Quest Diagnostics (DGX, Financial)
Brandes also purchased 186,113 shares of Quest Diagnostics for an average price of $63.03 per share.
Quest Diagnostics provides clinical testing services such as routine testing, gene-based testing, drug abuse testing, and similar services.
The stock has been up 35% over the past year and currently trades at $70.42. The DCF model projects a fair value price of $45.24, giving a margin of safety of -56%.
The current P/E ratio is 20.2, while the P/S ratio is 1.4.
Quest Diagnostics’ dividend yield is 1.91%, while the payout ratio is 37%.
Other gurus who hold positions in Quest Diagnostics include John Hussman (Trades, Portfolio), Chuck Royce (Trades, Portfolio), and Brian Rogers (Trades, Portfolio).
The fund also purchased 282,344 shares of Avnet for an average price of $42.33 per share. The purchase had a 0.17% impact on the portfolio.
Avnet distributes electronic components, computer and storage products, and IT solutions and services.
The stock has been up 5% over the last year and may be undervalued according to the Peter Lynch chart.
Diluted EPS for the trailing 12 months was $4.23. EPS has grown more than 13% over the past five years.
The current P/E ratio 10.5 and the P/S ratio is 0.2.
Brandes purchased 35,711 shares of AGCO at an average price of $44.27 per share.
AGCO manufactures and distributes agricultural equipment such as tractors, combines, hay tools, grain storage, etc.
The stock has been down 6% over the past year and may be undervalued when comparing the price to the Peter Lynch earnings line.
The stock currently trades at $48.47; the DCF model estimates a fair value of $64.02, giving a margin of safety of 24%.
The current dividend yield is 0.9%, and the payout ratio is a low 9%, indicating the dividend is sustainable with room for growth in the future.
Brandes also purchased 65,985 shares of Invacare at an average price of $15.14 per share.
Invacare manufactures and distributes medical equipment used in the home and long-term care settings. Its three primary product lines in North America include lifestyle, mobility and seating, and respiratory therapy products.
Preliminary data for FY 2014 show diluted EPS to be $-1.75. The company also had negative earnings in FY 2011.
The current dividend yield is 0.3%. Invacare has not increased its dividend since about 1996; the dividend has been constant at $0.013 per share.
In addition, revenue per share has declined about 4% over the past five years.
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