First Pacific Advisors Buys Ne

First Pacific Advisors (Trades, Portfolio) recently disclosed its 13F portfolio updates for the second quarter of 2021, which ended on June 30.

The Los Angeles-based investment management firm emphasizes a research-based, low-risk value investing strategy that seeks to increase capital in the long term while avoiding a high chance of loss. First Pacific invests through several funds, including the
FPA Capital Fund (Trades, Portfolio), the FPA Crescent Fund, the FPA International Value Fund and the FPA Paramount Fund.

Based on its latest 13F filing, the firm’s biggest sells for the quarter were Booking Holdings Inc. (BKNG, Financial) and Kinder Morgan Inc. (KMI, Financial), while its top buys were Netflix Inc. (NFLX, Financial) and Alibaba Group Holding Ltd. (BABA, Financial).

Booking Holdings

The firm reduced its investment in Booking Holdings (BKNG, Financial) by 44,627 shares, or 45.67%, leaving a remaining holding of 53,094 shares. The trade had a -1.41% impact on the equity portfolio. During the quarter, shares traded for an average price of $2,335.20.

Based in Norwalk, Connecticut, Booking Holdings is a world leader in online travel services, providing booking services for everything from flights and cars to hotels and vacation packages. The company’s focus is mainly on the more fragmented European and Asian hotel markets rather than the U.S. market.

On Aug. 24, shares of Booking Holdings traded around $2,233.11 for a market cap of $91.69 billion. According to the GuruFocus Value chart, the stock is significantly overvalued.

The company has a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. While the interest coverage ratio of 1.31 is low, the Altman Z-Score of 4.92 suggests the company is not likely in danger of bankruptcy. The return on invested capital has dropped below the weighted average cost of capital, meaning the company is struggling with growing in a profitable manner.

Kinder Morgan

The firm also cut its stake in Kinder Morgan Inc. (KMI, Financial) by 4,160,696 shares, or 34.49%, for a remaining investment of 7,901,215 shares. The trade had a -0.94% impact on the equity portfolio. Shares traded for an average price of $17.80 during the quarter.

Kinder Morgan is one of the largest energy infrastructure companies in North America with interests or operations in approximately 85,000 miles of oil and gas pipelines as well as 152 terminals. It has its headquarters in Houston.

On Aug. 24, shares of Kinder Morgan traded around $16.48 for a market cap of $37.35 billion. According to the GF Value chart, the stock is modestly undervalued.

The company has a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.04 is lower than 88% of industry peers, though the Piotroski F-Score of 6 out of 9 indicates financial stability. The company has a three-year revenue per share growth rate of -5.6% and a three-year Ebitda per share growth rate of -3.8%.

Netflix

The firm upped its investment in Netflix Inc. (NFLX, Financial) by 103,508 shares, or 4,081.55%, for a total of 106,044 shares. The trade had a 0.68% impact on the equity portfolio. During the quarter, shares traded for an average price of $511.62.

Founded in 1997 as a DVD mail rental service, Netflix has grown to a media services and production giant. Subscribers can stream the company’s library of content to various devices. Netflix typically acquires new content through licensing or in-house production, and availability can vary by popularity, cost of licensing, seasonality, etc.

On Aug. 24, shares of Netflix traded around $553.41 for a market cap of $244.94 billion. According to the GF Value chart, the stock is fairly valued.

The company has a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The Altman Z-Score of 7.02 and Piotroski F-Score of 6 out of 9 indicate the company is financially stable. The ROIC is higher than the WACC, showing that the company is creating value for shareholders as it grows.

Alibaba Group Holding

The firm also added 227,271 shares, or 31.1%, to its stake in Alibaba Group Holding (BABA, Financial) for a total of 957,979 shares. The trade had a 0.65% impact on the equity portfolio. Shares traded for an average price of $222.15 during the quarter.

Alibaba is a Chinese multinational conglomerate with holdings in e-commerce, retail, internet and technology assets, among many others. By volume, Alibaba is the largest e-commerce company in the world, with millions of merchants and hundreds of millions of users.

On Aug. 24, shares of Alibaba traded around $171.70 for a market cap of $465.46 billion. According to the GF Value chart, the stock is significantly undervalued.

The company has a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 3.21 and Altman Z-Score of 4.2 show an exceptionally strong balance sheet. The company has a three-year revenue per share growth rate of 38.2% and a three-year Ebitda per share growth rate of 16.8%.

Portfolio overview

As of the quarter’s end, the firm held 188 common stock positions valued at a total of $7.96 billion. Its top holdings were Comcast Corp. (CMCSA, Financial) with 6.76% of the equity portfolio, Facebook Inc. (FB, Financial) with 6.10% and Alphabet Inc. (GOOG) with 5.62%.

In terms of sector weighting, the firm was most invested in communication services, financial services and technology.