Third Avenue Management’s Top 3rd-Quarter Portfolio Updates

Third Avenue Management (Trades, Portfolio) recently disclosed its portfolio updates for the third quarter of 2020, which ended on Sept. 30.

Founded in 1986 by Martin J. Whitman, Third Avenue Management (Trades, Portfolio) pursues a deep-value investing strategy based on the prices, balance sheets and assets of businesses. It aims to follow the crowds as little as possible, focusing on the long-term values of investments rather than the short-term effects of news reports or investor sentiment.

Based on the above criteria, the firm’s top buys for the quarter were Korn Ferry (NYSE:KFY) and Washington Trust Bancorp Inc. (NASDAQ:WASH), while its top sells were Essex Property Trust Inc. (NYSE:ESS) and Public Storage (NYSE:PSA).

Korn Ferry

The firm established a new position worth 328,473 shares in Korn Ferry after selling out of the stock in the second quarter of 2018. The trade had a 1.32{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} impact on the equity portfolio. During the quarter, shares traded for an average price of $29.58.

Korn Ferry is a Los Angeles-based management consulting company that operates in 52 countries around the world, helping clients to organize their management structures and matching them with their ideal job candidates.

On Nov. 19, shares of Korn Ferry traded around $38.69 for a market cap of $2.12 billion. The GuruFocus Value chart rates the stock as fairly valued.

GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio of 6.31 is lower than 64{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of industry peers, but the Altman Z-Score of 2.36 indicates the company is only in minor danger of facing liquidity issues in the near future. The weighted average cost of capital has sometimes been higher than the weighted average cost of capital in recent years, indicating struggles with consistently creating value for shareholders.

Washington Trust Bancorp

The firm added 102,105 shares, or 155.09{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}, to its investment in Washington Trust Bancorp for a total holding of 167,939 shares, impacting the equity portfolio by 0.44{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. Shares traded for an average price of $32.93 during the quarter.

Washington Trust Bancorp is a bank holding company that owns The Washington Trust Company, which is the oldest community bank in the U.S. and the largest state-chartered bank in Rhode Island.

On Nov. 19, shares of Washington Trust traded around $38.98 for a market cap of $672.97 million. The GuruFocus Value chart rates the stock as a possible value trap due to a too-sharp drop in the price.

GuruFocus gives the company a financial strength rating of 2 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 0.23 is lower than 86{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of peers, while the Piotroski F-Score of 4 out of 9 is typical of a financially stable company. The return on equity has been on an uptrend since the last recession, but dropped slightly to 14.50{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} in the last full fiscal year.

Essex Property Trust

The firm reduced its stake in Essex Property Trust by 32,906 shares, or 34.3{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}, for a remaining holding of 63,043 shares. The trade had a -1.06{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} impact on the equity portfolio. During the quarter, shares traded for an average price of $218.20.

Based in San Mateo, California, Essex Property Trust is a real estate investment trust that primarily invests in West Coast apartment complexes.

On Nov. 19, shares of Essex traded around $254.15 for a market cap of $16.57 billion. The GuruFocus Value chart rates the stock as fairly valued.

GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. The interest coverage ratio of 2.08 shows the company is a little closer to being unable to meet its interest payments than is healthy, which is also supported by the Altman Z-Score of 1.66, which indicates potential liquidity issues over the next couple of years. The WACC has typically surpassed the ROIC throughout the company’s history, though the situation seems to have flipped in the last full fiscal year, potentially indicating a turnaround in terms of value creation.

Public Storage

The firm sold out of its 38,265-share position in Public Storage, impacting the equity portfolio by -1.03{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. Shares traded for an average price of $204.39 during the quarter.

Public Storage is a California-based REIT that runs a chain of self-storage facilities under the same name. It is the largest self-storage company in the U.S.

On Nov. 19, shares of Public Storage traded around $228.79 for a market cap of $40 billion. The GuruFocus Value chart rates the stock as fairly valued.

GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.12 is higher than the industry median of 0.08, while the Altman Z-Score of 8.78 indicates a stable financial position. The three-year revenue growth rate is 3.5{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}, while the three-year Ebitda growth rate is 3{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}.

Portfolio overview

As of the quarter’s end, Third Avenue Management (Trades, Portfolio)’s equity portfolio consisted of 64 stocks valued at $719 million. Its top holdings were Weyerhaeuser Co. (WY) with 6.69{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of the equity portfolio, Lennar Corp. (LEN.B) with 6.37{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and Brookfield Asset Management Inc. (BAM) with 6.1{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}.

The turnover rate for the quarter was 3{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. In terms of sector weighting, the firm was most invested in real estate, followed by consumer cyclical and financial services.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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