Hillman Capital’s Top 2nd-Quar – GuruFocus.com

Hillman Capital Management recently disclosed its 13F portfolio updates for the second quarter of 2021, which ended on June 30.


Mark Hillman
(Trades, Portfolio) is the president, CEO and chief investment officer of the firm, which he founded in 1998. The firm’s strategy is to invest in companies with distinct competitive advantages, especially ones that have fallen temporarily out of favor with investors due to short-term, non-recurring issues. Hillman considers factors such as cash flow, dividends, sales, earnings, book value and projected growth rates when valuing a business.

Using the criteria above, the firm’s most notable buys for the quarter (as per its latest 13F filing) were Discovery Inc. (DISCA, Financial), Merck & Co. Inc. (MRK, Financial), AT&T Inc. (T, Financial) and Amazon.com Inc. (AMZN, Financial).

Discovery

Hillman Capital established a new holding of 235,326 Class A shares in Discovery Inc. (DISCA, Financial) (Discovery also trades under Class B (DISCB, Financial) and Class K (DISCK, Financial) shares). The trade had a 2.75% impact on the equity portfolio. During the quarter, the Class A shares traded for an average price of $34.91.

Established in 1985, New York-based Discovery is a multinational media company that primarily operates a group of factual and lifestyle television brands, such as Discovery Channel, Animal Planet, Science Channel and TLC.

On Aug. 19, Discovery’s Class A shares traded around $27.93 for a market cap of $13.74 billion. According to the GuruFocus Value chart, the stock is modestly undervalued.

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The company has a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The Altman Z-Score of 1.43 implies the company could be at risk of bankruptcy, though the Piotroski F-Score of 8 out of 9 is typical of a very healthy financial situation. The three-year revenue per share growth rate is 10% and the three-year Ebitda per share growth rate is 30.5%.

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Merck & Co.

The firm added 27,579 shares, or 40.57%, to its stake in Merck & Co. (MRK, Financial) for a total holding of 95,557 shares. The trade had a 0.82% impact on the equity portfolio. Shares traded for an average price of $74.29 during the quarter.

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Merck & Co., also known as Merck Sharp & Dohme outside of the U.S. and Canada, is a pharmaceutical giant based in Kenilworth, New Jersey. The company focuses its research and production primarily on vaccines, oncology, infectious diseases and cardio-metabolic disorders.

On Aug. 19, shares of Merck traded around $78.33 for a market cap of $198.28 billion. According to the GF Value chart, the stock is fairly valued.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. The interest coverage ratio of 7.76 and Piotroski F-Score of 4 out of 9 show the financial situation is stable. The return on invested capital is typically higher than the weighted average cost of capital, meaning the company is creating value.

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AT&T

The firm picked up an additional 62,501 shares of AT&T (T, Financial), increasing the investment by 25.15% for a total of 311,034 shares. The trade had a 0.69% impact on the equity portfolio. During the quarter, shares traded for an average price of $30.11.

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AT&T is an American telecommunications giant headquartered in Dallas. It provides a variety of internet, connectivity, technology, entertainment, news, advertising and mobile services to customers primarily in the U.S., though it also has operations globally.

On Aug. 19, shares of AT&T traded around $27.51 for a market cap of $196.42 billion. According to the GF Value chart, the stock is fairly valued.

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The company has a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The current ratio of 0.77 and Altman Z-Score of 0.76 suggest the company may need to raise additional liquidity in order to avoid bankruptcy. The three-year revenue per share growth rate is -2.7%, while the three-year Ebitda per share growth rate is -7.5%.

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Amazon.com

The firm increased its investment in Amazon.com Inc. (AMZN, Financial) by 518 shares, or 20.97%, for a total holding of 2,988 shares. The trade had a 0.68% impact on the equity portfolio. Shares traded for an average price of $3,316.50 during the quarter.

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Amazon is a multinational e-commerce giant based in Seattle. Its vast network allows it to deliver many products to customers within one or two days, giving it tremendous pricing power. The company also has cloud computing, digital streaming, artificial intelligence and other tech operations.

On Aug. 19, shares of Amazon traded around $3,184.49 for a market cap of $1.61 trillion. According to the GF Value chart, the stock is modestly undervalued.

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The company has a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. The Altman Z-Score of 5.86 and Piotroski F-Score of 8 out of 9 show that the balance sheet is solid. The ROIC recently surpassed the WACC after several years of underperformance, indicating the company is now creating value for shareholders.

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Portfolio overview

As of the quarter’s end, the firm’s U.S. common stock equity portfolio held shares in 48 stocks valued at a total of $263 million. It established five new positions over the three-month period and added to or reduced several other positions for a turnover of 7%.

The top holdings were Wells Fargo & Co. (WFC, Financial) with 3.97% of the equity portfolio, Amazon with 3.91% and Exxon Mobil Corp. (XOM, Financial) with 3.79%. In terms of sector weighting, the firm was most invested in health care, energy and communication services.

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