Mario Cibelli Adds 2 Stocks to Portfolio, Gives Alphabet the Boot

Guru releases 1st-quarter portfolio

May 28, 2020

Marathon Capital Management leader Mario Cibelli (Trades, Portfolio) released his portfolio for the first quarter earlier this month.

Known for focusing on less efficient portions of the market, the activist investor’s New York-based firm relies on fundamental research to find long-term opportunities among undervalued stocks that he believes will double in three to five years.

Keeping these strategies in mind, the guru’s most notable trades for the quarter included new positions in Performance Food Group Co. (PFGC, Financial) and Eventbrite Inc. (EB, Financial), the sale of Alphabet Inc. (GOOG, Financial) (GOOGL, Financial), a reduction in the e.l.f. Beauty Inc. (ELF, Financial) stake and expansions of the World Wrestling Entertainment Inc. (WWE, Financial) and Uber Technologies Inc. (UBER, Financial) holdings.

Performance Food Group

Cibelli invested in 87,500 shares of Performance Food Group, allocating 1.36% of the equity portfolio to the holding. The stock traded for an average price of $43.43 per share during the quarter.

The Richmond, Virginia-based foodservice provider has a $3.7 billion market cap; its shares were trading around $27.30 on Thursday with a price-earnings ratio of 27.73, a price-book ratio of 1.73 and a price-sales ratio of 0.12.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.

GuruFocus rated Performance Food Group’s financial strength 5 out of 10. As a result of issuing approximately $1.9 billion in new long-term debt over the past three years, the company has low interest coverage. The Altman Z-Score of 3.98, however, indicates it is safe from bankruptcy. It may have low profitability, however, since the return on invested capital is eclipsed by the weighted average cost of capital.

The company’s profitability scored a 6 out of 10 rating. Although the operating margin is expanding, it is being weighed down by returns that underperform over half of its competitors. Performance Food Group also has a moderate Piotroski F-Score of 4, which implies conditions are stable, and a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically return an average of 1.1% per annum over a 10-year period.

Of the gurus invested in Performance Food Group, Ron Baron (Trades, Portfolio) has the largest stake with 1.11% of outstanding shares. Steven Cohen (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) also have positions in the stock.

Eventbrite

Having previously exited a position in Eventbrite in the third quarter of 2019, the guru entered a new 150,000-share holding. The trade had an impact of 0.69% on the equity portfolio. Shares traded for an average price of $17.07 each during the quarter.

The event management and ticketing website, which is headquartered in San Francisco, has a market cap of $1.03 billion; its shares were trading around $9.07 on Thursday with a price-book ratio of 2.66 and a price-sales ratio of 2.58.

According to the price chart, the stock is trading below its median price-book ratio but above the median price-sales value.

Eventbrite’s financial strength was rated 5 out of 10. While the cash-debt ratio of 16.21 is performing well in comparison to the company’s history as well as its industry, the Altman Z-Score of 0.06 warns it could be in danger of going bankrupt.

The company is also being weighed down by negative margins and returns that are underperforming a majority of industry peers. It has also recorded a decline in revenue per share over the past five years.

With 0.83% of outstanding shares, Jeremy Grantham (Trades, Portfolio) has the largest position in the stock. Other top guru shareholders are Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Chuck Royce (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).

Alphabet

With a combined impact of -2.78% each on the equity portfolio, Cibelli divested of his holdings of Alphabet’s Class A and Class C stock. Class A shares traded for an average price of $1,359.16 each during the quarter, while Class C shares traded around $1,361.82 each.

GuruFocus estimates the guru has gained 174.14% on his investment in Class A shares and 81.52% on the Class C position.

The Mountain View, California-based company, which operates YouTube and the Google search engine, has a $972.52 billion market cap; Class A shares were trading around $1,423.04 on Thursday while Class C shares traded for $1,421.16 with a price-earnings ratio of 28.78, a price-book ratio of 5.17 and a price-sales ratio of 6.13.

Based on the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 4 out of 10 aligns with this assessment as the share price and price-book ratio are near 10-year highs.

Alphabet’s financial strength and profitability were both rated 9 out of 10 by GuruFocus. In addition to having comfortable interest coverage, the robust Altman Z-Score of 10.66 indicates the company is in good standing. The company also has good profitability as the ROIC significantly outweighs the WACC.

Although the margins are declining, they still outperform a majority of competitors. Alphabet also has strong returns and a moderate Piotroski F-Score of 5. Consistent earnings and revenue growth have resulted in a four-star businss predictability rank. GuruFocus says companies with this rank typically return 9.8% per year on average.

PRIMECAP Management (Trades, Portfolio) is the largest shareholder of the Class A stock, while Dodge & Cox has the largest stake in the Class C stock. Other top guru shareholders of both stocks include Ken Fisher (Trades, Portfolio), Frank Sands (Trades, Portfolio), Pioneer Investment, Spiros Segalas (Trades, Portfolio) and Chris Davis (Trades, Portfolio).

e.l.f. Beauty

With a -13.98% impact on the equity portfolio, Cibelli curbed his stake in e.l.f. Beauty by 49.07% to 1.98 million shares. The stock traded for an average per-share price of $15.01 during the quarter.

He later added to the position in April, bringing his total holding to 2.36 million shares, which represents 18.76% of the total assets managed. According to GuruFocus, Cibelli has lost an estimated 8.04% on the investment since the fourth quarter of 2017.

Headquartered in Oakland, California, the cosmetics company, which sells its makeup at largely affordable price points, has a market cap of $867.06 million; its shares were trading around $17.30 on Thursday with a price-earnings ratio of 49.54, a price-book ratio of 3.66 and a price-sales ratio of 3.12.

The Peter Lynch chart suggests the stock is overvalued.

GuruFocus rated e.l.f Beauty’s financial strength 5 out of 10 on the back of weak interest coverage and an Altman Z-Score of 1.94, indicating it is under some pressure since it has recorded a decline in revenue per share over the past several years. Its ROIC is also less than its WACC, indicating it may not be profitable.

The company’s profitability scored a 4 out of 10 rating. Even though its operating margin outperforms a majority of competitors, e.l.f. Beauty is weighed down by returns that underperform at least 70% of industry peers. It also has a moderate Piotroski F-Score of 6, which implies business conditions are stable.

With a 4.72% stake, Cibelli is the company’s largest guru shareholder. Other top investors are Simons’ firm, Royce, Ainslie and Greenblatt.

World Wrestling Entertainment

Picking up 575,000 shares, the investor expanded his position in World Wrestling Entertainment by 425.93%. The trade had an impact of 12.23% on the equity portfolio. Cibelli now owns 710,000 shares, which represent 15.1% of the total assets managed. During the quarter, the stock traded for an average price of $48.87 per share.

GuruFocus data shows the guru has lost an estimated 6.69% on the investment.

The Stamford, Connecticut-based media and entertainment company, which is primarily known for broadcasting professional wrestling, has a $3.53 billion market cap; its shares were trading around $45.41 on Thursday with a price-earnings ratio of 36.24, a price-book ratio of 12.86 and a price-sales ratio of 3.77.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 2 out of 10 also leans toward overvaluation.

GuruFocus rated World Wresting Entertainment’s financial strength 5 out of 10 on the back of adequate interest coverage and a high Altman Z-Score of 4.33. The company’s assets are also building up at a faster rate than its revenue is growing, indicating it may be becoming less efficient. The ROIC also surpasses the WACC, suggesting good profitability.

The company’s profitability scored a 7 out of 10 rating, driven by margins and returns that outperform a majority of competitors, a high Piotroski F-Score of 7, which indicates operating conditions are healthy and a one-star business predictability rank.

With 0.92% of outstanding shares, Cibelli is the company’s largest guru shareholder. Simons’ firm, Pioneer, Gabilli, Jones and Cohen also have positions in the stock.

Uber Technologies

The guru purchased 392,000 shares of Uber, expanding the holding 785% and impacting the equity portfolio by 6.87%. He now owns 442,500 shares total, which account for 7.4% of the total assets managed. The stock traded for an average per-share price of $33 each.

GuruFocus says Cibelli has gained an estimated 7.22% on the investment since the fourth quarter of 2019.

The ridesharing company, which is headquartered in San Francisco, has a market cap of $60.27 billion; its shares were trading around $34.78 on Thursday with a price-book ratio of 5.29 and a price-sales ratio of 3.64.

Based on the price chart, the stock is trading above both its median price-sales value and its median price-book ratio.

GuruFocus rated Uber’s financial strength 4 out of 10 on the back of a cash-debt ratio of 1.06, which is underperforming on a historical basis as well as compared to its peers, and a low Altman Z-Score of 0.66. The score warns the company could be in danger of going bankrupt.

The company’s profitability fared even worse, scoring a 1 out of 10 rating on the back of negative margins and returns that underperform a majority of competitors.

Halvorsen is the company’s largest guru shareholder with a 1.51% stake. Other guru investors are Sands, Chase Coleman (Trades, Portfolio), Segalas, Pioneer, Philippe Laffont (Trades, Portfolio), Ainslie, Ray Dalio (Trades, Portfolio), Gabelli, Cohen and Jones.

Additional trades and portfolio composition

During the quarter, the guru also added to his holdings of Facebook Inc. (FB, Financial), HD Supply Holdings Inc. (HDS, Financial) and J. Alexander’s Holdings Inc. (JAX, Financial). He trimmed his positions in PayPal Holdings Inc. (PYPL, Financial), Grubhub Inc. (GRUB) and US Foods Holding Corp. (USFD).

Cibelli’s $160 million equity portfolio, which is composed of 12 stocks, was heavily invested in the communication services sector with a weight of 49.04%, followed by the consumer defensive space with a 17.34% weight.

Disclosure: No positions.