Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

FPA Capital Fund’s Best and Worst Performers From Q4

Houghton Mifflin Harcourt Co. (NASDAQ:HMHC) was FPA’s biggest retractor, as it led to a 0.47% loss during the fourth quarter. Houghton Mifflin Harcourt Co. (NASDAQ:HMHC) has not performed well because the company missed quarterly earnings expectations and its Board of Directors recently has decided to terminate the CEO. The fund’s managers like the company’s core business of publishing K-12 textbooks in the U.S., but the former CEO, chose to expand the business into the Educational Technology industry by purchasing a division from Scholastic Corp. (NASDAQ:SCHL). This acquisition took management’s eye off the core business and the former CEO paid a substantial premium to acquire the business. The fund thinks that the board now understands it needs to find an operator who can manage the core business and generate high levels of free cash flow, given the concentrated competitive landscape and barriers to entry. FPA Capital Fund has materially increased its position in Houghton Mifflin Harcourt Co. (NASDAQ:HMHC) since their initial purchase as the stock declined closer to its downside-case scenario level.

Follow Houghton Mifflin Harcourt Co (NASDAQ:HMHC)
Trade (NASDAQ:HMHC) Now!

SM Energy Co. (NYSE:SM) was another retractor causing a decline of 14 basis points during the December quarter. SM Energy Co. (NYSE:SM)’s stock fell because the company issued a large secondary offering of stock to help pay for a couple of large properties it acquired in the Permian Basin. FPA Capital agrees with the management’s view that the Permian Basin offers very attractive oil and gas properties. However, these properties will take a couple of years to develop and start generating cash flow for shareholders. FPA Capital Fund had already reduced its position in the stock by over 60% before September in anticipation of a large equity offering. The fund had earned substantial gains from the stock in the earlier quarters as SM Energy Co. (NYSE:SM)’s shares surged by 75% during 2016, even including an 11% drop in the fourth quarter.

Follow Sm Energy Co (NYSE:SM)
Trade (NYSE:SM) Now!

In Apollo Education Group Inc. (NASDAQ:APOL), FPA Capital reduced its position buy 80% during the last quarter of 2016. The reason for cutting down the holding was that Apollo Education Group Inc. (NASDAQ:APOL)’s stock appreciated by nearly 25% and was close to the buyout price the board and shareholders had agreed to earlier in the year. The Department of Education has approved the acquisition of Apollo Education Group Inc. (NASDAQ:APOL) by a private equity group with several conditions.

Follow Apollo Education Group Inc (NASDAQ:APOL)
Trade (NASDAQ:APOL) Now!

Disclosure: none