By Matt Doiron
In January we spoke with Tom Gayner, chief investment officer at Markel. Markel's investment team returned 11.1% between 2000 and 2009, and has beaten the S&P 500 over the last 22 years. Read our interview with Tom Gayner in which he discusses his investment process, which money managers he likes, and what books investors should be reading. When we asked him about his stock picks for 2013, he - after mentioning Markel itself, where he and other insiders have been buying shares (see a history of insider purchases at Markel) - replied:
"Lots of times if you ask me a question like that I will have a strong conviction in something that is a big holding for us and we like it, and love it, and are buying it. I like times like that. Right now, I will tell you we're a little bit inactive and that's for a variety of reasons. One, I don't have names that just fall off the tip of my tongue right now of pounding table buys like I would have a year or two ago."
Here are five stocks that Gayner mentioned as being "pounding table buys" over the last couple years:
Wal-Mart Stores, Inc. (WMT). In the last two years Wal-Mart has rallied 22%, outperforming the S&P 500. Markel owned 1.1 million shares of the stock at the end of September, according to its most recent 13F filing. Wal-Mart trades at 14 times trailing earnings and reported moderate earnings growth in its most recent quarterly report compared to the same period in the previous fiscal year. We see what Gayner means here: the company looks interesting, but it might not be a strong buy and in particular the dollar stores could offer more growth at a slightly higher earnings multiple.
Diageo plc (DEO). The alcoholic beverage company whose brands include Johnnie Walker and Crown Royal is up 52% from two years ago. The forward P/E multiple, based on expected earnings for the fiscal year ending in June 2014, is 17 and we can see why that might be too high for a value investor (the trailing P/E is above 20, so that forward earnings figure includes substantial growth). Diageo was one of Markel's largest holdings at the end of the quarter, with a position of 1.2 million shares.
Nestle (NSRGY.PK). Nestle's stock price has increased 29% from its levels in January 2011. The packaged food company provides chocolate, coffee, dairy, ice cream, and other foods as well as nutrition, weight management, and pet food products. Now Nestle is another company with earnings multiples in the high teens and low twenties, and given its massive size (the market cap is over $200 billion) we think that it's not a particularly good growth prospect. However, we would note that P/Es of about 20 are normal for packaged food companies in the current environment.
Anheuser-Bush InBev NV (BUD). Up 67% in the last two years, Anheuser-Busch carries trailing and 2013 earnings multiples of 21 and 18, respectively - again, not exactly buy territory. While net income was up 16% in the third quarter of 2012 compared to the same period in 2011, revenue rose only slightly and so we're not sure how sustainable this earnings growth is. We think that investors shouldn't be buying Anheuser-Busch either.
Berkshire Hathaway Inc. (BRK.B) (BRK.A). Berkshire - when we include holdings of both Class A and Class B shares - was Markel's largest holding by market value at the end of September. Warren Buffett's holding company (see Buffett's stock picks) has returned about 20% over the last two years, about in line with the market. Berkshire Hathaway is valued at a considerable premium to the book value of its equity (the P/B ratio is 1.3) and while Buffett is still a great investor we think that long-term buyers would be well within their rights to be a bit worried about the future of the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.