By Siraj Sarwar
Tweedy, Browne is one of the largest fund managers in the United States. The investment company follows the investment philosophy of the late Benjamin Graham. As such it applies a value strategy that looks for long-term growth of capital by investing in mostly high-dividend corporations. The fund manager looks for those stocks which are selling at substantial discounts from their intrinsic values.
In this article, I look into Tweedy, Browne's five significant buys that constitute a substantial portion of the fund's portfolio. These stocks are Cisco Systems (NASDAQ:CSCO), Halliburton Company (NYSE:HAL), Devon Energy Corporation (NYSE:DVN), Berkshire Hathaway (NYSE:BRK.B), and Joy Global (NYSE:JOY). I briefly explore each stock's track record. I also explain the trading activities of the fund manager with regard to each stock.
% of Portfolio
% of change
Cisco Systems has been one of the favorite stocks of Tweedy, Browne over the years. Last quarter, the fund manager increased its portfolio by 145%. Cisco System is ranked at second place in the fund manager's portfolio. Tweedy, Browne substantially increased its Cisco holdings from 2.93% to 6.23%.
Over the years, Cisco system has shown strong performance. Cisco has displayed growth in both revenues and earnings. Since 2010, the company increased its revenues from $40 billion to $46 billion by the end of 2012. Moreover, Cisco has a low-cost business model. It is able to convert sales into profits without leaking too much money. The company has a high operating margin of 21.85% and a net margin of 17.46%.
Recently, it announced Q4 earnings with massive profits of $1.9 billion. Moreover, the company's profits increased by 56% on a year-over-year basis. For the full year of 2012, the company's net income stands at $8 billion, a significant increase of 24% over the prior year. Furthermore, its cash flows are growing at a steady pace. Since 2010, the company's operating cash flows went up from $10 billion to $12 billion in the last twelve months.
Halliburton Company is a provider of services and products to the energy industry related to the exploration, development and production of oil and natural gas. Recently, Tweedy, Browne initiated a position in Halliburton Company by purchasing 4.6 million shares. This represents 5.07% of the fund manager's portfolio. This looks like a good buy to me. The company recently achieved record revenues, and delivered industry-leading revenue growth in 2012.
Furthermore, over the years, Halliburton has provided significant returns. The company currently plans to distribute at least 15% to 20% of its net income. Recently, it announced an increase of 39% from the past quarter's dividend. At present, it offers a dividend of $0.125 cents per share. In addition, the company is also working on a share repurchase program.
With these intentions, the company looks optimistic in its business and future growth. On the other hand, Investors are also anticipating a bright future outlook. After collapsing to $30, the stock is on a surge and bounced back to $40 in the past two months.
Devon Energy Corporation is an independent energy company engaged mainly in the exploration, development and production of oil, natural gas and Natural Gas Liquids [NGLs]. This company has remained a favorite for the Tweedy, Browne Managers over the years. Last quarter, Tweedy Browne's position has increased by 144%. At present, Tweedy, Browne owns 3.73 million shares of Devon Energy Corporation. The stock is ranked at third place in the Tweedy, Browne's portfolio.
I believe Devon is set to become a leading energy player in 2013. Recently, it announced Q4 results with record oil production. Total production of oil, natural gas liquids, and natural gas improved to 250 million oil-equivalent barrels [Boe] in 2012. This is the top annual production in the company's history. Despite depressed commodity prices, it was able to generate $396 million excluding non-cash items.
Berkshire Hathaway Inc. is a holding company engaged in a number of business activities, including reinsurance and insurance, property and casualty, utilities and energy, finance, manufacturing, and service and retailing.
Based on WhaleWisdom, Berkshire Hathaway keeps a constant space in the Tweedy, Browne's portfolio. Recently, Tweedy, Browne increased its position in Berkshire from 0.14% to 1.18% by purchasing 0.375 million shares.
Over the years, Berkshire has shown strong growth and solid financials. The conglomerate fund was able to grow revenue by 10% annually in the last 5 years. In addition, it has a stable margin on sales. The company has an operating margin of 12.8%.
At present, Berkshire does not offer any dividend, though it is a typical value stock. Its strong growth and solid financials translates into price appreciation. Over the past year, the Berkshire price has been surging. Berkshire offers a convenient access to benefit from its legendary founder's wisdom. While the stock looks still undervalued, I would rather prefer to invest in its holdings instead of buying the conglomerate fund itself.
Joy Global Inc. is a manufacturer and servicer of mining equipment for the extraction of coal and other minerals. At the end of Q4, Tweedy, Browne owned 0.6 million of Joy Global shares. This represents 1.21% of the fund manager's portfolio. This is the first appearance of Joy Global in the Tweedy, Browne portfolio and it was ranked at 23 by the fund manager.
Joy has been showing exceptional performance over the years. Recently, it announced Q4 results with 19% increases in revenues over the past quarter. The company's 3 year revenue growth stands at 16%. The company has a high margin. Q4 operating earnings represented 20% of sales. Additionally, the company is increasing earnings per share at a double-digit rate of 17.4%.
Joy Global is likely to face near-term headwinds after enjoying a two-year boom in commodity prices, but apparently Tweedy, Browne expects it to generate solid economic profitability over the long run. Recently, the fund manager initiated a large position in Joy Global making this company one of his top holdings.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Siraj Sarwar, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.