By Andrei Braghis
Tom Gayner's Markel Gayner Asset Management made some interesting tweaks to its equity portfolio in the first quarter. For starters, it ever so slightly reduced its investment in Berkshire Hathaway. The only newcomer among the fund's top five was Diageo (DEO); we'll give you the details below. See the original 13F here.
Why Pay Attention?
It's important to track hedge fund sentiment because, on the whole, their best picks have been shown to outperform the market by 18 percentage points a year. Best of all, retail investors can capitalize on this phenomenon, but they have to know where to look first (learn the secrets of this strategy here).
Markel's top pick is CarMax (KMX). The fund has slightly decreased its stake in the retailer of used vehicles, but that did not jeopardize its position as the top dog. The total value of the CarMax shares owned by Markel is reported as $213 million. The stock price has been in an uptrend since the start of the year, advancing 23% to a current price of approximately $47 per share. Shares are traded at a trailing P/E ratio of 25.19 and have a forward P/E ratio of 20.31. This implies that the market expects the company to post generally impressive financial results in the coming quarters. Analysts have a good opinion of the stock, as 11 of 15 are recommending it as either a Buy or Strong Buy. For the current quarter, analysts estimate EPS of $0.57. Revenues are expected to grow 12.1% to a value of $3.11 billion.
Markel has reduced its holding of Berkshire Hathaway (BRK.A) by two shares, compared with the fourth quarter of 2012. The reported value of the remaining 1101 class A shares of $172 million places the stock on the second place among Markel investments. The price of Berkshire Hathaway's Class A stock has advanced 21% in 2013, with a current value of approximately $166,000 per share. The stock has a beta of 0.25 and, considering the reputation of Warren Buffett, it is considered as one of the safest investments out there. It is recommended mainly as a Buy on Wall Street, with analysts estimating earnings of $2,194.00 per share for the first quarter of 2013.
Tom Gayner has also reduced the fund's investment in Berkshire Hathaway (BRK.B). It has sold approximately 8,000 shares, leaving the investment at a little over 1.5 million shares with a reported value of $161 million. Just like the class A shares, Berkshire Hathaway Class B shares have a small beta (0.29), which makes it a safe investment with low volatility. Since the beginning of 2013, the stock price has been rising and is currently at a little over $111 per share -- a 22% advance.
The fourth biggest position in the portfolio of Markel is Diageo, an international company that engages in producing and distributing alcoholic beverages. The fund's investment team has increased its stake in Diageo by 36% compared to the fourth quarter. The total value of the 1.2-million-share stake is reported as $154 million. The stock is traded at a trailing P/E ratio of 19.06, while a forward P/E ratio of 17.24 suggests the company is not likely to register an impressive growth rate in the coming quarters. The stock has a beta of 0.82 and pays a dividend of $2.84 -- a yield of 2.3%. Analysts recommend it mainly as a Buy or Strong Buy.
Walgreen (WAG) also saw a slight trimming, though nothing too major. The reported value of the remaining 2.1-million-share stake is near $102.5 million. The stock of this drug store chain has been on the rise since the start of 2013, with the price growing 28% to a current value of approximately $48 a share. The company reported good financial results for the first quarter of 2013, beating Wall Street estimates in terms of earnings, but failing to meet revenue expectations. The reported figures were earnings of $0.96 per share and revenues of $18.65 billion. For the current quarter, analysts estimate earnings per share of $0.91 and revenues of $18.54 billion.
Markel has a well-diversified and balanced equity portfolio. The presence of Berkshire Hathaway among its top investments would comfort any investor, and we also recommend keeping and eye on Walgreen as it is expected to increase its revenues and earnings in the near future.