Arlington's New Value Picks - They Beat The S&P By 10% A Year

by: Safety In Value

Arlington Value has been beating the S&P for years. It was up 400% over a 12-year stretch, which beat the S&P by about 10% per year during that time frame. Additionally, and at least as impressive, the fund was actually up in 2008 during the crash.

This article will focus on some of the company's smaller holdings, as well as an update on the largest changes in their portfolio since my most recent article, which focused on their largest positions. Their updated disclosure is below.

Source: Edgar Online

The largest addition to their portfolio this quarter was a significant increase in their stake in CH Robinson Worldwide (NASDAQ:CHRW), a logistics company.

CH Robinson

This company exhibits many characteristics of a high quality business, with high returns on equity and assets. Because it coordinates logistics without actually owning transportation equipment itself, it requires very little capital to grow. This has allowed the company to consistently return capital to shareholders through both dividends and buybacks. The company has made a number of acquisitions in recent years, and its progress integrating these will be key to future stock price appreciation.

CHRW has been recently profiled positively on Seeking Alpha with a price target of $74, which would be a substantial gain on its current price of $57.66. The largest risk to the company would be if freight became disintermediated, and their customers connected with small and LTL trucking firms directly using mechanisms like uShip. The high importance and customization requirements in transportation services makes this unlikely, but it is a risk to consider.

Leucadia National Corporation (NYSE:LUK)

One of Arlington Value's smaller positions is Leucadia, a diversified holding company. LUK recently secured its succession planning by purchasing Jefferies, an investment banking company. This merger was mutually beneficial, as Leucadia's founding managers are getting on in years, and Jefferies has outlets for capital. The company owns a number of other businesses in various industries, including beef processing, mortgages, car retailing, gambling, and manufacturing. With significant Federal income tax NOLs and businesses generating significant operating cash flow, Leucadia is primed for continued success. For more details on the metrics of LUK's individual businesses, see the following corporate presentation, which has information on a segment by segment basis.

The company has a long-term track record, but its share price has sold off since the Jefferies deal, as former holders of Jefferies stock pared their positions. The company is trading very close to its book value, and it has historically traded at a much greater premium to book due to its excellent track record. A recent Alpha-Rich article by Daniel Phillips put a target price of ~$36 on the stock, a substantial increase from its current level of $27.84. The major risk to the company will be execution at Jefferies.

A position by Allan Mecham of Arlington Value is always a good sign for a stock, as his record is excellent. These positions may be worth further research for your portfolio, even though they are smaller positions in a very concentrated fund. I find significant value in trying to determine the thesis of top quality value investors, as with my recent article on Oceanstone, which has beat the S&P by 30% per year. Of course, there is also something to be said for investing directly in great funds (even though I personally prefer to manage my own money) and interested parties could contact Arlington directly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.