This article is the first in a series that provides an ongoing analysis of the changes made to Tweedy Browne's US stock portfolio on a quarterly basis. It is based on Tweedy Browne's regulatory 13F Form filed on 08/13/2014. The firm dates back to 1920 when it was established as a dealer for closely held inactively traded securities - famous clients from the 1930s to the 1950s time period include Benjamin Graham, Warren Buffett, and Walter Schloss. Tweedy Browne became a partnership investment vehicle in 1959 and accepted first outside monies (limited partners) in 1968.
Tweedy Browne's investment philosophy takes off from Benjamin Graham's idea of investing with a margin-of-safety: buy positions that are trading at a significant discount to intrinsic value and sell them when they approach intrinsic value. The focus of their research is in determining intrinsic values and identifying the ones trading at a significant discount. To filter from the 20,000-odd corporations worldwide, certain characteristics are sought: low P/B ratio, low P/E ratio, low price-to-cash-flow ratio, above-average dividend yield, low P/S ratio as compared to other companies in the same industry, low corporate leverage, insider share purchases, company share repurchases, etc. The firm has over $21.9B in Assets Under Management (AUM) - about $9.2B is spread-out among four mutual funds and the rest are in private accounts (for individuals, institutions, partnerships, etc.). The portfolio is concentrated with recent 13F reports showing around 50 individual positions. Although the long-term performance of all assets under management is not published, the performance of their flagship mutual fund (Global Value - AUM of around $7.5B) clearly demonstrates large outperformance over the long-term: since inception in 1993, the fund has an alpha of 4.47% against the MSCI EAFE (currency hedged) index: 10.36% annualized for the Global Value fund vs 5.89% annualized for the MSCI EAFE (currency hedged) index.
This quarter, Tweedy Browne's US long portfolio increased marginally from $4.34B to $4.68B. The number of holdings increased from 47 to 49. The largest holding is Johnson & Johnson at 9.38% of the US long portfolio. Largest five individual stock positions are Johnson & Johnson, Banco Santander Brasil, Halliburton, Devon Energy, and Wells Fargo.
Tweedy Browne has released a number of investment research papers over the years and that is a valuable resource for anyone looking to learn from their investment philosophy. The best known work is "What Has Worked in Investing: Studies of Investment Approaches and Characteristics Associated With Exceptional Returns" that was first released in 1992 and updated in 2009.New Stakes:
Banco Santander Brasil (NYSE:BSBR): BSBR is the second-largest position at 9.07% of the US long portfolio. The position was aggressively built-up against falling prices over the last several quarters at prices between $4.48 and $7.29. The stock currently trades at $6.66. The activity indicates a clear bullish bias.
National-Oilwell Varco (NYSE:NOV): NOV is a small 0.65% of the US long portfolio position established in Q3 2013 at prices between $69 and $79. The original position was increased by ~12% over the last two quarters at prices between $73 and $83. The stock currently trades at $81.40.Stake Decreases:
Johnson & Johnson (NYSE:JNJ): JNJ is the largest position in the US long portfolio at 9.38%. It is a long-term position that has been in the portfolio since before the financial crisis. The stake was built up from 400K shares to just over 4.3M shares between 2009 and 2012 at prices between $48 and $72. Since then, the position has been marginally reduced and the pattern continued this quarter. The share count is still at 4.2M shares. The stock currently trades at around $101. Tweedy Browne is sitting on significant long-term gains on this position.
Halliburton Company (NYSE:HAL): HAL is a top-five position in the US long portfolio that was marginally reduced this quarter. The stake is currently at 8.13%. The bulk of the position was purchased in 2012 at prices between $27.80 and $38.50. The stock currently trades at close to $70. Tweedy Browne continues to stay bullish even after doubling the investment.
Devon Energy (NYSE:DVN): DVN is a large 7.14% of the US long portfolio position that was reduced marginally this quarter. The bulk of the current position was purchased in 2012 when around 2.2M shares were acquired at prices between $51 and $75. The stock currently trades within that range at $72.63. The position has been kept relatively steady since - the last two quarters saw marginal stake reductions.
Wells Fargo (NYSE:WFC): WFC is a top-five position that was marginally reduced this quarter to a 5.92% of the US long portfolio stake. The initial stake was established in 2010 with the bulk of the current position purchased in 2011 at prices between $25 and $34. The stock currently trades at $50.24.
Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B): Berkshire Hathaway is a very long-term stake that has been in the portfolio since before the financial crisis. Back in 2009, it was a very small 0.6% of the portfolio position. The bulk of the current 5.89% stake was purchased in 2010 and 2012 at prices between $65 and $90. The position was marginally reduced this quarter. The stock currently trades at around $133.
Cisco Systems (NASDAQ:CSCO): CSCO was a 2.2% of the US long portfolio position when first established in 2011. The bulk of the current 5.78% stake was purchased in 2012 at prices between $15.50 and $21. Since then, the position was kept relatively steady - the last few quarters saw minor stake reductions. The stock currently trades at $24.63.
ConocoPhillips (NYSE:COP): COP was a minutely small position in 2007. The majority of the current ~3M share position (5.4%) was purchased in 2009 at prices between $37 and $55. The stock currently trades at $80.58. The last several quarters have seen very minor stake reductions.
NOTE: The actual performance of this position is much higher compared to the figures quoted above as there was a spin-off related price-drop. On May 1, 2012 COP had spun off Phillips 66 whereby COP shareholders received one share of Phillips 66 for every 2 shares of COP.
Google Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) & Joy Global (NYSE:JOY): GOOG & JOY are medium-sized (less than ~5% of the US long portfolio) positions first purchased in 2012. Most of the GOOG position was purchased in 2012 at much lower prices. The bulk of the JOY stake was purchased in 2013 and the stock price has not budged much since.
3M Company (NYSE:MMM), Emerson Electric (NYSE:EMR), Bank of New York Mellon (NYSE:BK), & Baxter International (NYSE:BAX): These are medium-sized (less than ~5% of the US long portfolio) long-term stakes in the portfolio. MMM & EMR positions were first purchased in 2008 while BK & BAX stakes were established in 2010. The positions have seen very minor stake reductions in recent quarters. The long-term nature of these positions indicates a clear bullish bias toward these businesses.
American Express (NYSE:AXP), American National Insurance (NASDAQ:ANAT), Comcast Corporation (NASDAQ:CMCSA), Diageo plc (NYSE:DEO), Novartis AG (NYSE:NVS), Phillips 66 (NYSE:PSX), Torchmark Corporation (NYSE:TMK), Total SA (NYSE:TOT), Unilever (NYSE:UN) (NYSE:UL), Union Pacific (NYSE:UNP), & Wal-Mart Stores (NYSE:WMT): These are small positions (less than 2% of the US long portfolio) that were reduced marginally this quarter. As the activities were very minor, they do not indicate a clear change in bias.Kept Steady:
Canadian Natural Resources (NYSE:CNQ), Coca Cola FEMSA (NYSE:KOF), Illinois Tool Works (NYSE:ITW), Lockheed Martin (NYSE:LMT), & MasterCard Inc. (NYSE:MA): These are small positions (less than 2% of the US long portfolio) that were kept steady this quarter.
The US long equity portfolio also has fifteen other very small positions (less than ~0.5% of the portfolio each). As the sizing is minute, the activities in those positions do not indicate a clear bias.
The spreadsheet below highlights changes to Tweedy Browne's US stock holdings in Q2 2014:
Disclosure: The author is long CSCO. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.