Seeking Alpha
Newsletter provider, fund holdings, insider ownership
Profile| Send Message|
( followers)  

Grisanti Brown & Partners makes concentrated long term bets on stocks that are trading at significant discounts to intrinsic value. The intrinsic value of each stock is calculated by either using the value of its hard assets or its cash flow. By buying stocks that are trading at significant discounts, they managed to return a cumulative 65.6% net of all fees during the past decade. During the same time period, the S&P 500 index gained 4.1% cumulatively.

They managed to outperform the S&P 500 index on average by about 4-5 percentage points per year. That’s why we decided to take a closer look at their portfolios. Even though GB&P had 82 stocks in its portfolio, the top 20 stocks accounted for 97% of the total value of its portfolio. Here is how these 20 stocks performed since the beginning of this year:

Company

Ticker

Return

Value (x1000)

VALERO ENERGY CORP NEW

VLO

17.3%

38538

WEATHERFORD INTL LTD

WFT

-8.9%

33157

JPMORGAN CHASE & CO

JPM

4.3%

32713

DELL INC

DELL

8.6%

30592

LEAR CORP

LEA

-7.0%

27758

WILLIAMS COS INC

WMB

23.0%

27507

TEVA PHARMACEUTICALS

TEVA

-4.1%

27378

AIR PRODS & CHEMS INC

APD

0.2%

26373

PFIZER INC

PFE

17.7%

26085

BP PLC

BP

1.6%

23702

SCHWAB (CHARLES) CORP

SCHW

5.7%

22880

CHUBB CORP

CB

3.1%

22116

NAVISTAR INTL

NAV

12.7%

20306

MOSAIC CO

MOS

-3.3%

19493

MICROSOFT CORP

MSFT

-9.6%

18656

BANK OF AMERICA

BAC

-6.8%

16852

FREEPORT MCMORAN

FCX

-15.0%

15445

ABBOTT LABS

ABT

9.1%

13426

BEST BUY INC

BBY

-14.4%

11311

GOLDMAN SACHS

GS

-8.4%

11227

The weighted average return of its top 20 positions is 2.9% since the beginning of this year, vs. 4.3% for SPY. Its poor performance is mainly due to its smaller positions. The top 10 positions returned an average of 5.3%, beating the market. Unfortunately it had BBY, FCX, MSFT, BAC, and GS in its portfolio. These large cap stocks have performed terribly so far this year, hurting several hedge funds along the way. Microsoft was owned by 161 hedge funds at the end of last year. Barry Rosenstein’s Jana Partners, David Einhorn’s Greenlight Capital, Craig Effron’s Scoggin Capital, and Brevan Howard are some of other hedge funds bullish about Microsoft. Whitney Tilson predicted that Microsoft will reach $35 by the end of 2011.

Nevertheless, Grisanti Brown is confident that these stocks will outperform in the long term. This is what it said about BAC at the end of 2010:

Our investments in the financial sector, which were terrific performers in 2009, fared poorly this year. The worst was Bank of America, a stock we continue to like. For those of you who don’t like the stock (and there are a lot of you!), please tell us something negative that the market doesn’t already know. That’s why the stock is selling at 60% of book value (but still above what we paid for it a year and a half ago). Bank America has the largest deposit base in the United States, is (in our opinion) over-reserved as a result of the 2008-09 stress tests, and has many large businesses (like credit cards, mortgages, commercial lending and investment banking) that will eventually reflect the benefits of a recovering economy. The company has an assortment of assets that would be very difficult to duplicate. In short, we’re betting that sentiments change as the economy continues to improve.

So far, we are intrigued by Grisanti Brown & Partners and will be following its transactions in 2011. It isn’t easy to beat the market by picking large cap stocks, but we believe Grisanti Brown will keep beating the market over the long term.

Source: 20 Stocks Trading at Significant Discounts to Intrinsic Value: Few Surprises