Whitney Tilson’s Value Investing Insight profiled Pacifica Capital’s Steve Leonard about a year ago. At the time Leonard’s fund returned 12.2% annually after management and incentive fees, vs. 1.8% for the S&P 500 (SPY) index. There aren’t a lot of fund managers who can beat the market by 10 percentage points per year for more than a decade. Even Warren Buffett couldn’t do it during the past 12 years. So we are really interested in what Steve Leonard invests in.
In June 2010 he recommended Fairfax Financial (FRFHF.PK), Energizer Holdings (ENR), R.G. Barry (DFZ), and Starbucks (SBUX).
He liked Fairfax because of Prem Watsa's excellent track record over the past 25 years. Prem Watsa is Canada’s Warren Buffett. FRFHF was $370 at the end of June 2010, today it is $407.
Leonard liked Energizer Holdings’ brands such as Energizer and Eveready batteries, Schick razors, and Playtex feminine products. As worldwide consumer demand increases, Energizer will be a major beneficiary. He valued the company at $70 when the stock was trading at $50. Today Energizer trades at $76, gaining around 52% during the past 10 months. Leonard was on target with this prediction.
He has been investing in R.G. Barry for the past 5-7 years. He liked DFZ because of its excellent free cash flow and high return on capital. The stock was trading at $10.80 then. Today, it is trading at $11.80. It returned only 9%.
He liked Starbucks because it is the market leader and there are no close competitors. He expected the company to benefit from international growth. He said 10% of his portfolio is in SBUX and he wouldn’t trim his position until the stock increases by at least 25%. Starbucks was trading at $24 then. Today it is trading at $36.91. Starbucks returned 54% during the past 10 months.
Overall, his picks from last summer had a mixed performance. That’s why we want to check out how his largest positions performed since the end of 2010. Here are Leonard’s favorite positions:
Company | Ticker | Return |
BERKSHIRE HATHAWAY INC DEL | 1.8% | |
STARBUCKS CORP | 14.3% | |
GOLDMAN SACHS GROUP INC | -9.7% | |
BARRY R G CORP OHIO | 5.9% | |
CNA FINL CORP | 13.7% | |
ENERGIZER HLDGS INC | 2.8% | |
JOHNSON & JOHNSON | 7.1% | |
AMERICAN EXPRESS CO | 16.7% | |
US BANCORP DEL | -4.8% | |
WELLS FARGO & CO | -6.6% | |
AUTOMATIC DATA PROCESSING | 18.2% | |
MARKEL CORP | 9.2% | |
CB RICHARD ELLIS GROUP INC | 28.4% | |
PEPSICO INC | 7.7% | |
INTERNATIONAL BUSINESS MACHS | 16.7% | |
GENERAL ELECTRIC CO | 11.6% |
Leonard’s favorite stocks returned 5.7% since the end of 2010, vs. 7.7% for the SPY. He couldn’t beat the market so far this year, but his holdings confirm that he is a long-term investor. He still has SBUX, DFZ, and ENR in his portfolio. He probably as FRFHF in his portfolio too, but he doesn’t have to report those holdings in his 13F filing. Investors who want to imitate Leonard’s holdings can do so relatively easily.
Leonard’s largest position is Warren Buffett’s Berkshire Hathaway. This is pretty common among value investors. Whitney Tilson recently expressed support for Berkshire as well. He thinks investors should focus on the long-term and buy undervalued Berkshire stock at these levels. Leonard’s second largest position is Starbucks, which outperformed the market since the beginning of this year. His third largest position is Goldman Sachs. GS lost nearly 10% so far in 2011. Bruce Berkowitz likes GS as well, he says he would buy more if it was allowed.
Leonard’s smaller positions like CBG, ADP, and AXP performed better but he placed more than 80% of his money in his top 6 picks. It is clear that he makes concentrated bets and he may underperform the market as a result of this. However, his track record implies that he is more right than wrong. So, we will keep following his new trades.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
