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New York-based Third Avenue Management LLC, with $16 billion in assets under management, including $4.8 billion in U.S. equity assets, was founded in 1986 by veteran value investor Martin J. Whitman, and offers mutual funds for individuals, separate accounts for institutions, and alternative investments. The firm’s $4.4 billion Third Avenue Value Investor mutual fund has returned 12.83% annualized since inception in 1990 versus 10.4% for the S&P 500. The $980 million Third Avenue Small-Cap Value mutual fund has returned 16.3% annualized since inception in 2009; the $1.9 billion Third Avenue Real Estate Value mutual fund has returned 17.3% since inception in 2009; the $1.5 billion Third Avenue International Value Fund has returned $12.5% since inception in 2009; and the $1.2 billion Third Avenue Focused Credit mutual fund has returned 15.9% since inception in 2009.
Besides New York, the company has a Singapore office to enhance the firm’s research of international securities. The company follows a disciplined, fundamental value approach to investing, analyzing companies utilizing a bottom-up approach with a focus on balance sheet analysis. It seeks to invest in undervalued securities of companies with high quality assets, understandable businesses and strong management teams that have the potential to create value over the long-term. Chairman and portfolio manager Whitman has written three books on investing, including Value Investing: A Balanced Approach, The Aggressive Conservative Investor and Distress Investing: Principles and Technique.
The fund holds a moderately diversified portfolio of 104 positions, with a third of its holdings each in large-caps, mid-caps and small-cap equities. Its portfolio turnover is 50% implying an average holding period of two years. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that the portfolio is over-weight basic materials (18%), services (19%) and financial (22%) sectors, and it is under-weight consumer non-cyclical (1%), healthcare (2%), capital goods (3%) and energy (13%) sectors, compared to the weighting of these sectors in the overall economy.
The following summarizes its largest new buys and sells in the latest reported 13-F filing for the March 2011 quarter, and updated based on any 13-G filings since the end of the quarter:
  • Services sector: Sell: St. Joe Company (JOE). Third Avenue cut $25 million from its $930 million prior quarter position in the sector. It dropped its $55 million position in JOE, an owner, developer and seller of towns and resorts, residential and commercial real estate, and land primarily in Florida. Third Avenue opened the position in JOE probably in the low-$30s in mid-2010, so dropping this position in the teens last quarter at a significant loss is a sign of conviction in this sell decision. This paper company-turned-real estate developer is now one of Florida’s largest real estate development companies and northwest Florida’s largest private landowner, with approximately 576,000 acres of land. With the real estate market still weak, and probably likely to remain weak (especially in Florida) for the next few years, it is unlikely that the share price of JOE will recover in the near-term. David Einhorn of Greenlight Capital is short JOE based on the low valuation of the company’s Florida land holdings. It values JOE at $7 to $10 a share, or possibly even lower if the company continues down the current path.
  • Basic materials sector: Buy: Westlake Chemical Corp. (WLK). Third Avenue added $20 million to its $850 million prior quarter position in the sector. It cut $21 million from its $78 million position in WLK, a manufacturer of basic chemicals, polymers and fabricated plastic products for consumer and industrial markets worldwide. The WLK position was opened in the $30 range in early 2007; the stock had since dipped into the low-teens in the 2008-09 crisis, so Third Avenue selling a fourth of its position in the $60+ range last quarter was just profit taking. WLK trades at a forward 11 P/E based on fiscal year December 2011 earnings, near the bottom of its historical P/E trading range. The company has been beating analyst estimates by wide margins in recent quarters of between 23c and 52c, reporting earnings an average of 50% higher than analyst estimates in recent quarters. The stock is down 25% from its recent peak just six weeks ago, and we would look at the recent correction as an opportunity to buy into this cyclical story stock.
  • Technology sector: Buy: Mantech International Corp. (MANT) and Buy: Tellabs Inc. (TLAB). Third Avenue added $17 million to its $640 million prior quarter position in the sector. It cut $11 million from its $148 million position in telecommunications bandwidth management solutions provider Sycamore Networks Inc. (OTCQB:SCMR), added $14 million to its $89 million position in telecommunications networking products provider TLAB, and added a new $19 million position in MANT, a provider of information technology services for the intelligence community, department of defense and other agencies. MANT trades at a forward P/E of 11, at the bottom of its historic P/E trading range while earnings are projected to continue modest growth in the high-single to double-digit rates going forward. This is a secular growth story that is undervalued; the company earnings continued its upward growth trajectory through the 2008-09 crisis, and shares are currently trading only a modest 30% higher than the 2008-09 lows while the S&P has almost doubled. The stock is basing in the low-$40s, and we would buy it here. The position in TLAB was opened in the $9 range at the end of 2004, so adding more in the $4-5 range last quarter is a sign of high conviction in its buy decision. TLAB has over $1.1 billion in net cash available, after paying short-term debt, so at its current $1.6 billion market-cap it is trading at only four times the least annual cash flow of $133 million that it generated during the 2008-09 crisis. The stock has dropped from $14+ in early 2006 to a $4 range, while revenues have dropped 25% from peak levels in 2005-06 and are projected to grow in the single digits going forward; margins are expected to remain under pressure. We believe that current prices make TLAB a value buy in the $4 range, as there is downside protection from the net cash position while there is significant upside from current levels if the company outperforms going forward.
Table
Company
Ticker
Action
Market Value at end of March 2011 Quarter
Change in Value from Prior Quarter
Percent of Portfolio
Percent Shares Owned
New 13G 5% Ownership Filing Since End of March 2011 Quarter
Bronco Drilling Co.
Drop
$0 million
($57) million
0.0%
0.0%
Sycamore Networks Inc.
SCMR
Cut
$108 million
($28) million
2.56%
19.44%
Catalyst Paper Corp.
New
$23 million
$23 million
0.44%
32.3%
Top Buys and Sells
Cimarex Energy Co.
Cut
$ 3 million
($242) million
0.06%
0.03%
St Joe Co.
JOE
Drop
$ 0 million
($55) million
0.00%
0.00%
Kinross Gold Corp.
Add
$ 44 million
$26 million
0.83%
0.25%
Brookfield Asset Mgmt Inc.
Cut
$ 448 million
($24) million
8.44%
2.21%
Westlake Chemicals Corp.
WLK
Cut
$ 57 million
($21) million
1.07%
1.52%
Encana Corp.
Add
$ 168 million
$19 million
3.17%
0.66%
Mantech Intl Corp.
MANT
New
$ 19 million
$19 million
0.36%
1.93%
Tidewater Inc.
Cut
$ 39 million
($17) million
0.74%
1.27%
First Industrial Realty Trust
Add
$ 39 million
$16 million
0.73%
4.16%
Pioneer Drilling Co.
PDC
Cut
$ 14 million
($15) million
0.26%
1.84%
Bronco Drilling Co.
Cut
$ 57 million
($15) million
1.07%
17.51%
Tellabs Inc.
TLAB
Add
$ 103 million
$14 million
1.95%
5.43%
Seacor Holdings Inc.
New
$ 12 million
$12 million
0.23%
0.61%
Sycamore Networks Inc.
SCMR
Cut
$ 136 million
($11) million
2.56%
19.44%
Top Holdings
Posco
Add
$ 500 million
$1 million
9.41%
1.25%
Forest City Enterprises Inc.
FCEA
Cut
$ 348 million
($1) million
6.91%
13.46%
Nabors Industries Ltd.
Same
$ 341 million
$0 million
6.42%
3.90%
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: Third Avenue Mutual Funds' Significant Holdings