Mason Hawkins has been Chairman and CEO of Southeastern Asset Management since 1975, along with managing Longleaf Partners Funds. Longleaf has a simple investing philosophy of buying stakes in companies that have "good business, good people, and a good price." The firm determines a good price based on determining its intrinsic value and buying when it's trading at 60% or less of that number, and simply selling when it reaches that value. The firm typically has concentrated bets generally holding less than 25 stocks and has had stellar returns. Longleaf's 10-year cumulative return as of the end of 2010 is 64%, trouncing the 16% S&P 500 return, while the 20-year cumulative return is equally impressive, returning 921%, while the S&P 500 returned 482%. So, looking at the fund's most recent investment moves, much like we did with this investment great, may gives us some good ideas as I describe below.
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. I brought up recently here the great value ABT has and it looks as though Mr. Hawkins agreed, upping his holdings by more than 400% and now holding just over 11.5M shares. The company still has great value at a 18x trailing P/E, 10x forward P/E, fantastic returns on equity of approximately 20%, massive FCF over $7.5B this past year, and consistently growing 3.6% dividend yield. I'd buy ABT here.
Saks (SKS), together with its subsidiaries, operates fashion retail stores in the United States. This became a new holding of Southeastern and looks like they went in big, owning over 13.6M shares now and making them the largest institutional shareholder. I can see where the value is trading at .4x P/S, .5x EV/S, 6x EV/EBITDA, and 1.1x P/B. However, the company trades at a relatively lofty 24x P/E, weak FCF, and no dividend yield. I'd rather be in the retailer I discussed here showing more value and a solid dividend yield.
Quicksilver Resources (KWK) engages in the acquisition, exploration, development, production, and sale of natural gas, natural gas liquids, and oil onshore in North America. This is another new holding for Mr. Hawkins and he went in big yet again, holding just under 15M shares, making Southeastern among the largest holders of KWK. This energy play has some value at a trailing 3x P/E, 1.2x P/B, and 6.5x EV/EBITDA. However, earnings are expected to plunge with a forward 50x P/E; the company burned about $300M in FCF this past year, and has a heavy debt load exceeding $2B. I don't quite see the value with KWK so I have to stay away for now.
The Bank of New York Mellon Corporation (BK), a financial services company, provides various products and services worldwide. Southeastern added over 18% to their massive stake, bringing total ownership to just under 41M shares. BK, like all other banking stocks, has been struggling greatly, but is one of the few paying a dividend, and a great one at that - just under 3%. Moreover, at just a 9x trailing P/E, 8x forward P/E, .7x PEG and P/B, and relatively strong ROA and ROE of 1% and 8% respectively, I think BK is a buy as well.
Ingersoll-Rand Plc (IR) engages in the design, manufacture, sale, and service of a portfolio of industrial and commercial products. This is a new holding for Southeastern with just over 3.3M shares. IR is poised to rebound as the economy slowly improves and pays investors a decent 1.6% as they wait. At a forward 10x P/E, .6x P/S, .8x PEG and EV/S, and just 6x EV/EBITDA, I think IR is a quality value stock.
The Walt Disney Company (DIS), together with its subsidiaries, operates as an entertainment company worldwide. Southeastern bought DIS aggressively this past quarter, adding almost 30% to their existing large position and now owning 33.6M shares. This world class company is a buy here at just a 14x trailing P/E, 10x forward P/E, .8x PEG, strong FCF of $3.5B this past year, and consistently growing 1.2% dividend yield.
Berkshire Hathaway (BRK.B) is a publicly owned investment manager. Through its subsidiaries, the firm primarily engages in the insurance and reinsurance of property and casualty risks business. This is another new holding for Southeastern, owning a rather small 128,200 shares. This of course is the investment vehicle of investment great Warren Buffett, trading at a historically cheap 1.15x P/B and 16x trailing P/E. In fact, BRK.B recently committed to a $20B share repurchase program that will look to be used anytime the stock closes below 1.1x P/B. With the diversified revenue base, massive $12B in FCF this past year, having arguably the best allocator of capital of all time working for you, and trading so near that 1.1x P/B valuation, I believe BRK.B is a buy as well.