February 16, 2015 is the deadline for the form 13Fs filing by money managers and hedge funds. Following the classification of John Mihaljevic's book "The Manual of Ideas: The Proven Framework for Finding the Best Value Investments" we have divided 60 company filings in the following broad classification:
- Large-Cap Value Investors
- Mid-Cap Value Investors
- Small-Cap Value Investors
- Graham-Style Deep Value Investors
- Buffett/Greenblatt-Style Quality Value Investors
- Highly Concentrated Portfolios
Each group consists of 10 superinvestors. On top of that list we have selected an additional 20 filers worth following. For each of them, we have collected their SEC filings, parsed them and aggregated the data in order to extract the high-conviction picks of Q4 2015. There are several websites that track the changes in the superinvestors portfolio via the SEC Filings, for instance, gurufocus.com and whalewisdom.com, but when you employ an automatic parsing to create reports significant errors can happens at times, so we decided to manually parse ourselves the original filings. Most of the time, those errors are not a matter of negligence. What makes automatic parsing prone to errors is the filing process itself: investors manually type the name of the securities filed and their classification, additionally, the only identifier provided is the CUSIP. The mapping between such identifier and the actual traded company is not public and it is subject to change over time. Fidelity and few other websites provide the possibility to map single CUSIP numbers for free, but a very high percentage of CUSIP numbers filed by investors does not return any value in the Fidelity form. So we decided to go for a manual check of all CUSIP and company names within the filings.
For each filer (you can find the full list of filers included into this analysis here), we have parsed the form data and we have extracted useful metrics to identify high-conviction ideas:
- Position size within the aggregated superinvestor portfolio
- Percentage variation of the position size
- Type of change in the number of shares: new, sold out, increased or decreased position
We have created a ranking for 1. and 2. and filter out with 3. the positions where the cumulated number of shares where reduced or sold out.
In other words, the securities with the biggest position size are the ones driving the performance of the portfolio, and when such positions experience a consistent percentage increase because of new shares added, then we are in front of an high-conviction pick.
As last step, we have aggregated the data to find out how many investors hold a specific stock in their portfolio, and the average high-conviction rank of the stock among the holders.
The results of this analysis are the following.
In Exhibit 1 you can see the most common held stocks among our universe of value investors. The first column tells you how many filer have a stock in their portfolio, the "Average Rank" column is our custom high-conviction ranking. The "buy and sell trades" columns tell you what percentage of the traded shares where bought or sold. The "% Share Traded" tells you the ratio between the share traded and the overall share held in the aggregated portfolio for the last quarter and the last column tell you what % of the portfolio value is in each stock. The use of relative values allow us not to overstate the weight of large-cap investors.
We can see that Alphabet Inc. (GOOG, GOOGL) is the most striking addition that is gaining momentum among many value investors. Almost all of the trades on GOOG have been buy trades and the high value of % shares traded tell you that this is not a consolidation of an existing position but the creation of a new relevant position on the aggregate portfolio. The overall position weight is still modest, but the increase and the number of investors buying the stock are relevant. Some of them have a high exposure, for instance Southeastern Asset Management has more than 8% of the portfolio in GOOG.
CVS Health Corporation (NYSE:CVS), Comcast Corporation (NASDAQ:CMCSA) and American International Group, Inc. (NYSE:AIG) are stocks that are gaining momentum between value investors, as well, but they fail to rank high on our high-conviction score because they still represent only a very small portion of the portfolio of the investors that are holding them.
Among the positions under consolidation (high ratio of buy to sell trades with low % of share traded), we have Berkshire B shares (NYSE:BRK.B), Wells Fargo (NYSE:WFC) , JP Morgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C).
Among the ones under sell pressure, we have Microsoft (NASDAQ:MSFT), The Bank of New York Mellon Corporation (NYSE:BK), Visa (NYSE:V), Bank of America Corporation (NYSE:BAC) and U.S. Bancorp (NYSE:USB).
In Exhibit 2, we further filter our sample results for % of portfolio greater than 1% and for stocks held by at least 4 value investors.
Excluding the stocks previously discussed, we see that Apple (NASDAQ:AAPL) had an high volume of sell orders among value investors as well. The Kraft Heinz Company (NASDAQ:KHC) and The Coca-Cola Company (NYSE:KO) had almost unanimous sell orders but with low conviction given that we are talking about small volume of share traded versus the shares held in the securities.
More interesting picks are Oracle (NYSE:ORCL) that continues to be a target for value investor and Valeant Pharmaceuticals International, Inc. (NYSE:VRX) that is an opportunistic and contrarian play that registered a high consensus on the buy side. Pershing Square Capital Management has a minimum price ticket on VRX of $ 180, but they are the only ones that reduced their position in the last quarter among our superinvestor list. Almost all the VRX holders have committed a high percentage of their portfolio to it as shown on Exhibit 3.
We have seen that Alphabet Inc. (GOOG, GOOGL) and Valeant Pharmaceuticals International, Inc. are among the highest conviction ideas of value investors during Q4 2015.
Additionally, CVS Health Corporation , Comcast Corporation and American International Group, Inc. are stocks that may deserve additional inquire by investors and may increase in the coming quarters within value investors' portfolios.
The most distinguished losers in Q4 2015 are the tech giants: Microsoft and Apple and the financial sector stocks: The Bank of New York Mellon Corporation, Visa, Bank of America Corporation, U.S. Bancorp.
In the authors' opinion, among the winners VRX and AIG are probably undervalued while GOOG, CVS, CMCSA are pretty fairly valued at current prices.
Among the losers, we see MSFT as fairly valued and with no significant catalyst in the short-term, V, BK, BAC, USB and AAPL as potentially undervalued and worth a deeper analysis.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.