Tracking Wallace Weitz's Weitz Investment Management Portfolio - Q3 2017 Update

| About: Weitz Funds (WEHIX)

Summary

Wallace Weitz's 13F portfolio value increased from $2.32B to $2.43B. The number of positions increased from 74 to 79.

Weitz Investment Management added Danaher and increased DXC Technology during the quarter.

The top three positions are Berkshire Hathaway, Liberty Broadband, and Liberty Global, and they add up to ~29% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Wallace Weitz’s US stock portfolio on a quarterly basis. It is based on Weitz’s regulatory 13F Form filed on 11/13/2017. Please visit our Tracking Wallace Weitz’s Weitz Investment Management Portfolio article for an idea on his investment philosophy and our last update for the fund’s moves during Q2 2017.

This quarter, Weitz’s US long portfolio value increased ~5%, from $2.32B to $2.43B. The number of holdings increased from 74 to 79. The top three positions are at 29.38%, while the top five holdings are at 38.52% of the US long assets. The largest stake by far is Berkshire Hathaway (BRK.A, BRK.B) at ~13% of the US long portfolio.

Weitz Investment Management’s equity funds are Weitz Partners Value Fund (MUTF:WPVLX), Weitz Value Fund (MUTF:WVALX), Weitz Partners III Opportunity Fund (MUTF:WPOIX), and Weitz Hickory Fund (MUTF:WEHIX). Over the long term, the flagship Weitz Partners Value Fund (inception 1983) has generated alpha, but the fund is behind the S&P 500 index over the last decade. The current cash allocation is 17%: over the past decade, cash has averaged 19%. They reduced their “hurdle rate” for assuming equity risk from 12% to 9% last quarter to allow reducing cash allocation to a target of less than 10% of the fund’s assets over time.

New Stakes

Danaher Corp. (NYSE:DHR): The very small ~0.75% position was established at prices between $79 and $88.50, and the stock is now above that range at $94.18. The buy thesis was that the Pall & Cepheid acquisition integration, along with renewed focus following spin-offs, should create value. Currently, two-thirds of the revenue come from sticky, subscription-like recurring revenues.

Stake Increases

Berkshire Hathaway: Berkshire Hathaway is a very long-term stake and the largest holding in the portfolio at ~13%. Q4 2016 saw a ~15% selling at prices between $214,520 and $249,711, and that was followed with a ~6% trimming the following quarter at prices between $238100 and $266,013. This quarter saw a marginal increase.

Note: Wallace Weitz is known to have owned Berkshire Hathaway stock continuously since 1976, riding it from around $300 per share to the current price of $275,000.

Allergan plc (NYSE:AGN): AGN is a top-five 4.41% of the portfolio position established in Q3 2015 at prices between $252 and $340. Q1 2016 saw a ~55% stake increase at prices between $266 and $313. The position was almost doubled in Q2 2016 at prices between $202 and $278. The stock currently trades at $171. There was an about-turn in Q1 2017: ~20% sold at prices between $211 and $249. Last quarter saw a ~6% trimming, while this quarter there was a ~9% increase - the trimming was at ~$250, while the increase was at ~$205.

DXC Technology (NYSE:DXC): The DXC position was increased by a whopping ~750% this quarter to a 1.57% portfolio stake at prices between $76 and $86. The stock is now above that range at $99.02.

Note: The buy thesis is on the idea that CEO Mike Lawrie achieved cost synergies while at CSC, and a similar playbook is planned for the integration of the Hewlett Packard Enterprise (NYSE:HPE) services business. The business is trading at 10x estimated 2019 free cash flow, which offers good value.

Wesco Aircraft (NYSE:WAIR): WAIR is a 1.15% of the US long portfolio position built up over the last three quarters of 2014 at prices between $13.50 and $22. Q3 2015 saw a ~20% increase at prices between $12 and $15.50. The stock currently trades well below those ranges at $8. Q1 to Q3 2016 saw a combined ~18% reduction at prices between $10 and $15. Last quarter saw a ~5% increase, while this quarter there was a marginal further increase.

Allison Transmission Holdings (NYSE:ALSN), Pioneer Natural Resources (NYSE:PXD), and Thermo Fisher Scientific (NYSE:TMO): These very small (less than ~1% of the portfolio each) positions were increased this quarter.

Note: With Pioneer Natural Resources, the ~11% stake increase in early August was at ~$130 per share. Currently, the stock is at $152. The thesis was that despite setbacks, their 10-year plan should create shareholder value in a $40-60 oil price environment.

Stake Decreases

Liberty Broadband (NASDAQ:LBRDA): LBRDA is a top-three ~10% of the US long portfolio stake established in Q4 2014 as a result of the spin-off of Liberty Broadband from Liberty Media. Liberty Media shareholders received one share of LBRDA for every four shares of Liberty Media held. In Q1 2015, there was a ~60% increase at prices between $44.50 and $56.50. Q1 2016 saw another ~24% increase at prices between $44 and $59. The position has seen minor trimming since Q3 2016. The ~3% trimming this quarter was at prices above $100. It currently trades at $88.15.

Note: Weitz believes Liberty Broadband offers a cheaper way to invest in Charter’s (NASDAQ:CHTR) strategy (integration of Time Warner Cable and Bright House acquisitions to drive growth over the next few years).

Liberty Global PLC (NASDAQ:LBTYK): Liberty Global is a long-term holding that has been in the portfolio for more than a decade. It is currently the third-largest position at 6.61%. This year has seen a combined ~12% trimming.

Laboratory Corp. of America Holdings (NYSE:LH): LH is a ~5% very long-term stake. The bulk of the position was built in the 2008-2010 time frame at lower prices. The stock currently trades at $153. YTD has seen an ~8% trimming.

MasterCard Inc. (NYSE:MA): MA is a ~4% stake established in Q4 2014 at prices between $70 and $89. Q3 2015 and Q1 2016 saw a stake doubling at prices between $80 and $98. The following two quarters had also seen a ~20% further increase at prices between $87 and $102. The stock currently trades well above those ranges at $153. The past three quarters have seen a combined ~11% trimming.

Alphabet Inc. (GOOG, GOOGL): GOOG was a minutely small position first purchased in 2008. The current 3.77% of the US long portfolio stake was built in 2010 and 2011 at a cost basis around $250. In recent activity, Q4 2015 saw a ~40% reduction at prices between $608 and $777. The three quarters through Q1 2017 had also seen a ~10% selling at prices between $692 and $836. The stock currently trades at $1035. Weitz is harvesting huge long-term gains. The past two quarters have seen marginal further reductions.

Liberty Sirius (LSXMA, LSXMK): The 3.67% of the portfolio stake in Liberty Sirius stock came about as a result of Liberty Media’s recapitalization into three tracking stocks in April last year. The position was reduced by around two-thirds since.

Visa Inc. (NYSE:V): V was a minutely small stake as of Q3 2016. Q4 2016 saw a ~3% position built at prices between $75 and $83.50. The stock is now at $111. The past three quarters saw a combined ~8% trimming.

Liberty Interactive (NASDAQ:QVCA): The original QVCA position was from 2011 in the mid-teens price range. In recent activity, the past three quarters have seen a combined ~23% reduction at prices between $18.50 and $25. The stock is currently at $25.14.

Note: The prices quoted above are adjusted for the CommerceHub spin-off in July 2016.

Redwood Trust Inc. (NYSE:RWT): RWT is a ~3% very long-term stake that has been in the portfolio for well over a decade. In recent activity, Q1 2016 saw a 16% increase at prices between $9 and $14, while the past four quarters saw a ~45% reduction at prices between $13 and $17. The stock currently trades at $15.01. There was a ~3% trimming this quarter.

Note: Weitz has a ~5.4% ownership stake in Redwood Trust.

Colfax Corporation (NYSE:CFX): CFX is a 2.43% of the 13F portfolio stake. The position was established in Q4 2015 at prices between $22 and $32 and increased by ~11% in Q1 2016 at prices between $19 and $30. The three quarters through Q1 2017 had seen a combined ~20% selling at prices between $26 and $41. There was another ~17% reduction this quarter at prices between $37 and $43. The stock currently trades at $36.30. Weitz is harvesting gains.

Oracle Corporation (NYSE:ORCL): ORCL is a 2.30% of the US long portfolio stake. The original position was from Q4 2013, when around 1.75M shares were purchased at prices between $33 and $38. It was reduced by around one-third in Q4 2014 at prices between $37.50 and $46.50. Q4 2015 saw another ~70% reduction at prices between $36 and $41. Q3 2016 saw an about-turn: a ~150% increase at prices between $39 and $42. There was another ~20% increase the following quarter at prices between $38 and $41. The stock currently trades at $48.63. YTD, it has seen a ~9% trimming.

Twenty-First Century Fox (NASDAQ:FOX): FOX is a ~2% position established in Q4 2014 at prices between $30.50 and $37.50 and built at prices between $24 and $33.50. Q4 2016 saw the pattern reverse: a ~20% selling at prices between $24 and $28.50, and that was followed with another ~20% selling the following quarter at prices between $28 and $32. There was another ~30% reduction last quarter at prices between $26.50 and $32. The stock currently trades at $30.10. This quarter saw marginal trimming.

Texas Instruments (NYSE:TXN): TXN is a ~2% of the US long portfolio stake first purchased in 2010 in the mid-$20s price range. The majority of that position was eliminated in 2011 in the low $30s price range. In 2012, the stake was built back up in the high $20s price range. In recent activity, Q4 2014 and Q1 2015 saw a combined ~60% reduction at prices between $52 and $60. Last year saw a ~40% further selling at prices between $48 and $75. The stock is now at $99.19. Weitz is realizing huge long-term gains. There was a marginal reduction over the past two quarters.

AON plc (NYSE:AON): AON is a ~2% long-term stake from 2010 established in the high $30s price range. The past five quarters saw a two-thirds reduction at prices between $107 and $146. It now trades at $141. Weitz is realizing long-term gains.

Wells Fargo (NYSE:WFC): WFC was first established in Q2 2011, when around 3.5M shares were purchased in the high $20s price range. The position was since reduced by ~50% at prices between $54 and $58. Q3 2016 saw an about-turn: a ~20% increase at prices between $44 and $51. The pattern reversed again in Q4 2016: a ~40% selling at prices between $43.50 and $57.50. The stock currently trades at $54.52, and the remaining stake is at ~1.90% of the US long portfolio. The past two quarters have seen marginal reductions.

Discovery Communications (NASDAQ:DISCA), FLIR Systems (NASDAQ:FLIR), Liberty Global LiLac (NASDAQ:LILAK), Monsanto Company (NYSE:MON), and Range Resources (NYSE:RRC): These small (less than ~1.5% of the portfolio each) positions saw reductions this quarter.

Kept Steady

Liberty Ventures (NASDAQ:LVNTA): The 1.86% Liberty Ventures stake was established in Q2 2016 at prices between $34.50 and $40.50, and the stock is now well above that range at $58.45. Q4 2016 saw a ~20% selling at prices between $36.50 and $41.

Accenture PLC (NYSE:ACN), Comcast Corporation (NASDAQ:CMCSA), Diageo plc (NYSE:DEO), Dollar Tree (NASDAQ:DLTR), Liberty Expedia (NASDAQ:LEXEA), Liberty Media Formula One (FWONA, OTCQB:FWONB), Praxair (NYSE:PX), United Parcel Service (NYSE:UPS), and XO Group (NYSE:XOXO): These very small (less than ~1% of the portfolio each) positions remained steady this quarter.

Note 1: Weitz still controls ~3% of XO Group.

Note 2: Last December, Linde AG (OTCPK:LNEGY) and Praxair agreed on a merger of equals.

Note 3: Dollar Tree is a new position this year. Their investment thesis is based on the belief that Dollar Tree has many avenues of value creation through Family Dollar.

Other very small (less than 0.5% of the portfolio each) positions in the portfolio include ACI Worldwide (NASDAQ:ACIW), Anheuser-Busch InBev (NYSE:BUD), Amazon.com (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Axalta Coating (NYSE:AXTA), CommerceHub Inc. (CHUBK, CHUBA), Compass Minerals (NYSE:CMP), CVS Health (NYSE:CVS), Dollar General (NYSE:DG), Equity Commonwealth (NYSE:EQC), Guidewire Software (NYSE:GWRE), Halliburton Company (NYSE:HAL), Intelligent Systems Corporation (NYSEMKT:INS), Liberty Braves (BATRK, BATRA), Lions Gate Entertainment (LGF.A, LGF.B), Manitowoc Inc. (NYSE:MTW), Martin Marietta Materials (NYSE:MLM), Murphy USA (NYSE:MUSA), National CineMedia (NASDAQ:NCMI), and Willis Towers Watson (NASDAQ:WLTW). They also have minutely small positions in a bunch of index ETFs.

Note: Weitz controls ~26% of Intelligent Systems Corporation.

The spreadsheet below highlights changes to Weitz’s US stock holdings in Q3 2017:

Wallace Weitz - Weitz Investment Management - Q3 2017 13F Report

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

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