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Tracking Wallace Weitz's Weitz Investment Management Portfolio - Q1 2018 Update

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Includes: AGN, AMZN, AON, BRK.B, CFX, DXC, FB, GOOG, KMX, LBRDK, LBTYK, LH, LSXMK, MA, ORCL, RRC, RWT, TUP, V, WEHIX, WPOIX, WPVLX, WVALX
by: John Vincent
Summary

Wallace Weitz's 13F portfolio value decreased marginally from $2.40B to $2.37B. The number of positions decreased from 77 to 75.

Weitz Investment Management added CarMax, Tupperware, and Facebook, while dropping Range Resources.

The top three positions are Berkshire Hathaway, Liberty Broadband, and Liberty Global, and they add up to ~30% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Wallace Weitz’s 13F portfolio on a quarterly basis. It is based on Weitz’s regulatory 13F Form filed on 05/14/2018. 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 Q4 2017.

This quarter, Weitz’s 13F portfolio value decreased marginally from $2.40B to $2.36B. The number of holdings decreased from 77 to 75. The top three positions are at ~30% while the top five holdings are at ~40% of the 13F assets. The largest stake by far is Berkshire Hathaway at ~17% of the 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 (1983 inception) has generated alpha, but the fund is behind the S&P 500 index over the last decade. The current cash allocation is 12.7%: it has come down over the last decade from an average of 19% - they reduced their “hurdle rate” for assuming equity risk from 12% to 9% in Q3 2017 to allow reducing cash allocation to a target of less than 10% of the fund’s assets over time.

Stake Disposals:

Range Resources (NYSE:RRC): The very small 0.58% remainder stake in RRC was disposed this quarter at prices between $12.50 and $18 and the stock currently trades at $15.20. The position goes back to 2012. Weitz commented on the exit in their Q1 2018 letter: they realized losses on the stake - Range’s balance sheet is significantly indebted against a backdrop of unrelenting growth in domestic natural gas supply.

New Stakes:

CarMax Inc. (NYSE:KMX), Facebook (NASDAQ:FB), GCI Liberty (NASDAQ:GLIBA), and Tupperware Brands (NYSE:TUP): These are very small (less than ~1% of the portfolio each) stakes established this quarter. The 1.06% KMX position was purchased at a cost-basis below $60 per share and the stock currently trades at $67.28. TUP is a 0.95% portfolio stake established at prices between $46 and $65.50 and the stock is now below that range at $44.97. The small 0.68% FB position was purchased at prices between $152 and $193 and it now goes for ~$185. The 1.18% GLIBA stake came about as a result of the merger with Liberty Ventures. Weitz had a 1.77% position in Liberty Ventures.

Stake Increases:

Allergan plc (NYSE:AGN): AGN is a top-five 4.77% 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 well below those ranges at $154. The position has wavered. Q1 2017 saw a ~20% selling at prices between $211 and $249 and that was followed with a ~25% increase last quarter at ~$173 per share. For investors attempting to follow Weitz, AGN is a good option to consider for further research. There was a marginal increase this quarter.

Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL): GOOG was a minutely small position first purchased in 2008. The current 4.15% of the 13F portfolio stake was built in 2010 and 2011 at a cost-basis around $250. Recent activity follow: 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 $1,076. Last four quarters have seen only minor adjustments.

Redwood Trust Inc. (NYSE:RWT): RWT is a 3.12% very long-term stake that has been in the portfolio for well over a decade. Recent activity follow: Q1 2016 saw a 16% increase at prices between $9 and $14 while the five quarters through Q3 2017 saw a one-third reduction at prices between $13.25 and $17.35. The stock currently trades at $16.46. There was a ~9% increase last quarter and that followed with a ~6% increase this quarter.

Note: Weitz has a ~6.2% ownership stake in Redwood Trust.

Oracle Corporation (NYSE:ORCL): ORCL is a 2.58% of the 13F 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. There was an about turn in Q3 2016: ~150% increase at prices between $39 and $42. The following quarter also saw a ~20% increase at prices between $38 and $41. The stock currently trades at $47. This quarter saw a ~13% increase at prices between $44.50 and $53.

Colfax Corporation (NYSE:CFX): CFX is a 2.21% 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 in Q3 2017 at prices between $37 and $43. The pattern reversed this quarter: ~18% stake increase at prices between $31 and $42. The stock currently trades at $31.53.

Aon Corp. (NYSE:AON): AON is a ~2% long-term stake from 2010 established in the high-$30s price range. Last five quarters had seen a two-thirds reduction at prices between $107 and $146. It now trades at $142. There was a marginal increase this quarter.

DXC Technology (NYSE:DXC): DXC position was increased by a whopping ~750% in Q3 2017 at prices between $76 an $86. The stock is now well above that range at $94.21. Last two quarters have seen a marginal increase.

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

Axalta Coating Systems (NYSE:AXTA) and Dollar Tree (NASDAQ:DLTR): These two small ~1% positions saw substantial increases this quarter. The 0.97% AXTA stake saw an almost 300% stake increase at prices between $29.50 and $33 and the stock is now at $32.39. The 1.17% DLTR position was increased by ~30% at prices between $89 and $116 and it now goes for $95.18.

Stake Decreases:

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B): Berkshire Hathaway is a very long-term stake and the largest holding in the portfolio at ~17%. 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 $238,100 and $266,013. Last four quarters have seen only very minor adjustments.

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 $290,886.

Liberty Broadband (NASDAQ:LBRDK): LBRDK is a top-three 8.69% of the 13F portfolio stake established in Q4 2014 as a result of the spinoff 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 had seen minor trimming since Q3 2016. It currently trades at $71.29. There was a ~4% trimming this quarter.

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 Inc. (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 5.34%. Last year had seen a ~12% trimming and that was followed with a ~15% reduction this quarter at prices between $30 and $37. The stock is now at $27.80.

Laboratory Corp. of America Holdings (NYSE:LH): LH is a large (top five) ~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 $182. Last year had seen an ~8% trimming and that was followed with a marginal reduction this quarter.

Visa Inc. (NYSE:V): V was a minutely small stake as of Q3 2016. It is now a fairly large ~4% position. The bulk of the buying happened in Q4 2016 at prices between $75 and $83.50. The stock is now at $131. Last four quarters had seen a combined ~9% trimming. This quarter saw a marginal further reduction.

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 $191. Last four quarters had seen a combined ~15% trimming while this quarter saw another ~20% reduction at prices between $151 and $183.

Liberty Sirius (NASDAQ:LSXMA) (NASDAQ:LSXMK): The 3.34% 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. This quarter saw a ~9% trimming.

Qurate Retail Group (NASDAQ:QRTEA) previously Liberty Interactive (QVCA): The original QRTEA position was from 2011 in the mid-teens price range. Recent activity follow: Q1 to Q3 2017 had seen a combined ~23% reduction at prices between $18.50 and $25 and that was followed with a ~50% selling over the last two quarters at prices between $21.50 and $29. The stock is currently at $21.11.

Note: The prices quoted above are adjusted for the CommerceHub (NASDAQ:CHUBA) spinoff in July 2016.

Texas Instruments (NASDAQ:TXN): TXN is a 1.73% of the 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. Recent activity follow: Q4 2014 and Q1 2015 saw a combined ~60% reduction at prices between $52 and $60. 2016 saw a ~40% further selling at prices between $48 and $75. The stock is now at ~$112. There was a ~6% trimming last quarter and that was followed with a ~22% selling this quarter at prices between $98 and $120. Weitz is realizing huge long-term gains.

Twenty-First Century Fox (NASDAQ:FOX): FOX is now a very small 0.71% position. The original position was established in Q4 2014 at prices between $30.50 and $37.50 and built in the following quarters at prices between $24 and $33.50. Q4 2016 saw the pattern reverse: ~20% selling at prices between $24 and $28.50 and that was followed with a similar reduction in the following quarter at prices between $28 and $32. There was another ~30% reduction in Q2 2017 at prices between $26.50 and $32. The stock currently trades at $38.52. Last quarter had seen a ~13% trimming and that was followed with a ~70% selling this quarter at prices between $34 and $38.50.

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: ~20% increase at prices between $44 and $51. The pattern reversed again in Q4 2016: ~40% selling at prices between $43.50 and $57.50. That was followed with a one-third reduction last quarter at prices between $53 and $62. The stock currently trades at $54.90 and the remaining stake is at 1.20% of the portfolio. This quarter saw marginal trimming.

Wesco Aircraft (NYSE:WAIR): WAIR is a 1.13% of the 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 below those ranges at $11.55. Q1 to Q3 2016 saw a combined ~18% reduction at prices between $10 and $15. There was another ~13% selling this quarter at prices between $6.30 and $10.50.

Danaher Corp. (NYSE:DHR): The very small ~1% position was established in Q3 2017 at prices between $79 and $88.50 and increased by ~14% last quarter. The stock is now at $102. This quarter saw marginal trimming. The buy thesis was that Pall & Cepheid acquisition integration along with renewed focus following spin-offs should create value – currently two-thirds of the revenue comes from sticky subscription-like recurring revenues.

Accenture plc (NYSE:ACN), Allison Transmission Holdings (NYSE:ALSN), Amazon.com (NASDAQ:AMZN), Comcast Corporation (NASDAQ:CMCSA), FLIR Systems (NASDAQ:FLIR), Liberty Global LiLac (NASDAQ:LILAK), Monsanto Company (NYSE:MON), Pioneer Natural Resources (NYSE:PXD), Praxair (NYSE:PX), and Thermo Fisher Scientific (NYSE:TMO): These small (less than ~1.5% of the portfolio each) positions saw reductions this quarter.

Note: In December 2016, Linde AG (LNEGY) and Praxair agreed on a merger-of-equals.

Kept Steady:

Discovery Inc. (NASDAQ:DISCA), Diageo plc (NYSE:DEO), Liberty Media Formula One (NASDAQ:FWONK), and XO Group (NYSE:XOXO): These very small (less than ~1% of the portfolio each) positions were kept steady this quarter.

Other very small (less than 0.5% of the portfolio each) positions in the portfolio include Marvell Technology (NASDAQ:MRVL), ACI Worldwide (NASDAQ:ACIW), Anheuser-Busch InBev (NYSE:BUD), Apple Inc. (NASDAQ:AAPL), Booking Holdings (NASDAQ:BKNG), Compass Minerals (NYSE:CMP), Equity Commonwealth (NYSE:EQC), Guidewire Software (NYSE:GWRE), Intelligent Systems Corporation (NYSEMKT:INS), JPMorgan Chase (NYSE:JPM), Liberty Expedia (NASDAQ:LEXEA), Liberty Braves (NASDAQ:BATRK) (NASDAQ:BATRA), Lions Gate Entertainment (NYSE:LGF.A) (NYSE:LGF.B), Markel Corp (NYSE:MKL), Martin Marietta Materials (NYSE:MLM), Murphy USA (NYSE:MUSA), TransDigm Group (NYSE:TDG), and Vulcan Materials (NYSE:VMC). 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 Q1 2018:

Wallace Weitz - Weitz Investment Management - Q1 2018 13F Report

Disclosure: I am/we are long AGN. 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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