Tracking Tweedy Browne Portfolio - Q2 2018 Update

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Includes: AGCO, ANAT, AVT, AXP, AZO, BAX, BIDU, BK, BRK.A, BRK.B, CKX, CMCSA, COP, CSCO, CTWS, DEO, DVN, EMR, GOOG, GOOGL, GSK, HAL, HEINY, HKHHF, HSBC, JNJ, KHC, KOF, MA, MMM, MRC, MRK, NVS, NWLI, PM, PSX, RDS.A, RDS.B, RHHVF, SAFRF, SAFRY, SHEN, TBCUX, TBGVX, TBHDX, TMK, TOT, TWEBX, UL, UN, UNF, UNP, USB, VZ, WFC, WPP
by: John Vincent
Summary

Tweedy Browne’s 13F portfolio value decreased from $3.27B to $3.22B this quarter.

The largest five individual stock positions are Cisco Systems, Baidu Inc., Berkshire Hathaway, Alphabet, and Johnson & Johnson and they account for ~49% of the portfolio.

Tweedy Browne increased AutoZone while reducing Halliburton and Devon Energy.

This article is part of a series that provides an ongoing analysis of the changes made to Tweedy Browne’s 13F portfolio on a quarterly basis. It is based on Tweedy Browne’s regulatory 13F Form filed on 08/03/2018. Please visit our Tracking Tweedy Browne Portfolio series to get an idea of their investment philosophy and our previous update for the fund’s moves during Q1 2018.

This quarter, Tweedy Browne’s 13F portfolio value decreased marginally from $3.27B to $3.22B. The number of holdings decreased from 46 to 44. The largest position is Cisco Systems at ~12% of the portfolio. Largest five individual stock positions are Cisco Systems, Baidu Inc., Berkshire Hathaway, Alphabet, and Johnson & Johnson. Combined they are at ~49% of the portfolio. 29 of the 44 13F stakes are significantly large (over ~0.5% of the 13F portfolio each) and they are the focus of this article.

Tweedy Browne (TBGVX) (TWEBX) (TBHDX) (TBCUX) has released a number of investment research papers over the years and that is a valuable resource for anyone looking to learn from their value investing philosophy. Also, Christopher Browne authored the book “The Little Book of Value Investing”, a great introduction.

Note: Tweedy Browne’s flagship Tweedy Browne Global Value Fund (TBGVX) has a global orientation with non-US allocation at ~79% of the portfolio and cash at ~11%. The top five holdings are Safran SA (OTCPK:SAFRY) (OTCPK:SAFRF), Heineken Holding (OTCQX:HEINY) (OTCQX:HKHHF), Roche Holding AG (OTCPK:RHHVF), Total SA (TOT), and Diageo plc (DEO). Together, they are at ~17% of the fund. Per Q2 2018 Fund Commentary, the fund returned 0.25% for 2018 YTD compared to 0.02% for MSCI EAFE. Since inception, annualized returns are at 9.30% compared to 6.16% for MSCI EAFE.

New Stakes:

None.

Stake Disposals:

Philip Morris (PM): PM was a 3.40% of the portfolio stake as of Q4 2017. It was established in 2009 at a cost-basis in the high-30s. The following year also saw a ~50% increase in the low-50s price range. Around two-thirds of that original stake was disposed of in 2012 in the high-80s price range. The five quarters thru Q2 2017 had seen another one-third reduction at prices between $88 and $122. Last quarter saw the position almost sold out at prices between $95.50 and $111 and the remainder stake was eliminated this quarter. The stock is now at $86.84. Tweedy Browne harvested gains.

Stake Increases:

AutoZone (AZO): AZO is a 3.74% position purchased in Q3 2017 at prices between $493 and $595 and increased by ~75% this quarter at prices between $596 and $693. The stock currently trades above those ranges at ~$721.

Note: On AZO, Tweedy Browne believed valuations had become depressed due to unreasonable fears that Amazon might disrupt the market for retail auto parts.

Avnet Inc. (AVT) and Verizon Communications (VZ): These small positions (less than ~1% of the 13F portfolio each) saw minor increases this quarter.

Stake Decreases:

Cisco Systems (CSCO): CSCO was a 2.2% of the 13F portfolio position when first established in 2011. It is currently their largest 13F stake at ~12% of the portfolio. The bulk of the current position was purchased in 2012 at prices between $15.50 and $21. Q1 2016 saw a ~45% stake increase at prices between $22.50 and $28.50. The stock currently trades at $42.83. Last nine quarters saw a one-third reduction at prices between $26.50 and $46.

Berkshire Hathaway (BRK.A) (BRK.B): Berkshire Hathaway is a very long-term stake that has been in the portfolio since before the financial crisis. It is currently their second-largest position at ~10.5% of the portfolio. Back in 2009, it was a very small 0.60% of the portfolio position. The bulk of the current stake was purchased in 2010 and 2012 at prices between $65 and $90. Q3 2016 saw a ~42% reduction at prices between $142 and $151 while the pattern reversed in Q4 2016: ~37% increase at prices between $143 and $167. The stock currently trades at $200. There was a ~12% selling in Q4 2017 and that was followed with minor trimming over the last two quarters.

Baidu Inc. (BIDU): BIDU is a top three ~10% portfolio stake purchased in Q1 2017 at prices between $168 and $186 and the stock is now well above that range at ~$236. There was marginal trimming over the last three quarters.

Note: Tweedy Browne’s buy thesis on BIDU is on the idea that 50% margins in the company’s core Search business is being masked by money-losing subsidiaries.

Alphabet Inc. (GOOG) (GOOGL): GOOG is a top-five ~9% position first purchased in 2012 at much lower prices compared to the current trading price of $1224. Q3 2016 saw a ~9% trimming at prices between $692 and $787. There was a very minor ~3% increase in the following quarter and that was followed with marginal trimming over the last six quarters.

Johnson & Johnson (JNJ): JNJ is a large (top five) position in the portfolio at 8.21%. It is a long-term stake. The position was built up from 400K shares to just over 4.3M shares between 2009 and 2012 at prices between $48 and $72. Since then, the stake had seen minor selling in most quarters. Q4 2016 saw a ~20% reduction at prices between $111 and $120 and that was followed with minor trimming over the last six quarters. The share count is now at ~2.18M. The stock currently trades at ~$132. Tweedy Browne is harvesting long-term gains from this position.

Bank of New York Mellon (BK): BK is a large 7.23% stake first purchased in 2010 in the mid-20s price range. Q1 2016 saw a ~40% stake increase at prices between $32.50 and $38. There was a ~11% selling in Q3 2016 at prices between $37 and $42. The stock currently trades at $52.77. Q4 2016 saw a ~4% increase while last six quarters saw minor trimming.

Wells Fargo (WFC): WFC is a fairly large position at 5.63% of the 13F portfolio. The initial stake was established in 2010 with the bulk of the current position purchased in 2011 at prices between $25 and $34. Q3 2016 saw a ~12% reduction at prices between $44 and $51 and that was followed with another ~14% selling the following quarter at prices between $43.50 and $57.50. Last six quarters have also seen minor selling. The stock is now at $58.83.

ConocoPhillips (COP): COP was a minutely small position in 2007. The majority of the current ~1.7M share stake (3.66% of portfolio) was purchased in 2009 at prices between $22 and $40. The stock currently trades at $71.29. The three quarters thru Q3 2016 had seen minor reductions. Q4 2016 saw a ~14% selling at prices between $40.50 and $53. Last year saw another similar trimming at prices between $43 and $56. Tweedy Browne is harvesting long-term gains. There was a ~9% reduction this quarter.

Note: The figures quoted above are adjusted for the May 1, 2012 COP spinoff of Phillips 66 whereby COP shareholders received one share of Phillips 66 for every 2 shares of COP.

MRC Global (MRC): The 3.20% MRC stake was purchased in Q3 & Q4 2015 at prices between $11 and $16. Q3 2016 saw a ~22% selling at prices between $12.50 and $16.50 and that was followed with a ~6% trimming in Q1 2017. Q3 2017 saw a ~15% increase at prices between $15.40 and $17.50. The stock is now at $20.50. There was a ~3% selling in Q4 2017 and that was followed with similar reductions in the last two quarters.

Note: Tweedy Browne controls ~5.2% of MRC Global.

Devon Energy (DVN): DVN is a 2.83% of the 13F portfolio position. The bulk of the stake was purchased in 2012 when around 2.2M shares were acquired at prices between $51 and $75. Q3 2016 saw a ~11% reduction at prices between $36 and $45 and that was followed with a ~9% selling in Q1 2017 at prices between $38.50 and $49. There was another ~11% trimming the following quarter at prices between $30 and $43. The stock currently trades at $43.05. This quarter saw a ~24% reduction at prices between $30 and $43.

3M Company (MMM): MMM is a 2.50% long-term stake first purchased in 2008. The five quarters thru Q2 2017 had seen a combined ~46% reduction at prices between $165 and $213. The stock is now at $207. Tweedy Browne is harvesting huge long-term gains. There was a ~8% selling in Q4 2017 and that was followed with a ~18% reduction last quarter at prices between $215 and $259. There was a marginal ~2% trimming this quarter.

Emerson Electric (EMR): EMR is a long-term 2.27% stake. The position was first purchased in 2008 and doubled the following year at a cost-basis in the low-30s. Around 40% of that original position was sold in 2010 in the low-50s price-range. It had since been further reduced. Q4 2016 saw a ~20% selling at prices between $49 and $58 and that was followed with a ~20% reduction over the last year at prices between $56 and $70. The stock currently trades at $71.48. There was a ~5% trimming last quarter and that was followed with a similar selling this quarter.

Halliburton Company (HAL): HAL is a ~2% of the portfolio stake. It was established in 2012 at prices between $27.50 and $38.50. There had only been very minor adjustments since. Q3 2016 saw a ~20% reduction at prices between $41 and $47 and that was followed with another ~13% selling the following quarter at prices between $44.50 and $55. The stock currently trades at $42.05. This quarter saw a ~53% reduction at prices between $44.50 and $54.

Unilever (UN) (UL): The 1.51% portfolio UN stake saw a one-third increase in Q4 2016 at prices between $38.50 and $46.50 and the stock is now at $57.24. H2 2017 had seen a combined ~17% reduction at prices between $54.50 and $61.50. Last two quarters have seen marginal trimming.

Note: Kraft Heinz (KHC) offered to acquire Unilever in February 2017 but withdrew the offer soon after.

Comcast Corporation (CMCSA): CMCSA is a very long-term stake that has been in the portfolio since before the financial crisis. The stake was reduced by ~11% in Q4 2015 at prices between $28 and $31.50. Q3 2016 saw another ~16% selling at prices between $32.50 and $34. There was a two-thirds reduction in Q4 2017 at prices between $35 and $41. The stock is now at $35.41 and the stake is at 0.64%. Tweedy Browne is harvesting gains. Last two quarters saw marginal trimming.

Note: The prices quoted above are adjusted for the 2-for-1 stock-split in February 2017.

WPP plc (WPP): The 0.54% of the portfolio stake in WPP was established in Q4 2017 and increased by around two-thirds last quarter at prices between $77 and $103. The stock currently trades at $76.14. This quarter saw a marginal reduction.

Note: Tweedy Browne’s Q1 2018 letter discussed this position: they believed the CEO misconduct allegations had caused the shares to be undervalued. Martin Sorrell, the CEO resigned in April.

American Express (AXP), Diageo plc (DEO), Mastercard Inc. (MA), National Western Life (NWLI), Phillips 66 (PSX), Union Pacific (UNP): These small positions (less than ~1.25% of the 13F portfolio each) saw minor reductions this quarter.

Note: The firm has a large stake in Diageo although the 13F position is very small. The rest of the shares are held in the native UK market which is outside the realm of 13F filings.

Kept Steady:

AGCO Corporation (AGCO): AGCO was a minutely small stake as of Q3 2015. The following quarter saw a ~90% increase at prices between $43.50 and $51.50 and that was followed with another ~50% increase in Q1 2016 at prices between $44 and $53.50. The next three quarters had seen another roughly one-third increase at prices between $46.50 and $60. Q3 2017 saw an about turn: ~7% trimming. That was followed with a one-third reduction the following quarter at prices between $65.50 and $75. The stock is currently at $62.55 and the position is at 1.21% of the 13F portfolio. There was a marginal trimming last quarter.

Coca-Cola FEMSA (KOF) and US Bancorp (USB): These are very small (less than ~1% of the portfolio each) stakes kept steady this quarter.

Other minutely small (less than 0.5% of the 13F portfolio each) positions in the 13F portfolio include American National Insurance (ANAT), Baxter International (BAX), CKX Lands (CKX), Connecticut Water Service (CTWS), GlaxoSmithKline (GSK), HSBC Holdings (HSBC), Merck & Company (MRK), Novartis AG (NVS),Royal Dutch Shell (RDS.A) (RDS.B), Shenandoah Tel. (SHEN), Torchmark Corp. (TMK), Total SA (TOT), and UniFirst Corporation (UNF).

Note: GlaxoSmithKline, HSBC, Novartis AG, Royal Dutch Shell, and Total SA are top positions in the firm. Shares in these European businesses are primarily held in their native markets and so are outside the realm of US 13F filings.

The spreadsheet below highlights changes to Tweedy Browne’s 13F stock holdings in Q2 2018:

Tweedy Browne 13F Report - Q2 2018

Disclosure: I am/we are long PM. 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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