Tracking Lou Simpson's SQ Advisors Portfolio - Q2 2018 Update

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Includes: AAPL, ALSN, AXTA, BAM, BBU, BRK.A, BRK.B, CABO, CHTR, HXL, KMX, LBRDK, LBTYK, SBAC, SCHW, ST, TYL
by: John Vincent
Summary

Lou Simpson's 13F portfolio value increased from $2.93B to $2.95B this quarter.

Simpson increased Liberty Broadband while dropping Charter Communications.

SQ Advisors has just eleven positions. The top three holdings are CarMax, Allison Transmission, and Brookfield Asset Management, and they add up to ~36% of the entire portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Lou Simpson's 13F portfolio on a quarterly basis. It is based on Simpson's regulatory 13F Form filed on 08/14/2018. Please visit our Tracking Lou Simpson's SQL Advisors Portfolio series to get an idea of his investment philosophy and our previous update for the fund's moves during Q1 2018.

This quarter, Simpson's 13F portfolio value increased marginally from $2.93B to $2.95B. The number of holdings decreased from 15 to 11. The top five positions represent ~57% of the 13F assets: CarMax (NYSE:KMX), Allison Transmission (NYSE:ALSN), Brookfield Asset Management (NYSE:BAM), Liberty Broadband (NASDAQ:LBRDK), and Charles Schwab (NYSE:SCHW).

Since inception in 2011, SQ Advisors have held a very concentrated portfolio of 10 to 15 positions. Lou Simpson classifies his investing philosophy as being more in the "scuttlebutt" mold. To know more about that investing style, check out the book Common Stocks and Uncommon Profits and Other Writings.

New Stakes:

None.

Stake Disposals:

Charter Communications (CHTR): CHTR was a 6.63% portfolio stake established in Q4 2017 at prices between $316 and $371 and the stock currently trades well below that range at $299.64. The disposal this quarter was at prices between $261 and $318.

Axalta Coating Systems (AXTA): AXTA was a fairly large ~8% of the portfolio stake established in Q3 2016 at prices between $26 and $29 and increased by ~45% since at prices between $24.50 and $36. It was almost sold out last quarter at prices between $30 and $33. The minutely small remainder stake was disposed this quarter. The stock is now at $30.03.

Hexcel Corporation (HXL): HXL was a 2.42% portfolio stake established in Q4 2016 at prices between $42 and $55 and increased by two-thirds in the following two quarters at prices between $49.50 and $55.50. The position was sold down by ~55% in Q4 2017 at prices between $57 and $64. The stock is now at $67.88. Last quarter saw the stake almost eliminated at prices between $61.50 and $69 and the remaining minutely small position was sold this quarter.

SBA Communications (SBAC): SBAC was a ~6% of the portfolio position purchased in Q1 2017 at prices between $103 and $121. The position was almost sold out last quarter at prices between $153 and $175. The remaining stake was disposed this quarter. The stock currently trades at ~$158.

Note: SBA Communications did an REIT conversion transaction in January 2017 - the deal was structured as a merger with its REIT subsidiary.

Stake Decreases:

CarMax Inc.: KMX is currently the largest 13F stake at 12.20% of the portfolio. It was established last quarter at prices between $59.50 and $72.50 and the stock currently trades just above that range at $73.63. There was marginal trimming this quarter.

Allison Transmission Holdings: ALSN is now the second-largest position at 12.14% of the portfolio. It was first purchased in Q2 2016 at prices between $26 and $29 and increased by ~30% the following quarter at prices between $26.50 and $30.50. There was a ~17% trimming in Q4 2016 at prices between $27 and $35. Q3 2017 saw a ~45% increase at prices between $33 and $39. The stock is currently at $47.83. There was a ~24% increase last quarter at prices between $37.50 and $45.50. This quarter saw marginal trimming.

Note: SQ Advisors has a ~6.5% ownership stake in Allison Transmission Holdings.

Brookfield Asset Management: BAM is the third-largest position at 12.07% of the portfolio. The original position is from Q2 2012 at prices between $17.50 and $21.50. Q1 2015 saw a ~50% increase at prices between $32.50 and $36.50 and the following quarter saw a further ~60% increase at prices between $34 and $38. Q3 2015 also saw another ~25% increase at prices between $29.50 and $36. There was an about turn in 2016: ~40% overall reduction at prices between $27.50 and $36. The stock currently trades at $43.98. There was a ~15% stake increase last quarter at prices between $38 and $44. This quarter saw marginal trimming.

Note: BAM stock split 3-for-2 on May 11, 2015. Also, Brookfield Business Partners (BBU) was spun off in July 2016. The prices quoted above are adjusted for those transactions.

Charles Schwab: SCHW stake was increased by ~50% during the period from Q4 2011 to Q4 2013 at prices between $11 and $26. Q1 2014 saw an about turn as the stake was reduced by 20% at prices between $23.50 and $28.50. The following five quarters saw a combined ~80% increase at prices between $25 and $33.50. There was a ~40% selling in Q4 2016 at prices between $31 and $40.50. The stock currently trades at $50.90. The position is now at ~10% of the portfolio. There was a ~8% selling in Q1 2017 and a ~6% further reduction over the last five quarters. Simpson is starting to harvest gains.

Cable One Inc. (CABO): CABO was a very small 0.78% stake established in Q3 2016. The following quarter saw a huge ~550% increase at prices between $570 and $624. Q4 2017 saw another ~55% stake increase at prices between $664 and $759. The stock currently trades above those ranges at $788. The stake is now at ~9% of the portfolio. Last two quarters have seen only marginal activity.

Note: SQ Advisors has a ~6.4% ownership stake in Cable One.

Liberty Global: LBTYK is a large ~8% of the portfolio position. It was established in Q3 2014 at prices between $40 and $43. Q3 2015 saw a ~60% increase at prices between $41 and $51. Q2 2017 also saw a ~16% increase at prices between $27.85 and $35. The stock currently trades well below those ranges at $25.83. For investors attempting to follow SQ Advisors, Liberty Global is a good option to consider for further research. There was a ~4% trimming this quarter.

Apple Inc. (AAPL) and Tyler Technologies (TYL): These two positions were established in Q4 2016. AAPL is a 7.54% portfolio stake purchased at prices between $106 and $118 and the stock is now well above that range at ~$218. The 6.52% TYL position was purchased at prices between $141 and $171 and increased by ~27% over the next two quarters at prices between $143 and $177. It currently goes for $235. Both positions saw minor ~3% reductions over the last two quarters.

Berkshire Hathaway (BRK.A) (BRK.B): BRK.B is a 4.59% of the portfolio position. The original stake was increased by roughly 40% in Q1 2012 at prices between $76 and $82. The period through 2015 saw a stake doubling at higher prices. 2016 saw an about turn: one-third overall reduction at prices between $126 and $166. Last year had also seen a combined ~45% further selling at prices between $160 and $200. There was another ~23% selling last quarter at prices between $191 and $217. The stock is now at ~$208. This quarter saw a ~9% trimming at prices between $185 and $201.

Stake Increases:

Liberty Broadband: The large (top five) ~11% LBRDK position was purchased in Q4 2017 at prices between $81 and $98 and increased by ~310% last quarter at prices between $86.50 and $97. The stock is now at $78.98. There was a ~160% increase this quarter at prices between $69 and $85. For investors attempting to follow SQ Advisors, Liberty Broadband is a good option to consider for further research.

Note: The 6.63% portfolio stake in Charter Communications was eliminated this quarter and so the net position in Liberty Broadband/Charter stayed relatively constant. Liberty Broadband is a Charter proxy whose principal assets are a 22% ownership stake in Charter Communications and the subsidiary Skyhook (previously TruePosition).

Sensata Technologies (ST): ST is a 6.73% portfolio position purchased in Q3 2016 at prices between $34.50 and $40 and increased by ~70% since at prices between $36 and $53. The stock currently trades at $55.06. There was a ~8% increase this quarter.

The spreadsheet below highlights changes to Simpson's US stock holdings in Q2 2018:

Lou Simpson - SQ Advisors - Q2 2018 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.