Tracking Wallace Weitz's Weitz Investment Management Portfolio - Q3 2018 Update

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Includes: AAPL, ACIW, ACN, AGN, AMZN, AON, AXTA, BATRA, BATRK, BKNG, BRK.A, BRK.B, BUD, CFX, CHTR, CHUBA, CMCSA, CMP, DEO, DHR, DISCA, DLTR, DXC, EQC, FB, FBHS, FOX, FWONA, FWONB, GLIBA, GOOG, GOOGL, GWRE, INS, JPM, KMX, LBRDK, LBTYK, LEXEA, LGF.A, LGF.B, LH, LILAK, LSXMA, LSXMK, MA, MDLZ, MHK, MKL, MLM, MRVL, MSFT, MUSA, ORCL, PRSP, PX, QRTEA, RWT, SCHW, SUM, TDG, TMO, TUP, TXN, V, VMC, WAIR, WEHIX, WFC, WPOIX, WPVLX, WVALX
by: John Vincent
Summary

Wallace Weitz's 13F portfolio value increased from $2.35B to $2.46B this quarter. The number of positions remained steady at 79.

Weitz Investment Management increased Facebook and added Charles Schwab during the quarter.

The top three positions are Berkshire Hathaway, Liberty Broadband, and Liberty Global and they add up to ~28% 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 11/13/2018. 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 Q2 2018.

This quarter, Weitz’s 13F portfolio value increased 4.43% from $2.35B to $2.45B. The number of holdings remained steady at 79. The top three positions are at ~28% while the top five holdings are at ~37% of the 13F assets. The largest stake by far is Berkshire Hathaway at ~15% of the portfolio.

Weitz Investment Management’s equity funds are Weitz Partners Value Fund (WPVLX), Weitz Value Fund (WVALX), Weitz Partners III Opportunity Fund (WPOIX), and Weitz Hickory Fund (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 9.5%: 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:

None.

New Stakes:

Charles Schwab (SCHW): SCHW is a 1.68% portfolio stake established this quarter at prices between $49 and $54 and the stock currently trades below that range at $45.33. For investors attempting to follow Weitz, SCHW is a good option to consider for further research.

Note: The Q3 commentary had the following regarding SCHW: they are consistently able to achieve market-share growth as they are one of the businesses that share benefits of scale with their customers. Weitz conservatively estimates intrinsic value to be in the 60s.

Stake Increases:

Liberty Global PLC (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 4.97%. Last year had seen a ~12% trimming and that was followed with a ~15% reduction in Q1 2018 at prices between $30 and $37. The stock is now at $24.58. There was a ~5% increase this quarter.

Alphabet Inc. (GOOG) (GOOGL): GOOG was a minutely small position first purchased in 2008. The current 4.65% of the 13F portfolio stake was built in 2010 and 2011 at a cost-basis around $250. Recent activity follows: Q4 2015 saw a ~40% reduction at prices between $608 and $777. The three quarters thru Q1 2017 had also seen a ~10% selling at prices between $692 and $836. The stock currently trades at $1044. Last six quarters have seen only minor adjustments.

CarMax Inc. (KMX) and Facebook (FB): These two stakes established in Q1 2018 were increased over the last two quarters. The ~2% KMX position was purchased at a cost-basis below $60 per share and increased by ~45% last quarter at prices between $59 and $80. The stock currently trades at $64.65. This quarter also saw a ~10% increase. The 2.55% FB position was purchased at prices between $152 and $193 and increased by ~175% last quarter at prices between $155 and $202. There was another ~35% increase this quarter at prices between $160 and $218. The stock is now at $135. For investors attempting to follow, FB and KMX are good options to consider for further research.

Note: Their 3rd quarter commentary had the following on Facebook: although there are challenges, the digital properties (Facebook, WhatsApp, Instagram, and Messenger) are uniquely valuable – never have advertisers of all sizes been able to attain such a specific reach.

DXC Technology (DXC): DXC position was increased by a whopping ~750% in Q3 2017 at prices between $76 and $86. The stock is now well below that range at $60.58. Last two quarters have also seen a combined ~22% increase at prices between $78 and $96. The stake is at ~2% of the portfolio.

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.

Mohawk Industries (MHK): MHK is a very small 0.70% of the portfolio stake established last quarter at prices between $204 and $246 and increased by ~38% this quarter at prices between $170 and $225. The stock currently trades well below those ranges at ~$127.

Note: Their Q3 commentary had said they believed the margin-of-safety was attractive when the PPS was $170. Further, they believed there is undervaluation as market doesn’t seem to account for pricing that often lags cost increases.

Axalta Coating Systems (AXTA), Comcast Corporation (CMCSA), Liberty Global LiLac (LILAK), Marvell Technology (MRVL), Summit Materials (SUM), and Vulcan Materials (VMC): These small positions (less than ~1% of the portfolio each) were increased this quarter.

Stake Decreases:

Berkshire Hathaway (BRK.A) (BRK.B): Berkshire Hathaway is a very long-term stake and the largest holding in the portfolio at ~15%. 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. This quarter saw another ~18% selling at prices between $282,000 and $333,415.

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 $318,696.

Liberty Broadband (LBRDK): LBRDK is a top-three ~8% 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 $81.07. There was a ~4% trimming in Q1 2018 while last quarter saw a similar increase. This quarter saw a ~10% trimming.

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

Laboratory Corp of America Holdings (LH): LH is a large (top five) 4.34% very long-term stake. The bulk of the position was built in the 2008-2010 timeframe at lower prices. The stock currently trades at ~$161. There was a ~8% selling last quarter at prices between $160 and $189. This quarter saw marginal trimming.

Mastercard Inc. (MA): MA is a ~4% stake established in Q4 2014 at prices between $70 and $89. Q3 2015 & 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 ~$193. Last year had seen a ~15% trimming and that was followed with a roughly one-third reduction over the last three quarters at prices between $152 and $224. Weitz is realizing gains.

Visa Inc. (V): V was a minutely small stake as of Q3 2016. It is now a fairly large 3.94% position. The bulk of the buying happened in Q4 2016 at prices between $75 and $83.50. The stock is now at ~$136. Last six quarters had seen a combined ~10% trimming and that was followed with a ~17% reduction this quarter at prices between $132 and $151.

Allergan plc (AGN): AGN is a 3.92% 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 below those ranges at $152. The position has wavered. Q1 2017 saw a ~20% selling at prices between $211 and $249 and that was followed with a ~25% increase in Q4 2017 at ~$173 per share. There was another similar reduction this quarter at prices between $167 and $193.

Liberty Sirius (LSXMA) (LSXMK): The 3.19% 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. Last three quarters have seen a combined ~17% trimming.

Oracle Corporation (ORCL): ORCL is a 2.62% 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 $47.44. Q1 2018 saw a ~13% increase at prices between $44.50 and $53 and that was followed with a ~6% increase last quarter. This quarter saw a ~12% trimming.

Redwood Trust Inc. (RWT): RWT is a 2.34% very long-term stake that has been in the portfolio for well over a decade. Recent activity follows: Q1 2016 saw a 16% increase at prices between $9 and $14 while the five quarters thru Q3 2017 saw a one-third reduction at prices between $13.25 and $17.35. The stock currently trades at $16.64. Last four quarters have seen a combined ~14% selling at prices between $14.50 and $17.50.

Note: Weitz has a ~4.3% ownership stake in Redwood Trust.

AON plc (AON): AON is a ~2% long-term stake from 2010 established in the high-30s price-range. The five quarters thru Q4 2017 had seen a two-thirds reduction at prices between $107 and $146. It now trades at ~$162. Last three quarters have seen only very minor activity.

GCI Liberty (GLIBA) and Tupperware Brands (TUP): These two stakes were established in Q1 2018. TUP is 0.61% portfolio stake established at prices between $46 and $65.50 and increased by ~60% last quarter at prices between $40 and $49. There was a ~40% selling this quarter at prices between $31 and $43. The stock is now at $38.07. The 0.80% GLIBA stake came about as a result of the merger with Liberty Ventures. Weitz had a 1.77% position in Liberty Ventures. The position saw a ~17% increase last quarter but was reduced by ~38% this quarter at prices between $45 and $51. The stock is now at $45.87.

Accenture PLC (ACN), Amazon.com (AMZN), Danaher Corp (DHR), Discovery Communications (DISCA), Liberty Expedia (LEXEA), Praxair (PX), Thermo Fisher Scientific (TMO), Twenty First Century Fox (FOX), and Wesco Aircraft (WAIR): These very small positions (less than ~1% of the portfolio each) were reduced this quarter.

Kept Steady:

Colfax Corporation (CFX): CFX is a ~2% 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 thru 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 in Q1 2018: ~18% stake increase at prices between $31 and $42. The stock currently trades near the low end of those ranges at $23.87. There was a marginal increase last quarter.

Texas Instruments (TXN): TXN is now a 1.68% of the portfolio stake. It was 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. Weitz realized huge gains from this position during the 2014-2016 timeframe. Recent activity follows: There was a ~6% trimming in Q4 2017 and that was followed with a ~22% selling next quarter at prices between $98 and $120. Last quarter saw a ~3% trimming. The stock is now at $96.28.

Qurate Retail Group (QRTEA) previously Liberty Interactive: The original QRTEA position was from 2011 in the mid-teens price range. Recent activity follows: 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 next two quarters at prices between $21.50 and $29. The stock is currently at $22.22.

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

Diageo plc (DEO), Dollar Tree (DLTR), Intelligent Systems Corporation (INS), Liberty Media Formula One (FWONA) (OTCQB:FWONB), and Wells Fargo (WFC): These very small (less than ~1% of the portfolio each) positions were kept steady this quarter.

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

Other very small (less than 0.5% of the portfolio each) positions in the portfolio include ACI Worldwide (ACIW), Anheuser Busch Inbev (BUD), Apple Inc. (AAPL), Booking Holdings (BKNG), Charter Communications (CHTR), Compass Minerals (CMP), Equity Commonwealth (EQC), Fortune Brands (FBHS), Guidewire Software (GWRE), JPMorgan Chase (JPM), Liberty Braves (BATRK) (BATRA), Lions Gate Entertainment (LGF.A) (LGF.B), Markel Corp (MKL), Martin Marietta Materials (MLM), Microsoft (MSFT), Mondelez Intl. (MDLZ), Murphy USA (MUSA), Perspecta (PRSP), and Transdigm Group (TDG). They also have minutely small positions in a bunch of index ETFs.

The spreadsheet below highlights changes to Weitz’s 13F stock holdings in Q3 2018:

Wallace Weitz - Weitz Investment Management - Q3 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.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.