Tracking Tweedy Browne Portfolio - Q3 2018 Update

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Includes: AGCO, ANAT, AVT, AXP, AZO, BAX, BIDU, BK, BRK.A, BRK.B, CKX, CMCSA, CNHI, COP, CSCO, CTWS, DEO, DVN, EMR, GOOG, GOOGL, GSK, HAL, HSBC, JNJ, KOF, MA, MMM, MRC, MRK, NSRGY, NVS, NWLI, 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 increased from $3.22B to $3.32B this quarter.

The largest five individual stock positions are Cisco Systems, Berkshire Hathaway, Baidu Inc., Alphabet, and Johnson & Johnson, and they account for ~50% of the portfolio.

Tweedy Browne decreased Unilever and Emerson Electric during the quarter.

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 11/14/2018. 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 Q2 2018.

This quarter, Tweedy Browne’s 13F portfolio value increased ~3% from $3.22B to $3.32B. The number of holdings increased from 44 to 45. The largest position is Cisco Systems at ~13% of the portfolio. Largest five individual stock positions are Cisco Systems, Berkshire Hathaway, Baidu Inc., Alphabet, and Johnson & Johnson. Combined, they are at ~50% of the portfolio. 30 of the 45 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 ~76% of the portfolio and cash at ~10%. The top five holdings are Safran SA (OTCPK:SAFRY) (OTCPK:SAFRF), Roche Holding AG (OTCPK:RHHVF), Nestle (OTCPK:NSRGY), Novartis (NVS), and Total SA (TOT). Together, they are at ~18% of the fund. Per Q3 2018 Commentary, the fund returned 2.35% for 2018 YTD compared to 2.94% for MSCI EAFE. Since inception (1993), annualized returns are at 9.29% compared to 6.22% for MSCI EAFE.

New Stakes:

None.

Stake Disposals:

None.

Stake Increases:

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 at ~$183. There was marginal increase this quarter. For investors attempting to follow, BIDU is a good option to consider for further research.

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.

Stake Decreases:

Cisco Systems (CSCO): CSCO position was first purchased in 2011. It is currently their largest 13F stake at ~13% 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 $46.12. Last ten quarters saw a ~36% reduction at prices between $26.50 and $49. They are harvesting gains.

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% 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 next quarter: ~37% increase at prices between $143 and $167. The stock currently trades at ~$213. There was a ~12% selling in Q4 2017 and that was followed with minor trimming over the last three quarters.

Johnson & Johnson (JNJ): JNJ is a large (top five) position in the portfolio at 8.91%. It is a long-term stake. The position was built 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 seven quarters. The share count is now at ~2.14M. The stock currently trades at ~$143. Tweedy Browne is harvesting long-term gains from this position.

Bank of New York Mellon (BK): BK is a large 6.50% 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 $51.37. Q4 2016 saw a ~4% increase while last seven quarters saw minor trimming.

Wells Fargo (WFC): WFC is a fairly large position at ~5% 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 seven quarters have also seen minor selling. The stock is now at $53.19.

AutoZone (AZO): AZO is a 4.16% position purchased in Q3 2017 at prices between $493 and $595 and increased by ~75% last quarter at prices between $596 and $693. The stock currently trades well above those ranges at ~$835. This quarter saw marginal trimming.

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

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 $65.28. The three quarters through 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 last quarter and marginal trimming 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 and 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 $15.88. Last four quarters have seen minor selling.

Note: Tweedy Browne controls ~5% of MRC Global.

3M Company (MMM): MMM is a 2.47% long-term stake first purchased in 2008 at low prices. The five quarters through Q2 2017 had seen a combined ~46% reduction at prices between $165 and $213. The stock is now at ~$201. Tweedy Browne is harvesting huge long-term gains. There was an ~8% selling in Q4 2017 and that was followed with an ~18% reduction next quarter at prices between $215 and $259. There was a marginal ~2% trimming last quarter and a ~5% reduction this quarter.

Devon Energy (DVN): DVN is a 2.36% 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 an ~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 $26.61. Last quarter saw a ~24% reduction at prices between $30 and $43 and that was followed with a ~5% selling this quarter.

Emerson Electric (EMR): EMR is a long-term 2.24% 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 $66.75. Last three quarters have seen another ~15% selling at prices between $66 and $78.

Halliburton Company (HAL): HAL is a 1.89% of the portfolio stake. It was established in 2012 at prices between $27.50 and $38.50. Q3 2016 saw a ~20% reduction at prices between $41 and $47. Last quarter saw another ~53% reduction at prices between $44.50 and $54 and that was followed with marginal trimming this quarter. The stock currently trades at $31.88.

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 $38.36 and the stake is at 0.67%. Tweedy Browne is harvesting gains. Last three 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 0.49% of the portfolio stake in WPP was established in Q4 2017 and increased by around two-thirds next quarter at prices between $77 and $103. The stock currently trades at $55.19. Last two quarters saw minor trimming.

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), Avnet Inc. (AVT), Diageo plc (DEO), Mastercard Inc. (MA), National Western Life (NWLI), Phillips 66 (PSX), Total SA (TOT), Unilever (UN) (UL), Union Pacific (UNP), and Verizon Communications (VZ): These small positions (less than ~1.5% 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:

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 $1044. Q3 2016 saw a ~9% trimming at prices between $692 and $787. Last six quarters had also seen minor selling.

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 $58.29 and the position is at 1.18% of the 13F portfolio.

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), CNH Industrial (CNHI), Connecticut Water Service (CTWS), GlaxoSmithKline (GSK), HSBC Holdings (HSBC), Merck & Company (MRK), Novartis AG (NVS), Royal Dutch Shell (RDS.A) (RDS.B), Shenandoah Telecommunications (SHEN), Torchmark Corp. (TMK), 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 Q3 2018:

Christopher H Browne - Tweedy Browne - 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.

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