Tracking Tweedy Browne Portfolio - Q4 2018 Update

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Includes: AGCO, ANAT, AVT, AXP, AZO, BAX, BIDU, BK, BRK.A, BRK.B, CCL, CKX, CMCSA, CNHI, COP, CSCO, CTWS, DEO, DVN, EMR, GOOG, GOOGL, GS, 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 decreased from $3.32B to $2.82B this quarter.

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

Tweedy Browne added Goldman Sachs while selling Devon Energy, Comcast, Verizon, Emerson Electric, and Union Pacific.

This article is part of a series that provides an ongoing analysis of the changes made to Tweedy Browne’s (TBGVX) (TWEBX) (TBHDX) (TBCUX) 13F portfolio on a quarterly basis. It is based on Tweedy Browne’s regulatory 13F Form filed on 02/08/2019. 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 Q3 2018.

This quarter, Tweedy Browne’s 13F portfolio value decreased ~15% from $3.32B to $2.82B. The number of holdings increased from 45 to 47. The largest position is Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) at ~13% of the portfolio. Largest five individual stock positions are Berkshire Hathaway, Cisco Systems (NASDAQ:CSCO), Johnson & Johnson (NYSE:JNJ), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and Baidu (NASDAQ:BIDU). Combined they are at ~50% of the portfolio. 31 of the 47 13F stakes are significantly large (over ~0.5% of the 13F portfolio each) and they are the focus of this article. Tweedy Browne 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 has a global orientation with non-US allocation at ~85% of the portfolio and cash at ~7%. The top five holdings are Safran SA (OTCPK:SAFRY) (OTCPK:SAFRF), Roche Holding AG (OTCPK:RHHVF), Nestle (OTCPK:NSRGY), Diageo plc (DEO), and Novartis (NVS). Together, they are at ~20% of the fund. Per Q4 2018 Commentary, the fund returned negative 6.67% for 2018 compared to negative 8.96% for MSCI EAFE. Since inception (1993), annualized returns are at 8.80% compared to 5.64% for MSCI EAFE.

New Stakes:

Goldman Sachs (GS): GS is a small 0.59% of the portfolio stake established this quarter at prices between $155 and $232. The stock currently trades at ~$195.

Stake Disposals:

None.

Stake Increases:

Berkshire Hathaway: Berkshire Hathaway is a very long-term stake that has been in the portfolio since before the financial crisis. It is currently their largest position at ~13% 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 ~$206. There was a ~12% selling in Q4 2017 and that was followed by minor trimming over the next three quarters. This quarter saw a ~10% overall increase.

Baidu Inc.: BIDU is a top five ~8% portfolio stake purchased in Q1 2017 at prices between $168 and $186 and the stock is now near the low end of that range at ~$170. There were marginal increases in the last two quarters. 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 are being masked by money-losing subsidiaries.

Halliburton Company (HAL): HAL is a 1.59% 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. Q2 2018 saw another ~53% reduction at prices between $44.50 and $54. The stock currently trades at ~$31. There was a ~9% stake increase this quarter.

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 by 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 by a one-third reduction the following quarter at prices between $65.50 and $75. The stock is currently at $64.48 and the position is at 1.28% of the 13F portfolio. There was a marginal increase this quarter.

Total SA (TOT): The 13F position is a very small 0.50% of the portfolio stake that had a marginal increase this quarter.

Note: Total SA is a top-ten position in their funds as they hold natively listed shares that are not in the 13F report.

Stake Decreases:

Cisco Systems: CSCO position was first purchased in 2011. It is currently their second-largest 13F stake at ~13% of the portfolio. The bulk of the 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 $47.89. Last eleven quarters saw a ~40% reduction at prices between $26.50 and $49. They are harvesting gains.

Johnson & Johnson: JNJ is a large (top three) position in the portfolio at 9.74%. 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 by minor trimming over the last two years. The share count is now at ~2.13M. The stock currently trades at ~$134. Tweedy Browne is harvesting long-term gains from this position.

Alphabet Inc.: GOOG is a top-five ~9% position first purchased in 2012 at much lower prices compared to the current trading price of $1121. Q3 2016 saw a ~9% trimming at prices between $692 and $787. Since then, the activity has been minor. This quarter saw marginal trimming.

Bank of New York Mellon (BK): BK is a large ~7% 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 $52.84. Q4 2016 saw a ~4% increase while last two years saw minor trimming.

AutoZone (AZO): AZO is a 5.26% position purchased in Q3 2017 at prices between $493 and $595 and increased by ~75% in Q2 2018 at prices between $596 and $693. The stock currently trades well above those ranges at ~$891. Last two quarters saw marginal trimming.

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

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 by another ~14% selling the following quarter at prices between $43.50 and $57.50. Last two years have also seen minor selling. The stock is now at $49.05.

ConocoPhillips (COP): COP was a minutely small position in 2007. The majority of the current ~1.62M share stake (3.58% of portfolio) was purchased in 2009 at prices between $22 and $40. The stock currently trades at $67.45. The three quarters through Q3 2016 had seen minor reductions. Q4 2016 saw a ~14% selling at prices between $40.50 and $53. 2017 saw another similar trimming at prices between $43 and $56. There was a ~9% reduction in Q2 2018 and minor trimming in the last two quarters. Tweedy Browne is harvesting long-term gains.

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

3M Company (MMM): MMM is a ~2% long-term stake first purchased in 2008 at low prices. 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 by a ~18% reduction next quarter at prices between $215 and $259. Last three quarters have also seen a ~15% combined selling at prices between $177 and $220.

MRC Global (MRC): The 2% 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 by 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 $16.04. Last five quarters have seen minor selling.

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

Emerson Electric (EMR): EMR is a long-term 1.59% 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 has since been further reduced. Q4 2016 saw a ~20% selling at prices between $49 and $58 and that was followed by a ~20% reduction in 2017 at prices between $56 and $70. Last year saw another ~35% selling at prices between $55 and $80. The stock currently trades at $68.07.

Devon Energy (DVN): DVN is a ~1% of the 13F portfolio position. The bulk of the original 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 by 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. Q2 2018 saw a ~24% reduction at prices between $30 and $43 and that was followed by a ~30% selling this quarter at prices between $21 and $41. The stock currently trades at $25.96.

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. This quarter also saw a ~23% selling at prices between $33 and $39.50. The stock is now at $37.24 and the stake is at 0.58%.

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

Diageo plc (DEO), Mastercard Inc. (MA), National Western Life (NWLI), Phillips 66, Unilever (UN) (UL), Union Pacific (UNP), and Verizon Communications (VZ): These small positions (less than ~1.5% of the 13F portfolio each) saw 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:

American Express (AXP), Avnet Inc. (AVT), Coca-Cola FEMSA (KOF) and U.S. 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), Carnival Corp. (CCL), CKX Lands (CKX), CNH Industrials (CNHI), 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), UniFirst Corporation (UNF), and WPP Plc (WPP).

Note: GlaxoSmithKline, HSBC, Novartis AG, Royal Dutch Shell, and WPP plc 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 Q4 2018:

Christopher Browne - Tweedy Browne - Q4 2018 13F Report

Disclosure: I am/we are long GSK. 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.