Tracking Southeastern Asset Management Portfolio - Q1 2019 Update

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Includes: AGN, AMG, AMR, ATU, BEL, BIDU, CABO, CKHUY, CMCSA, CNHI, CNX, CTL, DOW, FDX, FWONA, FWONK, GE, GHC, GLIBA, GOOG, GOOGL, HCMLF, HLT, KODK, LAZ, LLGLX, LLINX, LLPFX, LLSCX, MAT, MLCO, PCH, PK, RLGY, SOI, SUM, TV, UTX, VIPS, VSAT, WYNN, YUMC
by: John Vincent
Summary

Southeastern’s 13F portfolio value decreased marginally from $7B to $6.93B this quarter. The number of positions decreased from 32 to 29.

Southeastern Asset Management increased Lazard while reducing Yum China.

The top three positions are CenturyLink, General Electric, and FedEx Corporation, and they add up to ~27% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Southeastern Asset Management's 13F portfolio on a quarterly basis. It is based on Southeastern's regulatory 13F Form filed on 05/15/2019. Please visit our Tracking Mason Hawkins' Southeastern Asset Management Portfolio series to get an idea of its investment philosophy and our previous update for the fund's moves during Q4 2018.

This quarter, Southeastern's 13F portfolio value decreased marginally from $7B to $6.93B. The number of holdings decreased from 32 to 29. The top three holdings are at ~27% while the top five are at ~41% of the 13F assets: CenturyLink (NYSE:CTL), General Electric (NYSE:GE), FedEx Corporation (NYSE:FDX), CNX Resources (NYSE:CNX), and Mattel Inc. (NASDAQ:MAT).

Southeastern is best known for its investor-friendly attributes. The mutual funds in the Longleaf family are Longleaf Partners Fund (LLPFX), incepted in 1987; Longleaf Small-Cap Fund (LLSCX), incepted in 1989; Longleaf International Fund (LLINX), incepted in 1998; and the Longleaf Global Fund (LLGLX), incepted in 2012. The flagship Longleaf Partners Fund had a 15.51% return in 2017 and a dismal negative 18% return in 2018. For Q1 2019, LLPFX was up 11.88% compared to 13.65% for the S&P 500 Index. Although, the fund is focused on US mid- and large-cap businesses, the current allocation has two non-US companies in the top ten: CK Hutchison (OTCPK:CKHUY) and LafargeHolcim Ltd. (OTCPK:HCMLF). Cash allocation is at ~6%, down from ~18% average last year.

Note: Although its mutual funds are well-known among retail investors, it should be noted that a sizable portion of Southeastern's AUM ($15B total) is attributable to separately managed accounts.

Stake Disposals

DowDuPont: The 1.85% DowDuPont stake was purchased last quarter at prices between $49 and $65 and disposed this quarter. The selling was done before the spin-out of the Material Science business Dow Inc. (DOW). The quick turnaround resulted in a small gain. The exit was based on its assessment that the remaining business (NYSE:DD) was trading at a full valuation.

Melco Resorts (MLCO) and Vipshop Holdings (VIPS): These minutely small (less than ~0.50% of the portfolio each) stakes were disposed this quarter.

New Stakes

None.

Stake Decreases

General Electric: The large (top three) 8.04% GE position was established in Q4 2017 at prices between $17 and $25 and increased by ~185% next quarter at prices between $13 and $19. Q3 2018 saw another ~26% increase at prices between $11.25 and $14.25 and that was followed with a ~40% further increase last quarter at prices between $6.70 and $13.50. The stock is now at ~$9.90. There was a ~9% trimming this quarter.

CNX Resources: CNX is a top-five 7.31% of the 13F portfolio stake. The original position is from 2012 when ~25M shares were purchased in the high-20s price range. Q4 2014 and Q1 2015 saw a stake doubling at prices between $24 and $39. There have been minor adjustments since. The stock is now at $7.76. Q1 2018 saw a ~3% increase while last four quarters saw minor trimming.

Note: The prices quoted above are adjusted for the coal spin-off last November. Southeastern has a ~23% ownership stake in CNX Resources.

Mattel Inc.: MAT is now a large (top five) 6.72% portfolio stake. It was established in Q3 2017 at prices between $14.50 and $21.50 and increased by ~250% the following quarter at prices between $13 and $19. The stock currently trades well below those ranges at $10.84. For investors attempting to follow Southeastern, MAT is a good option to consider for further research. Last few quarters had seen minor increases while this quarter there was a ~10% trimming.

Note: Southeastern has a ~10% ownership stake in Mattel Inc.

Park Hotels & Resorts (PK): PK, the December 2016 spinoff from Hilton Worldwide (HLT), is a 5.54% portfolio position purchased in Q2 2017 at prices between $25 and $28 and doubled the following quarter at around the same price range. The stock is now at ~$27. Q1 2018 saw a ~180% increase in the mid-20s price range as it got a large allocation from a subscription sale by distressed Chinese conglomerate HNA which sold its 25% stake. Last four quarters have seen a ~42% selling at prices between $25.50 and $34.25.

Note: Southeastern controls ~6% of Park Hotels & Resorts.

Alphabet Inc. (GOOG) (GOOGL): GOOG is a large 5.18% portfolio position purchased in Q1 2015 at prices between $492 and $575 and increased by ~50% the following quarter at prices between $520 and $565. Recent activity follow: last 10 quarters have seen a ~72% reduction at prices between $750 and $1,289. The stock is now at ~$1,038. Southeastern is realizing huge gains.

Graham Holdings (GHC): GHC is a ~5% of the portfolio stake first purchased in 2013. Q2 and Q3 2014 saw a ~30% increase at prices between $286 and $360. The stock currently trades at ~$697. Last two quarters had seen minor trimming and that was followed with a ~20% reduction this quarter at prices between $641 and $688.

Note: The prices quoted above are adjusted for the spinoff of Cable One (CABO) from Graham Holdings that closed on July 1, 2015. Shareholders of GHC received one share of CABO for each share of GHC held. Southeastern controls ~15% of Graham Holdings.

Comcast Corporation (CMCSA): CMCSA is a fairly large 4.61% of the portfolio position purchased last March in the low-30s and the stock currently trades at ~$41. Q2 2018 saw a ~27% increase at prices between $30.50 and $34.50 while next quarter saw a ~20% selling at prices between $33 and $38. There was another ~43% reduction last quarter at prices between $33 and $39.50. This quarter saw a ~6% trimming.

United Technologies (UTX): The bulk of the current 4.61% UTX position was purchased in Q4 2015 at prices between $88 and $101. Q1 2016 saw a ~30% increase at around the same price range. The stock currently trades at ~$131. Last ten quarters have seen a ~62% selling at prices between ~$99 and ~$144.

Allergan plc (AGN): AGN is a fairly large 4.28% portfolio stake purchased in Q4 2017 at prices between $164 and $211 and increased by over one-third next quarter at prices between $144 and $188. The stock currently trades at ~$125. There was a ~4% trimming in Q2 2018 and a ~23% reduction next quarter at prices between $167 and $193. Last two quarters have also seen a combined ~13% trimming.

Affiliated Managers Group (AMG) and Yum China (YUMC): These two positions established in Q3 2018 were increased last quarter but reduced this quarter. The 2.61% AMG stake was purchased at prices between $137 and $160 and increased by ~55% last quarter at prices between $90 and $138. The stock is now just below the low end of those ranges at ~$88. This quarter saw a ~8% trimming. YUM stake was built to a 2.53% portfolio position last quarter at prices between $31 and $37. This quarter saw the position reduced by ~80% to a very small 0.66% portfolio stake at prices between $33 and $45.50. The stock currently trades at ~$40.50.

Wynn Resorts (WYNN): The 2.57% WYNN stake was purchased last quarter at prices between $92 and $127 and the stock currently trades at ~$109. There was a ~12% trimming this quarter.

Liberty Media Formula One (FWONA) (FWONK): FWONK is a 2.55% of the portfolio stake established in Q2 2016 at prices between $17.50 and $20 and the stock currently trades well above that range at ~$38. There was a one-third reduction in Q2 2017 at prices between $30.50 and $37 while Q2 2018 saw a similar increase at around the same price range. This quarter saw a ~27% selling at prices between $30.50 and $35.50.

Note: Following acquisition of Formula One, Liberty Media was renamed Liberty Media Formula One and the stock symbols changed.

Viasat Inc. (VSAT): The 2.22% VSAT stake was first purchased in Q2 2014 with the majority acquired the following quarter at prices between $54 and $59. Q3 2015 saw a one-third increase at prices between $56 and $64.50. There was a ~16% increase in Q1 2017 at prices between $63 and $70 and that was followed with a ~11% increase in Q3 2017. The stock currently trades at ~$90. Last six quarters have seen a two-thirds selling at prices between $64 and $79.

CNH Industrial NV (CNHI): CNHI is a 1.33% of the portfolio position built-up from Q3 2014 at prices between $7.50 and $10. Recent activity follow: Q2 2018 saw a one-third increase at prices between $10.50 and $13 while the last two quarters saw a ~23% selling at prices between $8.50 and $12.50. The stock is now at ~$9. There was a ~15% selling this quarter at prices between $8.75 and $11.

Belmond Ltd. (BEL) and Solaris Oilfield Services (SOI): These two minutely small (less than ~0.5% of the portfolio each) stakes were reduced this quarter.

Stake Increases

CenturyLink: CTL is currently the largest 13F position at 11.63% of the portfolio. It came about as a result of the acquisition of Level 3 Communications by CenturyLink that closed in October 2017. Southeastern had a huge 28M share stake in Level 3 for which it received ~40M CTL shares in the ratio 1:1.4286. The terms called for $26.50 per share in cash as well. The position was increased by ~75% in Q4 2017 at prices between $13.50 and $20.50. The stock is now at ~$10.40. Last five quarters have seen only minor adjustments. For investors attempting to follow, CTL is a good option to consider for further research.

Note: Its cost-basis on the position is ~$16. Southeastern has a ~6.3% ownership stake in CenturyLink.

FedEx Corporation: FDX is a very long-term position that has been in the portfolio since 2000. Currently, it is a large (top three) stake at 7.63% of the portfolio. Recent activity follow: the five quarters through Q4 2017 saw a combined ~50% reduction at prices between $170 and $250. The stock currently trades at ~$157. This quarter saw a ~10% stake increase.

Lazard Ltd (LAZ): The LAZ position was a very small stake first purchased in Q3 2018. Last quarter saw the position built to a 2.17% portfolio stake at prices between $34 and $48. There was another ~40% stake increase this quarter at prices between $35.25 and $41 and it is now at the low end of those ranges at ~$34.

Baidu Inc. (BIDU): BIDU was a very small 1% of the portfolio position as of Q1 2018. Last four quarters saw the position doubled at prices between $155 and $280 and the stock currently trades well below that range at ~$109.

Realogy Holdings (RLGY): RLGY is a 1.70% stake purchased in Q4 2017 at prices between $26 and $34 and increased by ~20% next quarter. There was a ~18% increase in Q2 2018 at prices between $23 and $28 and that was followed with a ~24% increase next quarter at prices between $20 and $24. The stock is currently at ~$7.15. There was a ~8% stake increase this quarter.

Note: Regulatory filings since the quarter ended show the fund owning 13.2M shares (11.6% of business). This is compared to 10.32M shares in the 13F report.

Grupo Televisa SAB (TV): TV is a minutely small 0.01% stake. The position was roughly doubled during the quarter.

Kept Steady

Summit Materials (SUM): The 2.93% SUM stake was established in Q3 2018 at prices between $18 and $27 and increased by ~40% last quarter at prices between $11.25 and $18. The stock currently trades at ~$15.20.

PotlatchDeltic Corp (PCH): PCH is a 2.52% position established last quarter at prices between $29 and $40 and it is now at ~$34.35.

Note: Southeastern's ownership stake in PotlatchDeltic is 4.6% of the business.

Actuant Corporation (ATU), Alta Mesa Resources (AMR), Eastman Kodak (KODK), and GCI Liberty (GLIBA): These are small (less than ~2% of the portfolio each) stakes kept steady this quarter.

Note: Southeastern has a 30.4% ownership stake in Eastman Kodak (11.5M of the 16.45M share stake is in pfd cnvrts which is not listed in the 13F report) and a 9.8% ownership stake in Actuant Corporation.

The spreadsheet below highlights changes to Southeastern's 13F stock holdings in Q1 2019:

Mason Hawkins - Southeastern - Longleaf Q1 2019 13F Report Q/Q Comparison

Disclosure: I am/we are long CKHUY, CNX, CTL, DOW, GE, TV. 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.