Tracking Wallace Weitz's Weitz Investment Management Portfolio - Q1 2019 Update

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

Wallace Weitz's 13F portfolio value increased ~11% from $2.18B to $2.42B this quarter. The number of positions decreased from 82 to 75.

Weitz Investment Management increased CarMax, Booking Holdings, and JPMorgan Chase while dropping Allergan and Mohawk Industries during the quarter.

The top three positions are Berkshire Hathaway, Liberty Broadband, and Alphabet, and they add up to ~25% 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 05/14/2019. 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 Q4 2018.

This quarter, Weitz’s 13F portfolio value increased ~11% from $2.18B to $2.42B. The number of holdings decreased from 82 to 75. The top three positions are at ~25%, while the top five holdings are at one-third of the 13F assets. The largest stake by far is Berkshire Hathaway at ~14% 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). 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 4.5%: this is far below the ~18% average cash over the last decade.

Stake Disposals:

Allergan plc (AGN): AGN was 2.35% 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 stake had wavered since. Last two quarters had seen the position sold down by ~40% at prices between $130 and $194, and the elimination this quarter was at prices between $132 and $161. The stock currently trades at ~$122. Weitz realized losses.

Mohawk Industries (MHK): MHK was a small 0.73% of the portfolio stake established in Q2 2018 at prices between $204 and $246 and increased by ~38% next quarter at prices between $170 and $225. There was another ~40% stake increase last quarter at prices between $111 and $174. The position was disposed of this quarter at prices between $111 and $143. The stock currently trades at ~$149.

Note: Their Q3 2018 commentary had said they believed the margin of safety was attractive when the PPS was $170. Further, they believed there was undervaluation as the market didn’t seem to account for pricing that often lags cost increases. The Q1 2019 commentary reversed course saying they sold as the growth and durability outlook was too opaque.

Discovery Communications (DISCA) and Twenty First Century Fox: These very small positions (less than ~1.5% of the portfolio each) were disposed of this quarter. The Twenty First Century Fox position was sold before the close of the Disney (DIS) transaction, and the exit was based on their estimated value approaching the share price.

New Stakes:

Box Inc. (BOX): BOX is a small 0.84% of the portfolio position established this quarter at prices between $16.75 and $25, and the stock currently trades near the low end of that range at $17.89.

Stake Increases:

Liberty Sirius (LSXMA) (LSXMK): The 3.27% of the portfolio stake in Liberty Sirius stock came about as a result of Liberty Media’s recapitalization into three tracking stocks in April 2017. The position was reduced by around two-thirds since. The first three quarters of 2018 had seen a combined ~17% trimming while the last two quarters saw a similar increase.

Charles Schwab (SCHW): SCHW is a 2.42% portfolio stake established in Q3 2018 at prices between $49 and $54, and the stock currently trades below that range at $42.10. For investors attempting to follow Weitz, SCHW is a good option to consider for further research. There was a ~60% stake increase last quarter at prices between $38 and $52, and that was followed with a ~4% increase this quarter.

Note: The Q3 2018 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.

CarMax Inc. (KMX): The 3.25% KMX position was purchased at a cost-basis below $60 per share in Q1 2018 and increased by ~45% next quarter at prices between $59 and $80. The stock currently trades at $82.04. Last three quarters saw a ~90% increase at prices between $57 and $81.

Redwood Trust Inc. (RWT): RWT is a 2.31% 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 through Q3 2017 saw a one-third reduction at prices between $13.25 and $17.35. The stock currently trades at $16.11. Last five quarters had seen another roughly one-third selling at prices between $14.50 and $17.50, while this quarter saw a ~23% stake increase at prices between $15 and $16.20.

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

Black Knight (BKI): BKI is a 1.69% portfolio position established last quarter at prices between $43 and $52, and the stock currently trades well above that range at $60.10. There was a ~7% increase this quarter.

Amazon.com (AMZN), Analog Devices (ADI), Axalta Coating Systems (AXTA), Booking Holdings (BKNG), Danaher Corp. (DHR), Guidewire Software (GWRE), JPMorgan Chase (JPM), Markel Corp. (MKL), Marvell Technology (MRVL), Transdigm Group (TDG), and Vulcan Materials (VMC): These small positions (less than ~1.5% 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 ~14%. Recent activity follows: 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. Last three quarters have seen another ~30% selling at prices between $283,336 and $336,000.

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 $307,196.

Liberty Broadband (LBRDK): LBRDK is a top-three 6.22% 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 $100. Last year saw a combined ~14% selling at prices between $69 and $97, and that was followed with a ~24% reduction this quarter at prices between $72 and $94.

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).

Alphabet Inc. (GOOG) (GOOGL): GOOG was a minutely small position first purchased in 2008. The current large (top three) 4.82% 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 through Q1 2017 had also seen a ~10% selling at prices between $692 and $836. The stock currently trades at $1,077. Last few quarters had seen minor increases, while this quarter saw a marginal reduction.

Laboratory Corp. of America Holdings (LH): LH is a large (top five) 4.27% very long-term stake. The bulk of the position was built in the 2008-2010 time frame at lower prices. The stock currently trades at ~$167. There was a ~8% selling in Q2 2018 at prices between $160 and $189. Last quarter saw a ~12% stake increase at prices between $121 and $174, and that was followed with a ~2% trimming this quarter.

Mastercard Inc. (MA): MA is a ~4% stake established in Q4 2014 at prices between $70 and $89. Q3 2015 and 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 ~$264. 2017 had seen a ~15% trimming, and that was followed with a one-third selling last year at prices between $152 and $223. Weitz is realizing gains. This quarter also saw a ~10% selling.

Visa Inc. (V): V was a minutely small stake as of Q3 2016. It is now a fairly large 3.83% position. The bulk of the buying happened in Q4 2016 at prices between $75 and $83.50. The stock is now at ~$172. There was a ~17% reduction in Q3 2018 at prices between $132 and $151, and that was followed with minor selling in the last two quarters.

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 at 3.88% of the portfolio. 2017 had seen a ~12% trimming, and that was followed with a ~16% reduction last year at prices between $20 and $37. The stock is now at $25.50. There was a ~5% trimming this quarter.

Facebook (FB): The ~3% FB position was purchased at prices between $152 and $193 and increased by ~175% next quarter at prices between $155 and $202. There was another ~35% increase in Q3 2018 at prices between $160 and $218, and that was followed with a ~22% increase last quarter at prices between $124 and $162. The stock is now at ~$175. For investors attempting to follow, FB is a good option to consider for further research. This quarter saw a ~7% trimming.

Note: Their 3rd quarter 2018 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.

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 at $26.07. Last quarter saw a ~10% stake increase, while, this quarter, there was a similar reduction.

Oracle Corporation (ORCL): ORCL is a 1.79% 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 $53.62. Q1 2018 saw a ~13% increase at prices between $44.50 and $53. There was a one-third selling this quarter at prices between $45 and $55.

Texas Instruments (TXN): TXN is now a 1.74% 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 time frame. 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. The stock is now at ~$110. There was a minor reduction this quarter.

DXC Technology (DXC): DXC position was increased by a whopping ~750% in Q3 2017 at prices between $76 an $86. The stock is now well below that range at $50.18. Last three quarters had also seen a combined ~50% increase at prices between $50 and $96. The stake is at 1.65% of the portfolio. There was an ~8% trimming this quarter.

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 (NYSE:HPE) services business.

AON plc (AON): AON is a 1.51% long-term stake from 2010 established in the high-30s price range. The five quarters through Q4 2017 had seen a two-thirds reduction at prices between $107 and $146. It now trades at ~$189. There was a one-third selling over the last two quarters at prices between $137 and $173. Weitz is realizing huge long-term gains.

GCI Liberty (GLIBA): The 0.83% GLIBA stake came about as a result of the merger with Liberty Ventures in Q1 2018. Weitz had a 1.77% position in Liberty Ventures. The position saw a ~17% increase in Q2 2018 but was reduced by ~38% in Q3 2018 at prices between $45 and $51. The stock is now at $60.27. There was a ~6% trimming this quarter.

Linde plc (LIN) and Stanley Black & Decker (SWK): BKI is a 0.67% portfolio position established last quarter at prices between $43 and $52, and the stock currently trades at $60.10. There was a marginal trimming this quarter. The Linde plc position came about due to the merger with Praxair. Weitz had ~170K shares of Praxair for which they received the same number of Linde plc shares. This quarter saw marginal trimming. The stock has returned ~22% since the close of the Praxair transaction in October.

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 $13. There was a ~6% trimming last quarter and marginal selling this quarter.

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

Tupperware Brands (TUP): TUP is now a very small 0.10% portfolio stake. It was established in Q1 2018 at prices between $46 and $65.50 and increased by ~60% next quarter at prices between $40 and $49. There was a ~40% selling in Q3 2018 at prices between $31 and $43, and that was followed with a two-thirds further reduction last quarter at prices between $30 and $39. This quarter saw another ~40% selling at prices between $24.50 and $38. The stock is now at $20.56. Weitz realized losses.

Accenture PLC (ACN), Comcast Corporation (CMCSA), Dollar Tree (DLTR), Liberty Latin America (LILAK), Martin Marietta Materials (MLM), Summit Materials (SUM), Thermo Fisher Scientific (TMO), and Wesco Aircraft (WAIR): These small positions (less than ~1.5% of the portfolio each) were reduced this quarter.

Kept Steady:

Intelligent Systems Corporation (INS): Weitz controls ~26% of Intelligent Systems Corporation. The ~3% portfolio stake was kept steady during the quarter.

Diageo plc (DEO), and Liberty Media Formula One (FWONA) (OTCQB:FWONB): These very small (less than ~1% of the portfolio each) positions were kept steady this quarter.

Other very small (less than 0.5% of the portfolio each) positions in the portfolio include ACI Worldwide (ACIW), Apple Inc. (AAPL), Charter Communications, Compass Minerals (CMP), Eagle Materials (EXP), Equity Commonwealth (EQC), Fortune Brands (FBHS), Gardner Denver (GDI), Liberty Braves (BATRK) (BATRA), Liberty Expedia (LEXEA), Microsoft (MSFT), Mondelez International (MDLZ), Murphy USA (MUSA), Myers Industries (MYE), and Perspecta (PRSP). They also have minutely small positions in a bunch of index ETFs.

The spreadsheet below highlights changes to Weitz’s 13F stock holdings in Q1 2019:

Wallace Weitz - Weitz Investment Management 13F Report Q/Q Comparison

Disclosure: I am/we are long MKL. 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.