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Tracking Tweedy Browne Portfolio - Q2 2019 Update

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Includes: AGCO, ALC, ANAT, AVT, AXP, AZO, BAX, BIDU, BK, BRK.A, BRK.B, CCL, CKX, CMCSA, CNHI, COP, CSCO, CTWS, DEO, DVN, EMR, FOX, GL, GOOG, GOOGL, GS, GSK, HAL, HKHHF, HSBC, JNJ, KOF, MA, MMM, MRC, MRK, NSRGY, NVS, NWLI, PSX, RDS.A, RDS.B, SAFRF, SAFRY, SCRYY, SHEN, TBCUX, TBGVX, TBHDX, TOT, TWEBX, UL, UN, UNF, UNP, USB, VZ, WFC, WPP
by: John Vincent
Summary

Tweedy Browne’s 13F portfolio value decreased from $3.03B to $2.83B this quarter.

The largest five individual stock positions are Berkshire Hathaway, Cisco Systems, Johnson & Johnson, Baidu, and Alphabet, and they account for ~54% of the portfolio.

Tweedy Browne increased Baidu while decreasing Cisco Systems 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 08/05/2019. 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 Q1 2019.

This quarter, Tweedy Browne’s 13F portfolio value decreased ~7% from $3.03B to $2.83B. The number of holdings increased from 47 to 49. The largest position is Berkshire Hathaway at ~14% of the portfolio. Largest five individual stock positions are Berkshire Hathaway, Cisco Systems, Johnson & Johnson, Baidu, and Alphabet. Combined they are at ~54% of the portfolio. 31 of the 49 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 ~82% of the portfolio and cash at ~7%. The top five holdings are Nestle (OTCPK:NSRGY), Safran SA (OTCPK:SAFRY) (OTCPK:SAFRF), Diageo plc (DEO), Heineken (OTCQX:HKHHF), and SCOR SE (OTCPK:SCRYY). Together, they are at ~20% of the fund. Per Q2 2019 Commentary, the fund returned 3.72% for the quarter compared to 3.50% for MSCI EAFE. Since inception (1993), annualized returns are at 9.11% compared to 6.11% for MSCI EAFE.

New Stakes:

None.

Stake Disposals:

None.

Stake Increases:

Baidu Inc. (BIDU): BIDU is a top five ~8% portfolio stake purchased in Q1 2017 at prices between $168 and $186 and the stock is now well below the low end of that range at ~$100. The position was increased by roughly two-thirds this quarter at prices between $108 and $185. 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.

U.S. Bancorp (USB): The very small 1.55% USB stake saw a minor increase during the quarter.

Stake Decreases:

Cisco Systems (CSCO): CSCO's position was first purchased in 2011. It is currently their second-largest 13F stake at ~11% 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 $52.60. Last three years saw a ~44% reduction at prices between $41 and $54. This quarter saw another ~25% selling at prices between $51 and $57.50. 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 ~12% 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 ~$200. There was a ~12% selling in Q4 2017 and that was followed with minor trimming over the next three quarters. Q4 2018 saw a ~10% overall increase while last two quarters have seen minor trimming.

Johnson & Johnson (JNJ): JNJ is a large (top three) position in the portfolio at ~10%. 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 ten quarters. The share count is now at ~2.05M. The stock currently trades at ~$131. Tweedy Browne is harvesting long-term gains from this position.

Alphabet Inc. (GOOG) (GOOGL): GOOG is a top-five ~10% position first purchased in 2012 at much lower prices compared to the current trading price of $1170. Q3 2016 saw a ~9% trimming at prices between $692 and $787. Since then, the activity has been minor. Last quarter saw a ~2% stake increase while 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 an ~11% selling in Q3 2016 at prices between $37 and $42. The stock currently trades at $45.45. Q4 2016 saw a ~4% increase while the last ten quarters saw minor trimming.

Wells Fargo (WFC): WFC is a fairly large position at 4.41% 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 two years had also seen minor selling. Last quarter saw a ~15% further reduction at prices between $46 and $52. The stock is now at $46.93. There was marginal trimming this quarter.

AutoZone (AZO): AZO is a 4.20% 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 ~$1,082. Last quarter saw a one-third selling at prices between $810 and $1,000 and that was followed with an ~11% trimming this quarter. Tweedy Browne is harvesting gains.

ConocoPhillips (COP): COP was a minutely small position in 2007. The majority of the current 1.61M share stake (3.47% of portfolio) was purchased in 2009 at prices between $22 and $40. The stock currently trades at $54.23. 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 four 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 whereby COP shareholders received one share of Phillips 66 for every 2 shares of COP.

MRC Global (MRC): The 2.73% 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 $13.91. Last seven quarters have seen minor selling.

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

3M Company (MMM): MMM is a 2.16% 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. There was an ~8% selling in Q4 2017 and that was followed with an ~18% reduction next quarter at prices between $215 and $259. Last five quarters have also seen a ~15% combined selling at prices between $160 and $220. The stock is now at ~$164. Tweedy Browne is harvesting huge long-term gains.

Emerson Electric (EMR): EMR is a long-term 1.76% 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 with 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 $60.82. Last two quarters have seen marginal trimming.

Halliburton Company (HAL): HAL is now a very small 0.46% 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 $19.95. This quarter saw the position reduced by two-thirds at prices between $21 and $32.

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 stake was almost sold out this quarter at prices between $65 and $78. The stock is currently at $71.50 and the position is now minutely small at 0.17% of the 13F portfolio.

Devon Energy (DVN): The bulk of the original DVN stake was purchased in 2012 when around 2.2M shares were acquired at prices between $51 and $75. The position had seen selling since Q3 2016. Recent activity follow: Q2 2018 saw a ~24% reduction at prices between $30 and $43 and that was followed with a ~30% selling in Q4 2018 at prices between $21 and $41. The stock currently trades at $24.22. Last two quarters have also seen minor selling.

Goldman Sachs (GS): GS is a small 0.71% of the portfolio stake established in Q4 2018 at prices between $155 and $232. The stock currently trades at ~$206. Last two quarters have seen minor trimming.

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. Q4 2018 also saw a ~23% selling at prices between $33 and $39.50. The stock is now at $42.07 and the stake is at 0.69%. Last two quarters have seen minor selling.

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

American Express (AXP), Avnet Inc. (AVT), Diageo plc, Mastercard Inc. (MA), National Western Life (NWLI), Novartis AG (NVS), 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) were reduced during the quarter.

Note: Although the 13F positions are small, the firm has large stakes in Diageo and Total SA. The rest of the shares are held in their native markets which are outside the realm of 13F filings.

Kept Steady:

Coca-Cola FEMSA (KOF): The very small 1.14% portfolio stake in KOF was kept steady during the quarter.

Other minutely small (less than 0.5% of the 13F portfolio each) positions in the 13F portfolio include Alcon Inc. (ALC), American National Insurance (ANAT), Baxter International (BAX), Carnival Corp. (CCL), CKX Lands (CKX), CNH Industrial (CNHI), Connecticut Water Service (CTWS), Fox Corp. (FOX), GlaxoSmithKline (GSK), HSBC Holdings (HSBC), Merck & Company (MRK), Royal Dutch Shell (RDS.A) (RDS.B), Shenandoah Telecommunications (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 Q2 2019:

Tweedy Browne - Q2 2019 13F Report Q/Q Comparison

Disclosure: I am/we are long BIDU, BRK.B, GSK, WFC. 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.