Written by Alex Hughes, International Equities Analyst, StocksInValue. First published on 24 February 2015.
US based investment managers are required to lodge their investment holdings with the U.S Securities and Exchange Commission (SEC) on a quarterly basis. This gives a fantastic insight into what the world’s greatest investors are buying and selling; the activity during the 3 months from September to December (released February) certainly makes for interesting reading.
Warren Buffett built two new positions during the quarter, the first in the A-shares of Rupert Murdoch’s Twenty-First Century Fox (FOXA.OQ), the second in Restaurant Brands International Inc (not covered), the owner of the Burger King and Tim Horton’s restaurant chains. Activist investor Bill Ackman also established a position in Restaurant Brands Inc. during the quarter.
Buffett also doubled his position in Deere & Co (DE.N) during the quarter while completely exiting his positions in integrated oil producers Exxon (XOM.N) and ConocoPhillips (COP.N) and the oil servicer National Oilwell Varco (NOV.N). Buffett’s actions suggest he thinks oil prices will stay lower for longer, as stocks such as Fox and Restaurant Brands are likely to benefit from the rise in US disposable income that is created from lower oil prices; Deere is likely to benefit as lower oil prices reduce the operating costs, and therefore increase the profitability of its farming customer base. If oil prices do stay lower for longer, direct oil plays like Exxon are likely to be negatively affected under this view. Food for thought nonetheless.
Other investments of note include eBay (EBAY.OQ), which was purchased by both Seth Klarman and Dan Loeb from Third Point Capital, and Hertz Global (HTZ.N, not covered) which was purchased by Carl Icahn and Whitney Tilson. Both Ebay and Hertz are preparing to separate their businesses by spinning off the more profitable divisions (PayPal for Ebay, Car rentals for Hertz) into separately listed entities. eBay and Hertz, who receives the majority of its sales from Airport based car rentals, and also both likely to benefit from an increase in US based discretionary spending.
From those mentioned, we highlight three businesses which have particular appeal.
Twenty-First Century Fox Inc
Fox has a strong position across both distribution and content creation. For example, Fox owns 28 TV stations which provide access into 99% of US homes. On the content side, Fox has an extensive library of motion pictures and TV programs, as well as a leading position in US sport with the rights to the MLB, NBA and NHL as well as an extensive list of college and international sport. Fox has a strong balance sheet and it returns capital through dividends and consistent buybacks.
Deere & Company
Powered by its flagship John Deere tractors, Deere & Company leads by a large margin over peers Agco and CNH Industrial NV in the concentrated agriculture equipment industry. Deere is well placed for rising machinery demand with its leading market share, R&D investment and a global manufacturing base, including facilities in China, Brazil and India; markets prime for strong growth. Deere & Co’s superiority is evident in its leading margins and profitability relative to peers.
eBay Inc.
eBay is the market leader in online auctions with over 128m active users and 550m listings globally. A rise in consumer spending is a strong benefit for eBay. PayPal, eBay’s crown jewel, is well positioned for the trend to mobile payments with a first mover advantage in online payment processing, 143m established users and transactional expertise across 193 countries and 26 currencies. PayPal has a long runway for earnings growth, and given its current position, it is also likely to garner corporate interest when separately listed from exiting technology or payment processing players.
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Disclosure: Clime owns FOXA.OQ and XOM.N on behalf of various mandates where it acts as an investment manager.