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Earlier this week, my fellow Fool Morgan Housel revealed "7 Traits of Phenomenal Investors," a list that started with the fact that great investors learn from each other.
Specifically, Morgan noted that money managers with more than $100 million under management have to disclose in SEC filings what stocks their funds own. Many top investors use these disclosures as a way of getting ideas from other hotshots.
I recently did something along these lines by looking at a few of the first-quarter buys by the value-focused fund family Davis Funds. With Morgan's "phenomenal investor traits" in mind, I thought I'd take a look at a few more buys from some of my favorite investors.
Position as of 12/31/10
Position as of 3/31/11
|The Baupost Group||Seth Klarman||PDL BioPharma (Nasdaq: PDLI )||$34.9 million||$60.9 million|
|Third Avenue||Marty Whitman||Henderson Land Development||$285 million||$936 million|
|Longleaf Partners Fund||Mason Hawkins||Travelers Companies (NYSE: TRV )||$377 million||$451 million|
|Fairholme Funds||Bruce Berkowitz||Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B )||$840 million*||$1.05 billion*|
|Greenlight Capital||David Einhorn||Travelers Companies||$119 million||$250 million|
|Pershing Square||Bill Ackman||Alexander & Baldwin (Nasdaq: ALEX )||$7 million||$163 million|
Source: Capital IQ, a Standard & Poor's company.
*Represents combined value of A and B shares.
While I don't know that I'd call Seth Klarman reclusive, you're not going to see him touting his stocks on CNBC too often (to say the least). That leaves me speculating on why he was snapping up PDL. However, PDL offers exactly the kind of quirky special-situation flavor that Klarman tends to jump at. Its business is basically defending patents and collecting royalties on drugs sold by the likes of Novartis (NYSE: NVS ) and Biogen Idec (Nasdaq: BIIB ) .
While the patents have a definite lifespan, the company gushes cash right now, and its stock yields a heady 9%. The long-term future of the company is a bit up in the air, but it is currently on the hunt for opportunities to buy additional royalty assets.
Henderson Land Development
Henderson Land Development may not be simple for U.S. investors to buy, since it's not listed on the NYSE or Nasdaq, but as the largest position across Third Avenue's funds, Marty Whitman & Co. are hot on it. In Third Avenue's second-quarter shareholder letter, Third Avenue Value Fund co-manager Ian Lapey made a compelling case for the stock.
He noted that a number of the company's investment properties have seen strong increases in occupancy. He also pointed out that the poor performance of the property development arm may have caused a knee-jerk market reaction that created value in the stock. Longer term, Lapey said he believes the company's development strategy -- which involves redeveloping older buildings rather than competing in government auctions -- will pay off nicely.
While David Einhorn's letters to Greenlight partners are generally available on the Web, I was unable to find any commentary from him on why he went with Travelers in particular. However, I might speculate that this is simply a strong -- if unexciting -- insurer that's trading at just over eight times earnings and is paying a decent dividend. Perhaps it's not a brain-bending thesis.
Longleaf, however, was a little more vocal about its interest in Travelers and other insurers. Hawkins and partner-in-crime Staley Cates wrote in the first quarter letter to shareholders that economic growth and less capital flowing through the system will improve the fortunes of a broad range of insurers. Interestingly, they had this to say about their insurance holdings in general:
The Funds' insurance holdings illustrate one of Southeastern's major advantages in generating superior long-term returns -- time horizon arbitrage. Most analysts make stock recommendations based on the outlook for a company over the next few quarters. For them, a one-year horizon is long-term. Conversely, Southeastern appraises business values which are dependent on multi-year free cash flows. If an industry or a company faces short-term pressures such as a soft pricing cycle, but the strength of the business and its prospects over five years remain intact, we may get the opportunity to buy a high quality company at a substantial discount to its underlying value.
If that's not a value investor's sentiment, then I don't know what is.
While I'm not going to rehash all of the reasons Berkshire is a worthwhile investment (that could keep us here all day), I will point out why Berkshire may be an investment to buy now. In a word: valuation.
Berkshire's stock currently trades at 1.2 times its book value. It's not very often that it trades that close to its book value. In fact, prior to the financial crisis gutting the stock market, Berkshire's stock had maintained a premium over book value in the range of 50% to 100%. So right now there's no Buffett premium. There's no Munger premium. There's no Ajit Jain premium. There's no real premium of any sort here.
Need I say more?
Alexander & Baldwin
A&B is a Hawaii-based conglomerate that at first blush doesn't look all that compelling to me. Equity returns are underwhelming, you can't say the company is a serious grower, and its valuation multiples don't exactly scream "value."
However, Ackman is known as an activist investor -- just look at how he shook up Fortune Brands (NYSE: FO ) -- and he's likely got something up his sleeve when it comes to A&B. Could he be looking to break the company up? Time will tell. For now, Ackman's SEC filing simply says that he wants to "engage in discussions with management, the board and other stockholders."
Time to dig in
A guiding principle in my own investing is that I never buy any stock simply because another investor has -- no matter how smart they are. But we started out by looking for some stock ideas and I think we've got a handful of good ones here. So go ahead and add any or all of these stocks to your watchlist by clicking the "+" next to the ticker. Don't have a watchlist yet? Click here to start one.