Here's What This 2,341% Gainer Has Been Buying and Selling

Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.

Today let's look at Gardner Russo & Gardner, a hedge fund company with a record that speaks for itself. Over the past 25 years, according to the folks at GuruFocus.com, it has posted a cumulative gain of about 2,341% versus 830% for the S&P 500. Over the past 10 full years, it gained 122% versus 35% for the S&P 500.

To get a sense of the company's investment style, look at its well-respected partner, Thomas Russo. He's known for favoring companies with strong free cash flow, robust balance sheets, and hefty returns on assets. He's also a value guy, aiming to buy such companies at undervalued prices.

Gardner Russo & Gardner's reportable stock portfolio totaled $6.4 billion in value as of June 30, 2012. The company's biggest holdings, representing nearly 30% of total assets, were Philip Morris International, Nestle, and Berkshire Hathaway. (Note that the company's holdings are not in just one fund, but spread out over various funds and accounts.)

Interesting developments
So what does Gardner Russo & Gardner's latest quarterly 13F filing tell us? Here are a few interesting details:

New holdings include Phillips 66 (NYSE: PSX  ) and Arch Coal (NYSE: ACI  ) . Phillips 66 is the result of ConocoPhillips separating its upstream and downstream businesses, with Phillips representing the somewhat lower-margin refining and marketing operations. It's upping its pipeline capacity and extending rail lines to shale fields, while planning to buy back up to $1 billion of shares. It also has significant chemical operations.

Falling close to 70% over the past year, Arch Coal, like its peers, has been stung by the global economic slowdown and low natural gas prices (which are partially tied to coal prices) -- to the point of having to reduce its dividend payout. It may be a long time before coal stocks are attractive again. Some are bullish, though, seeing gas prices inevitably rising, and demand for coal (and steel, which requires metallurgical coal) growing. Indeed, shares of Arch Coal recently jumped 24%, on better-than-expected earnings.

Among holdings in which Gardner Russo & Gardner increased its stake was agriculture, construction, and forestry titan Deere (NYSE: DE  ) , which has been growing its revenue and earnings at an accelerating pace over the past few years. In its most recent quarter, earnings per share advanced by 23%. Boding well for it is its heavy exposure to global economies, including many fast-growing emerging markets.

Gardner Russo & Gardner reduced its stake in lots of companies, including Walgreen (NYSE: WAG  ) . The company took a big hit when it fell out with Express Scripts, losing billions in business and gobs of customers. The two have agreed to not sue each other, but things haven't turned around in a big way for Walgreen yet. In its favor, it's adding groceries to its product mix and stands to benefit from our nation's health care reforms, which will generate more customers.

Finally, Gardner Russo & Gardner unloaded several companies, such as Freeport-McMoRan (NYSE: FCX  ) . It's down about 25% over the past year, but some see plenty of reasons to like the company, such as its nearly 4% dividend yield, its very-low-cost production of copper and molybdenum, its low P/E ratio, and inevitable rising demand for copper, as the world's economies recover. Even new technologies, such as solar energy and electric vehicles, require copper. Bears worry about risks such as geopolitical strife and labor problems, though.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.

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Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Berkshire Hathaway, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold, Express Scripts Holding, and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Express Scripts Holding and Berkshire Hathaway. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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