While there are a great many "professional" investors out there, there are precious few whose portfolios interest me. One of those select few investors is Chris Davis of Davis Funds.
The "why" here is very simple: Davis is a value-obsessed investor who buys stocks to own, rather than flip. The turnover in the Davis funds reflects this approach, as the funds' turnover implies an average five-year holding period. And insiders at Davis don't just talk the talk -- at the end of last year, they had more than $2 billion of their own money invested in the Davis funds.
Of course, I don't buy a stock simply because an investor I respect is buying it. But their moves can point me toward stocks worth further research.
With that in mind, here are a handful of the stocks that saw buying activity from Davis Funds during the first quarter.
|
Company |
Value of Fund's Stake 12/31/10 |
Value of Fund's Stake 3/31/11 |
|---|---|---|
|
ACE Limited (NYSE: ACE) |
$10.3 million |
$307.1 million |
|
Air Products & Chemicals (NYSE: APD) |
$130 million |
$299.4 million |
|
Kraft (NYSE: KFT) |
$204 million |
$433.7 million |
|
Expedia (Nasdaq: EXPE) |
$103.4 million |
$192.3 million |
|
Everest Re (NYSE: RE) |
$89.8 million |
$173.1 million |
Source: Capital IQ, a Standard & Poor's company.
Both ACE and Everest are specialty property and casualty insurers/reinsurers. These are businesses that tend to fly under the radar and can turn off investors with lumpy results caused by losses from huge disasters like, say, an earthquake and tsunami in Japan. However, these are also businesses that, when well-run, can generate very attractive returns over the long run.
Just about everyone is familiar with Kraft, so what makes the stock interesting now? Integrating Cadbury hasn't been an overly smooth process so far, but once it's done it could provide a great growth engine for the massive company. Kraft's 3.3% dividend doesn't hurt either. On the flip side, the stock's been on a run in recent months, so the valuation may not be as compelling as when Davis was buying.
As the name suggests, Air Products & Chemicals sells specialty gases. Thrilling, right? Even if unexciting, Air Products is a solid, dividend-paying business that produces reasonable returns on capital. As far as catalysts go, the company may be ready to refocus itself after a year-plus unsuccessful takeover bid for rival Airgas (NYSE: ARG).
Headline risk is one of the things that Davis and company look for in their investments. During the first quarter, Expedia was hit from a number of angles, including a spat with AMR Corp.'s (NYSE: AMR) American Airlines, the threat of Google stomping all over its market, and an ugly fourth-quarter earnings report. Obviously I'm speculating on what drew Davis to the stock, but if any/all of those were the reason, the stock has made a swift comeback from its first-quarter dip.
At least four of these five stocks -- ACE, Everest Re, Kraft, and Air Products -- are going on my watchlist to get some further research. Want to take a closer look at them yourself? Go ahead and add them to your watchlist.
