In this article, we will look at 4 value stocks to buy in 2022 according to David Abrams. If you want to read about David Abrams’ investment philosophy and his hedge fund’s performance, you can go to 9 Value Stocks to Buy in 2022 According to David Abrams.
4. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Abrams Capital Management’s Stake Value: $252,459,000
Percentage of Abrams Capital Management’s 13F Portfolio: 5.89%
Number of Hedge Fund Holders: 49
PE Ratio as of June 17: 14.31
Willis Towers Watson Public Limited Company (NASDAQ:WTW) operates as an advisory, broking, and solutions company worldwide. The company operates through two primary segments: Health, Wealth & Career, and Risk & Broking. At the end of Q1 2022, Abrams Capital Management’s stake in the company was valued at $252.45 million, which covers 5.89% of the fund’s investment portfolio. As of June 17, the stock has a forward yield of 14.31, and is therefore ranked high among David Abrams’ value stock picks.
As of April 11, BofA analyst Joshua Shanker has a $245 price target and an Underperform rating on Willis Towers Watson Public Limited Company (NASDAQ:WTW).
On May 26, Willis Towers Watson Public Limited Company (NASDAQ:WTW) increased its existing share repurchase authority by $1 billion, in addition to the roughly $1.3 billion remaining on the current open-ended repurchase authority.
At the close of Q1 2022, 49 hedge funds were bullish on Willis Towers Watson Public Limited Company (NASDAQ:WTW) with stakes worth $2.18 billion. This is compared to 66 positions in the preceding quarter with stakes worth $4.00 billion.
Here is what Artisan Partners, a high-value-added investment management firm, had to say about Willis Towers Watson Public Limited Company (NASDAQ:WTW) in its ‘Artisan International Value Fund’ fourth-quarter 2021 investor letter:
“During the quarter, we made meaningful new investments in two UK domiciled companies, (one of which is) Willis Towers Watson (WTW). Long-term investors will recognize Willis Towers Watson since it was in the portfolio from 2018 to early 2021. We exited that investment after WTW agreed to merge with Aon. Unfortunately for WTW and Aon, that proposed merger was rejected by the US Department of Justice in July 2021. In fact, there is significant market power in this industry, which is what makes it a great business. That market power is exerted not with the insurance brokers’ corporate customers, but with their suppliers (insurance underwriters). We were surprised at Aon’s attempted merger, and our concerns regarding antitrust approval encouraged us to sell.
WTW operates two businesses: insurance brokerage and HR consulting. Both are market-leading with attractive financial profiles and mostly recurring revenue streams. Despite these strengths, WTW operates with lower margins versus peers. The margin opportunity is most pronounced in the insurance brokerage business. Management has slowly increased the insurance brokerage margin over time, but a large gap remains with best-in-class peers like Marsh & McLennan and AJ Gallagher. Management presented a plan to increase the insurance brokerage business’s margins 5% by year-end 2024. This plan follows the outline other insurance brokers have previously used to increase their margins—giving us confidence the targets are achievable.
The merger’s demise brought a new and experienced CEO, a new CFO and a refreshed shareholder-aligned board of directors. In addition, the merger’s cancellation transformed the company’s financial
position. As part of the agreement, Aon paid WTW a $1 billion “break fee.” WTW also sold a re-insurance brokerage business for $3.25 billion along with the potential to earn $750 million through an earnout agreement. With the proceeds, WTW expects to repurchase approximately $4 billion of stock between the second half of 2021 and the end of 2022. With existing cash on hand and cash generation over the next three years, we estimate the company can return another $6 billion to shareholders through dividends and share repurchases representing over 20% of today’s market capitalization. We forecast earnings of approximately $20 per share in 2024—a price to earnings (P/E) ratio of 11.5X. We believe that valuation significantly undervalues this high-quality business.”
3. AMERCO (NASDAQ:UHAL)
Abrams Capital Management’s Stake Value: $252,456,000
Percentage of Abrams Capital Management’s 13F Portfolio: 5.89%
Number of Hedge Fund Holders: 29
PE Ratio as of June 17: 7.97
AMERCO (NASDAQ:UHAL) operates as a do-it-yourself moving and storage operator for household and commercial goods in the United States and Canada. At the close of Q1 2022, Abrams Capital Management’s stake in the company was valued at $252.45 million, and as of June 17, the stock has a trailing-twelve-month PE ratio of 5.89 which places it among the top 3 value stocks to buy according to David Abrams.
On May 25, AMERCO (NASDAQ:UHAL) announced earnings for the fourth quarter of fiscal year 2022. The company reported earnings per share of $4.42, missing expectations by $2.96. The company’s revenue for the quarter came in at $1.20 billion, up 13.06% year over year, but missed expectations by $37.86 million.
At the end of Q1 2022, 29 hedge funds held stakes in AMERCO (NASDAQ:UHAL) which were valued at $937.71 million. This is compared to 29 positions in the preceding quarter with stakes worth $964.95 million.
Third Avenue Management, an investment management firm, recently published its “Real Estate Value Fund” first-quarter 2022 investor letter, in which it mentioned AMERCO (NASDAQ:UHAL). Here is what the firm had to say:
“Held in the Fund since 2018, AMERCO is widely recognized as the leader in self-moving in North America through its U-Haul subsidiary where it has an unrivaled network with approximately 176,000 trucks, 126,000 trailers, and 46,000 towing devices available across more than 23,000 locations. What is not as widely recognized, in Fund Management’s opinion, is that the company’s forward thinking management team has also spent the last decade assembling one of the largest self-storage portfolios in North America-not only solidifying the “moat” around its core business but also creating substantial value in the process.
Due to these efforts, AMERCO owned and managed more than 73 million square feet of self-storage facilities at the end of the 2021, placing it as the third largest owner of such properties in the US. Notwithstanding, the company does not seem to get much (if any) recognition for this transformation. To wit, if one were to apply the implied price per square foot for AMERCO’s closest comparable on the self-storage side of the business (e.g., Life Storage), they would arrive at an implied value for its impossible-to-replicate self-moving business of basically $0- despite it generating more than $1.0 billion of operating profits per year more recently, implying $7-8 billion of value based upon comparables within the rental segment.
This disconnect does not seem to be lost on Chairman and CEO Edward Shoen (who owns 42.7% of the company’s stock along with beneficiaries). In fact, in response to a question about the price-to-value discrepancy during the company’s most recent quarterly conference call, he remarked that “it’s a question that is regularly discussed at the board level” and that “hopefully we’ll have some news for you before the year is out.” In the meantime, AMERCO is not only continuing to self-finance the expansion of its self-storage portfolio with more than 7 million square feet of projects in development, but the company is also expanding its “U-Box” offering as it gains further market share in the portable storage and moving segment.”
2. Asbury Automotive Group, Inc. (NYSE:ABG)
Abrams Capital Management’s Stake Value: $339,338,000
Percentage of Abrams Capital Management’s 13F Portfolio: 7.92%
Number of Hedge Fund Holders: 29
PE Ratio as of June 17: 4.66
Asbury Automotive Group, Inc. (NYSE:ABG) operates as an automotive retailer in the United States. The company offers a range of automotive products and services, including, new and used vehicles, vehicle repair and maintenance services, replacement parts, and collision repair services. As of April 7, JPMorgan analyst Rajat Gupta has a $200 price target and a Neutral rating on Asbury Automotive Group, Inc. (NYSE:ABG).
As of March 31, Abrams Capital Management owns over 2.11 million shares of Asbury Automotive Group, Inc. (NYSE:ABG) which amounts to a stake of $339.33 million. The investment covers 7.92% of the fund’s 13F portfolio. As of June 17, Asbury Automotive Group, Inc. (NYSE:ABG) has a forward PE ratio of 4.66, which makes it an undervalued stock to buy now according to David Abrams.
Insider Monkey found 29 hedge funds long Asbury Automotive Group, Inc. (NYSE:ABG) at the end of Q1 2022. The total stakes of these funds in the company were valued at $926.11 million, down from $1.04 billion in the prior quarter with 32 positions.
Here is what LRT Capital Management, an investment management firm, had to say about Asbury Automotive Group, Inc. (NYSE:ABG) in its first-quarter 2022 investor letter:
“Asbury Automotive Group is one of the largest automotive retailers in the United States. It operates 90 dealerships consisting of 112 franchises and 25 collision repair centers. The company’s stores offer new and used vehicles, parts, and service, as well as finance and insurance (F&I) products. Franchise agreements controlled by automotive manufactures and state laws create an environment of tightly controlled market entry and restricted competition.
The dealership industry is highly fragmented with 93.5% of dealers having only between 1-5 locations according to data from 2020. In fact, dealers with over 50 locations account for only 0.1% of the industry – a testament to the huge opportunity for consolidation that lies ahead. Industry dynamics, including the rising complexity of automobiles and the need for omnichannel distribution are favoring better capitalized and larger dealer groups. We believe Asbury Automotive Group has several distinct advantages, particularly its highly profitable parts and service business, its overexposure to the luxury vehicle business, which carriers the best margins, and its Clicklane omnichannel strategy. Asbury’s management has also been acting in the best interests of its shareholders by allocating capital towards acquiring dealerships to aggressively expand its business, and occasionally repurchasing stock when attractive acquisitions targets could not be found.
ABG is not a fast-growing SaaS business, but when paying a valuation of ¼ of the overall stock market, one does not need to make heroic assumptions about the future to enjoy strong returns as shareholders. We believe that over the next several years, Asbury will continue to acquire dealerships, occasionally buyback stock and invest to improve its digital shopping experience. We wrote about Asbury in detail in our August 2021 Investor Letter.”
1. Lithia Motors, Inc. (NYSE:LAD)
Abrams Capital Management’s Stake Value: $705,603,000
Percentage of Abrams Capital Management’s 13F Portfolio: 16.46%
Number of Hedge Fund Holders: 46
PE Ratio as of June 17: 5.76
Lithia Motors, Inc. (NYSE:LAD) operates as an automotive retailer in the United States. The company operates through three primary segments: Domestic, Import, and Luxury. On April 20, Lithia Motors, Inc. (NYSE:LAD) reported earnings for the fiscal first quarter of 2022. The company reported earnings per share of $11.96, exceeding expectations by $1.62. The company’s revenue for the quarter came in at $6.71 billion, up 54.39% year over year, ahead of expectations by $363.33 million.
As of April 21, Guggenheim analyst Ali Faghri has a $578 price target and a Buy rating on Lithia Motors, Inc. (NYSE:LAD). The analyst also named the stock a “Best Idea”.
As of March 31, Abrams Capital Management’s stake in Lithia Motors, Inc. (NYSE:LAD) is valued at $705.60 million. It is the top 13F holding of the hedge fund and covers 16.46% of David Abrams’ 13F portfolio. As of June 17, Lithia Motors, Inc. (NYSE:LAD) has a forward PE ratio of 5.76, which makes it one of David Abrams’ top value stock picks.
At the end of the first quarter of 2022, 46 hedge funds were bullish on Lithia Motors, Inc. (NYSE:LAD) with stakes worth $2.55 billion. This is compared to 56 positions in the previous quarter with stakes worth $2.62 billion.
Here is what Oakmark Funds had to say about Lithia Motors, Inc. (NYSE:LAD) in its “Oakmark Select Fund” first-quarter 2022 investor letter:
“As is typical during periods of significant volatility, we added a new name to the portfolio. Lithia Motors (NYSE:LAD) is the largest franchised auto dealer group in the United States. The company has a long history of creating shareholder value through best-in-class operations and consistent acquisitions of smaller dealers at attractive returns. There is a long runway for management to continue creating value through such acquisitions. Management believes this will drive earnings per share to more than $50 by 2025, even as car prices return to pre-pandemic levels. Meanwhile, Lithia has a significant opportunity to further accelerate growth through Driveway, its online auto retailing platform. We believe Lithia’s existing nationwide infrastructure provides Driveway with significant competitive advantages in e-commerce, which smaller dealers will struggle to replicate. Driveway is not generating any earnings today, but it could become a major contributor over the next five to seven years. With the stock priced at less than 7x management’s 2025 EPS target and with substantial future growth potential from Driveway, we believe Lithia shares are a bargain today.”
You can also take a look at 10 Best Value Stocks To Buy Now According To Howard Marks and 12 Best Value Dividend Stocks to Buy Now.
