Value investing is a popular investing strategy perfected by Warren Buffett and deployed by many other hedge funds. David Abrams, the founder and brain behind Abrams Capital Management, has also mastered the value-oriented investing strategy, having perfected it during his tenure at Seth Klarman’s Baupost Group. Previously we wrote the following about David Abrams:
“David Abrams is a value investor just like Seth Klarman. The fund follows a fundamental, value-oriented approach and its investments are made with a focus on the long-term horizon. Abrams holds a diversified portfolio of assets, including domestic and foreign equity securities, debt, distressed securities, and private and illiquid investments. He invests only a small percentage of his assets in equities. You can check out his latest and previous portfolios below. In June 2014 WSJ published an article focusing on Abrams Capital. The article stated that David Abrams is a billionaire who earned $400 million in 2013. The article also revealed that Boston-based Abrams Capital has nearly $8 billion in AUM and returned 15% since its inception.
…Abrams Capital is also unlevered, which means that it does not invest with borrowed money and usually holds a significant amount of cash, probably taking after his mentor Seth Klarman, who prefers to hold cash rather than invest in securities with low safety margins.”
Abrams is an introvert best known for working in the shadows without sending shockwaves but letting performance speak for itself. He also stands out from the crowd for not using any leverage or borrowed money.
The portfolio manager relies on a strategic and persistent perspective while seeking investments in the capital markets. The strategy focuses on identifying companies and other asset classes trading at discounted levels to their intrinsic value. The investor is renowned for buying shares in beaten-down and depressed companies and holding positions for months and years to unlock value. He is also known to be patient to the extreme, normally sitting in a static portfolio for months without making a move.
Between 1999 and 2014, Abrams’ hedge fund generated a median 15% return, triple the S&P 500’s comparable returns, including dividends. The significant returns come from Abrams focusing on the risks before investing in any asset class instead of rewards. Additionally, the value-oriented investor also focuses on absolute performance over relative performance.
Abrams Capital Management mostly invests in the services sector, accounting for 30% of the portfolio, with technology stocks accounting for 23% and the industrial goods sector at 22%.
David Abrams of Abrams Capital Management
The hedge fund’s biggest holdings as of the end of the second quarter include Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), Coupang, Inc. (NYSE:CPNG), Camping World Holdings, Inc. (NYSE:CWH) and Teva Pharmaceutical Industries Limited (NYSE:TEVA).
Our Methodology:
We analyzed Abrams Capital Management’s Q2 2023 portfolio and reviewed stocks from its previous portfolios that have been divested to identify the top value stocks. We chose the companies that had P/E ratios below 25 as of October 9. We also checked the hedge fund sentiment for each stock using Insider Monkey’s Q2 2023 data. The stocks are ordered by the number of hedge funds that own them.
Abrams Capital 13F: Best Value Stocks To Buy
10. USCB Financial Holdings, Inc. (NASDAQ:USCB)
Number of Hedge Fund Holders: 3
PE Ratio as of October 10: 11.19
USCB Financial Holdings, Inc. (NASDAQ:USCB) is a company that operates as a bank holding company for U.S. Century Bank. The company offers various banking products and services, such as deposit accounts, lending products, credit cards, online banking, and more. With a price-to-earnings ratio (P/E) of 11.19, USCB stock is trading at a lower multiple of its earnings compared to its industrial average of 11.56, solidifying its position as a value stock. As a result, it secures the tenth spot on the Abrams Capital 13F list of the 10 best value stocks to buy.
In the second quarter of 2023, Abrams Capital Management held 649,085 shares in USCB Financial Holdings, Inc. worth over $6.62 million, representing 0.19% of their portfolio. The hedge fund first acquired stake in the company in the fourth quarter of 2021.
As of the close of Q2 2023, 3 hedge funds tracked by Insider Monkey reported having stakes in USCB Financial Holdings, Inc., down from 4 in the previous quarter. David Abrams’ was the company’s major stakeholder in Q2.
9. Camping World Holdings, Inc. (NYSE:CWH)
Number of Hedge Fund Holders: 18
PE Ratio as of October 10: 19.26
Camping World Holdings, Inc. is a company that operates in the recreational vehicle (RV) industry, selling and servicing RVs and related products and services. CWH is a value stock that trades at a lower multiple of its earnings, with a P/E ratio of 19.26, which earns it the ninth spot on Abrams Capital 13F’s list of the 10 best value stocks to buy.
Camping World Holdings, Inc. ranks as the ninth best value stock to buy on Abrams Capital’s 13F list. The hedge fund owned 5.11 million shares in Camping World Holdings, Inc. worth $153.78 million, representing 4.42% of their portfolio. Abrams Capital Management is a leading shareholder in Camping World Holdings, Inc..
As per Insider Monkey’s data, the number of hedge funds with stakes in Camping World Holdings, Inc. stayed at 18 in Q2 2023, unchanged from the prior quarter.
8. O-I Glass, Inc. (NYSE:OI)
Number of Hedge Fund Holders: 26
PE Ratio as of October 10: 4.48
O-I Glass, Inc. (NYSE:OI) is a company that produces and sells glass containers for various food and beverage products. The company has a market-leading position in key markets such as Europe, North America, and Brazil. The company’s main customers include beer, wine, soda, spirits, condiments, and food manufacturers.
O-I Glass, Inc. is considered a value stock as it appears to trade at a price below its fundamental metrics, with a price-to-earnings ratio (P/E) of 4.48, notably lower than the industry average P/E of 23.75.
Abrams Capital Management had a stake in O-I Glass, Inc. in Q3 2022, with over 6.93 million shares valued at over $89.80 million. This accounted for 2.58% of its portfolio. However, the fund sold its shares in the glass company in Q4 2022.
At the end of Q2 2023, 26 hedge funds tracked by Insider Monkey reported having stakes in O-I Glass, Inc., falling from 27 in the previous quarter.
7. Asbury Automotive Group, Inc. (NYSE:ABG)
Number of Hedge Fund Holders: 27
PE Ratio as of October 10: 5.07
Asbury Automotive Group, Inc. (NYSE:ABG) is a company that operates auto dealerships in various parts of the United States. It sells new and used vehicles and provides finance, insurance, parts, maintenance, and repair services.
Asbury Automotive Group, Inc. is among the value stocks featured in the Abrams Capital 13F list of the 10 best value stocks to buy. With a low price-to-earnings ratio (P/E) of 5.07, ABG is trading at a reduced earnings multiple compared to the consumer cyclical’s average P/E ratio of 23.75.
Asbury Automotive Group, Inc. was the second-largest holding of Abrams Capital Management at the close of Q2 2023. The hedge fund owned stakes worth roughly $506.94 million in the company, which represented 14.57% of its portfolio.
Insider Monkey’s data shows that 27 hedge funds owned stakes in Asbury Automotive Group, Inc. in Q2 2023, the same number as in the previous quarter.
6. U-Haul Holding Company (NYSE:UHAL)
Number of Hedge Fund Holders: 28
PE Ratio as of October 10: 11.74
U-Haul Holding Company (NYSE:UHAL) is a company that operates in the transportation and storage industry, providing various products and services related to moving and self-storage. Some of the company’s products and services include rental trucks, trailers, towing devices, moving supplies, storage units, portable moving containers, propane, and more.
U-Haul Holding Company earns its place as a value stock in the Abrams Capital 13F list of the 10 best value stocks to buy. UHAL’s value stock status is underscored by its low price-to-earnings ratio (P/E) of 11.74. This P/E ratio places it below the industrials sector’s average of 22.7, further emphasizing its position as a value stock.
Abrams Capital Management owned a stake in U-Haul Holding Company in Q2 2023, with 3.66 million shares worth over $185.62 million. This represented 5.33% of its portfolio.
As per Insider Monkey’s data, the number of hedge funds with stakes in U-Haul Holding Company (NYSE:UHAL) stayed at 28 in Q2 2023, unchanged from the prior quarter.
5. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Number of Hedge Fund Holders: 32
PE Ratio as of October 10: 21.33
Willis Towers Watson Public Limited Company (NASDAQ:WTW) is a company that provides various services and products related to risk management, insurance brokerage, advisory, and human capital. Willis Towers Watson Public Limited Company is considered a value stock due to its apparent undervaluation.
In Q2 2023, Abrams Capital Management held 806,836 shares of Willis Towers Watson Public Limited Company, valued at over $190.01 million. This accounted for 5.46% of its portfolio. Willis Towers Watson Public Limited Company occupies the fifth position on the Abrams Capital 13F list of the 10 best value stocks to buy.
As of the close of Q2 2023, 32 hedge funds tracked by Insider Monkey reported having stakes in Willis Towers Watson Public Limited Company, down from 42 in the previous quarter.
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4. Lithia Motors, Inc. (NYSE:LAD)
Number of Hedge Fund Holders: 33
PE Ratio as of October 10: 6.72
Lithia Motors, Inc. (NYSE:LAD) is a company that operates automotive franchises and sells new and used vehicles. It has 345 stores globally. It offers 47 new vehicles and all used car brands in its stores and online. It also provides auto repair and parts services and certified pre-owned vehicles.
Lithia Motors, Inc. is categorized as a value stock due to its low price-to-earnings ratio (P/E) of 6.72, signaling that it trades at a lower earnings multiple than the consumer cyclical sector’s average P/E ratio of 23.75.
By the end of Q2 2023, 33 hedge funds were long Lithia Motors, Inc., compared to 37 positions in the previous quarter. Abrams Capital’s 13F: 5 best value stocks to buy has Lithia Motors, Inc. as the fourth stock on the list. The hedge fund held over 2.35 million shares in the company that sells automobiles, valued at over $714.98 million. This made up 20.55% of David Abrams’ portfolio.
Here is what Right Tail Capital said about Lithia Motors, Inc. in its Q1 2023 investor letter:
“The original research premise fit right into Right Tail’s wheelhouse: a set of good businesses trading at attractive long-term valuations. Valuations look inexpensive at mid to high single digit multiples of earnings. Historically, these businesses have traded at 10-15x P/E multiples despite having more leverage and holding more inventory than they do today. In some ways, the historical multiples feel appropriate given their delicate relationships with manufacturers and cyclicality; on the other hand, these businesses have produced solid mid-teens returns with attractive reinvestment opportunities suggesting they are better than average companies. Adding another wrinkle to the puzzle, these businesses have over-earned the last few years due to Covid (car shortages, consumers flush with cash, etc.).
As I began the work, the compelling return potential warranted additional research. Lithia Motors (LAD), for example, has laid out a 2025 earnings per share target of $55-60. If the company reaches $55 in earnings and trades at a 12x P/E, we’d have a stock price of $660 – this would be a triple from today’s prices and produce a ~45% IRR over 3 years. The businesses are also producing lots of cash currently (LAD has earned ~$40 per share the last few years) creating additional capital allocation optionality.”
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3. Energy Transfer LP (NYSE:ET)
Number of Hedge Fund Holders: 34
PE Ratio as of October10: 11.41
Energy Transfer LP (NYSE:ET) is a company that operates in the energy sector, providing various services and products related to natural gas, crude oil, and natural gas liquids. Energy Transfer LP boasts a substantial dividend yield of 9.21%, surpassing the energy sector’s average yield of 1.92%. Furthermore, its low price-to-earnings ratio (P/E) of 11.41 indicates it trades at a reduced earnings multiple.
The hedge fund managed by David Abrams owns 17.83 million shares in Energy Transfer LP worth over $226.50 million, representing 6.51% of its portfolio. Energy Transfer LP holds the third position on the Abrams Capital 13F list of the 10 best value stocks to buy.
At the end of Q2 2023, 34 hedge funds were bullish on Energy Transfer LP. This is compared to 35 positions in the previous quarter. The stock has a negative hedge fund sentiment.
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2. Kinder Morgan, Inc. (NYSE:KMI)
Number of Hedge Fund Holders: 36
PE Ratio as of October 10: 15.10
Kinder Morgan, Inc. (NYSE:KMI) is a company that operates in the energy sector, providing various services and products related to natural gas, crude oil, and natural gas liquids. The company is categorized as a value stock because it currently trades at a lower price compared to its fundamental metrics, including a dividend yield of 6.95% and a price-to-earnings ratio (P/E) of 15.10.
Kinder Morgan, Inc. is the second best value stock to buy according to Abrams Capital Management. The hedge fund held a position in Kinder Morgan, Inc. in Q3 2022, with more than 3.37 million shares worth more than $56.21 million. This represented 1.62% of their portfolio. However, they dumped their shares in the energy company in Q4 2022.
In the second quarter of 2023, 36 hedge funds in the database of Insider Monkey held stakes in Kinder Morgan, Inc., up from 35 in the preceding quarter.
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1. Tempur Sealy International, Inc. (NYSE:TPX)
Number of Hedge Fund Holders: 39
PE Ratio as of October 10: 17.59
Tempur Sealy International, Inc. (NYSE:TPX) is a company that produces and sells various types of mattresses, pillows, bedding, and other sleep products. The company operates under several brands, such as Tempur-Pedic, Sealy, Stearns & Foster, and Cocoon by Sealy.
Tempur Sealy International, Inc. is considered a value stock as it trades at a lower price-to-earnings ratio (P/E) of 17.59, and a reduced price-to-book ratio (P/B) of 1.18. These metrics highlight TPX’s undervaluation, signaling growth potential.
David Abrams’ Abrams Capital Management holds 3.60 million shares in Tempur Sealy International, Inc., worth over $144.25 million. This represents 4.14% of their portfolio. Robert Joseph Caruso’s Select Equity Group is the most significant shareholder of the company, with stakes worth $798.17 million.
According to Insider Monkey’s database for Q2 2023, 39 hedge funds reported having stakes in Tempur Sealy International, Inc., down from 40 in the previous quarter.
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This article is originally published at Insider Monkey.
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