Charles Akre’s Akre Capital Management has filed its 13F for the fourth quarter of 2012, disclosing many of its long equity positions as of the end of December. We have been tracking 13F filings from hedge funds and other notable investors to build our database of filings, which can then be used to help find investments that are likely to beat the market based on historical trends. For example, the most popular small cap stocks among hedge funds tend to be good picks; our list of these stocks from our August newsletter produced an excess return of 18 percentage points between September and January (read more about our hedge fund strategies). Of course a more basic way to use 13Fs is to review a fund’s top stock picks and see if they are worthy of further research. Here are our thoughts on Akre’s five largest holdings going into 2013 (compare these top picks to those in previous filings):
The fund’s top pick was Mastercard Inc (NYSE:MA) with Akre reporting a position of about 340,000 shares. The credit card company reported a 10% increase in revenue last quarter compared to the fourth quarter of 2011, and earnings were up as well (though at a rate that is not likely to continue). Mastercard was one of the most popular services stocks among hedge funds in the third quarter of 2012 (see the top ten services stocks). However, the trailing earnings multiple is quite high at 24 and we think that other credit card stocks including Capital One Financial Corp. (NYSE:COF) and Discover Financial Services (NYSE:DFS) might be better value prospects.
Akre owned 1.7 million shares of American Tower Corp (NYSE:AMT) at the end of December. American Tower operates as a real estate investment trust, giving the company a favorable tax status as long as it distributes a large share of its income to shareholders. While this setup often results in high yields, American Tower’s dividend yield is not very high at just over 1%. Billionaire Ken Griffin’s Citadel Investment Group more than tripled the size of its position in the stock during the third quarter and closed September with 2.1 million shares in its portfolio (check out Griffin’s stock picks).
See three more of Akre’s favorite stocks, including a Warren Buffett stock pick:
The fund also liked Moody’s Corporation (NYSE:MCO), adding shares over the course of the fourth quarter of the year. Warren Buffett’s Berkshire Hathaway had over $1 billion invested in Moody’s at the end of September (find Buffett’s favorite stocks). Moody’s trades at 15 times trailing earnings, and has been experiencing strong growth; analyst estimates for the next several years imply a five-year PEG ratio of 0.9. With the stock not particularly expensive and performance strong it might be worth considering.
Ross Stores, Inc. (NASDAQ:ROST) was another of Akre’s top picks as the fund owned 1.9 million shares at the beginning of January. Revenue and earnings were both up 11% in Ross’s most recent quarterly report (for the fiscal quarter ending in October) versus a year earlier, a good sign for the discount apparel store. Some future growth is already priced in- the trailing P/E is 18- but it could be a candidate for a “growth at a reasonable price” stock. Renaissance Technologies, founded by billionaire Jim Simons, had a large position in Ross Stores at the end of the third quarter (research more stocks Renaissance liked).
Akre reported owning about 230,000 shares of Markel Corporation (NYSE:MKL). The insurance company’s earnings multiples are close to 20 as the financial community is generally skeptical of the impending acquisition of Alterra Capital Holdings Ltd (NASDAQ:ALTE); however, we have noticed a streak of insider purchases at Markel over the past few months (see a history of insider purchases at Markel). Net income has been up and the P/B ratio reflects a moderate premium to the book value of Markel’s equity. Markel’s chief investment officer, Tom Gayner, spoke with us earlier this year about his investment process and other topics (read our exclusive interview with Tom Gayner).
Disclosure: I own no shares of any stocks mentioned in this article.
