Tom Gayner’s Markel Gayner Asset Management, the investment division of Markel Corporation (NYSE:MKL) has filed its 13F with the Securities and Exchange Commission for the reporting period of March 31. We’ve poured through the equity holdings of Gayner, who’s run an extremely successful fund over the past 20 years, with average yearly returns exceeding 10%. We’ve already focused on the fund’s top longterm value investments, which included CarMax Inc. (NYSE:KMX), Walgreens Boots Alliance Inc (NASDAQ:WBA), and Walt Disney Co (NYSE:DIS). Now we’ll take a look at Gayner’s holdings in the energy sector.
Let’s start with Exxon Mobil Corporation (NYSE:XOM), who we crowned yesterday as the best energy company in the world. Among other things, we cited Exxon’s disciplined approach to the projects it undertakes, which has allowed it to steer clear of money-draining operations during the challenging energy climate of late. In addition, Exxon Mobil Corporation (NYSE:XOM) raised $8 billion through a debt offering in March, which could be used to acquire a cheaper energy company at a favorable valuation, given the plummeting market caps of many energy companies over the past ten months. Gayner also feels highly about Exxon, with the company ranking as his top energy stock through a $73.85 million holding consisting of 868,800 shares. Exxon Mobil Corporation (NYSE:XOM) posted first quarter earnings per share of $1.17, trouncing estimates that predicted $0.83, though shares are still down by 6% year-to-date and nearly 15% over the past calendar year. The stock has a dividend yield of 3.36% and ranks as a popular dividend aristocrat, and trades at a P/E of just 13.07 and a forward P/E of 16.39. While Warren Buffett notably dumped his large position in Exxon during the fourth quarter of 2014, the stock maintains numerous other prominent investors, including respected value investor Donald Yacktman and billionaires Ken Fisher and Ken Griffin.
Schlumberger Limited. (NYSE:SLB) is next on the list, with Gayner holding a position of 545,000 shares worth $45.78 million, having increased the position by 34% during the first quarter. Schlumberger Limited. (NYSE:SLB) is experiencing a quicker turnaround than Exxon in investor sentiment, gaining 8% in 2015, though it’s still down by 8% over the past calendar year. As mentioned above, Exxon has not had to resort to cutting back as deeply on capital spending because of its more stable position, however the market appears to be favoring the more overt steps taken by Schlumberger recently, including the announcement that it will cut 11,000 jobs from its workforce. Schlumberger Limited. (NYSE:SLB)’s latest earnings came in slightly below Exxon’s at $1.06 per share, while the stock trades at a heftier P/E of 24.02. Schlumberger is also a top pick of John A. Zaro’s Bourgeon Capital, while Douglas Dethy of DC Capital Partners had exposure of 20% to the stock in his equity portfolio as of the end of 2014.
After its nearly 50% plunge from late July through mid-December, Halliburton Company (NYSE:HAL) had a number of bullish funds open positions on it during the fourth quarter of 2014, hoping to catch the rebound. While Gayner was not one of the overly bullish investors, he did also open a small position of 15,000 shares during that quarter, and increased it to 155,000 shares during the first quarter, with the current holding having a value of $6.08 million. Halliburton Company (NYSE:HAL) has indeed rebounded, rising by 25% over the past five months. Halliburton appears to have appeased the markets in a similar fashion as Schlumberger did, cutting 9,000 jobs during that period and vowing to cut capital spending by 15% in 2015. The stock currently trades at a P/E of 18.62, with Halliburton beating earnings estimates last quarter with $0.49 per share in earnings, easily topping estimates of $0.36. Among those bullish investors who have benefited from the rebound are Jeffrey Ubben’s ValueAct Capital and Glenn Greenberg’s Brave Warrior Capital.
Lastly we come to National-Oilwell Varco, Inc. (NYSE:NOV), a stock recommended at last year’s Delivering Alpha Conference by billionaire Larry Robbins, and which is also held by Warren Buffett. Gayner owns a position of 575,000 shares worth $28.74 million, having increased the position by 21% during the first quarter. While National-Oilwell Varco, Inc. (NYSE:NOV) also had an earnings beat last quarter with adjusted earnings of $1.14 per share beating estimates by $0.04, its shares are nonetheless down by 22% in 2015. While the company expects revenue to slide for the next few quarters, CEO Clay Williams did hint at the possibility of an acquisition, claiming National-Oilwell Varco, Inc. (NYSE:NOV) has the financial resources to do so. Shares are currently trading at a P/E of just 9.94, well below most of its industry peers.
Hedge funds and other big money managers like Gayner tend to have the largest amounts of their capital invested in large and mega-cap stocks because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 137%, beating the broader market by over 82 percentage points through the end of March (see the details).
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