Edgar Wachenheim manages a fairly small-scale operation at Greenhaven Associates considering the size of its assets under management: billions of dollars are capital are invested through the fund, but because of its long-term investing horizon and its tendency towards a concentrated portfolio (we only count 19 positions worth over $10 million in Greenhaven’s most recent 13F filing, 12 of which were over $100 million) only a small number of analysts are needed. Wachenheim also stands out as an investor who has groomed other fund managers; for example, Chieftain Capital and Brave Warrior Capital are both managed by Greenhaven alumni.
Wachenheim’s investment process begins by assumed that a low-priced stock is that way because of problems in the business which the market believes to be permanent (or at least long term). The question then becomes whether the market is correct- in which case the stock should be discarded as a potential investment- or if in fact the problems are short term in nature. Sometimes an entire industry or industry segment is afflicted by a short-term problem and so Greenhaven can then capitalize even further by investing in a larger theme. The most recent 13F filing shows that Wachenheim and his team were overweight stocks in the services and basic materials sectors, as they have been for most of the last year. Read on to see the fund’s top five picks (the data is over three months old, but the size of Greenhaven’s positions tends to not change much from quarter to quarter and so we’d guess that the fund still has large positions in these companies) or see the full list of stocks Greenhaven reported owning.
FedEx Corporation (NYSE:FDX). Wachenheim’s top pick, at 4.6 million shares or about 12% of the total capital invested in 13F stocks, FedEx experienced a 12% decline in earnings in its most recent fiscal quarter compared to the same period in the previous fiscal year. Southeastern Asset Management, which is managed by Mason Hawkins, had $1.4 billion invested in the stock at the end of the quarter (find more stocks Southeastern had over $1 billion invested in). The trailing P/E at FedEx is 16.
Read about Lowe’s and three more stock picks:
Lowe’s Companies, Inc. (NYSE:LOW). The market has liked the home improvement store, sending its stock up 32% in the last year and valuing Lowe’s at 21 times trailing earnings. Greenhaven reported a position of 12.5 million shares in Lowe’s. Billionaire Ken Griffin’s Citadel Investment Group had moved heavily into the stock during Q3, closing September with 3.9 million shares in its portfolio (check out Griffin’s stock picks). We think that the valuation may be too high for us to recommend getting involved at this time.
Air Products & Chemicals, Inc. (NYSE:APD). The $19 billion market cap manufacturer of gases was another of Greenhaven’s top picks with the fund owning 3.7 million shares according to the 13F. Air Products & Chemicals’ fiscal year ended in September, with earnings for the fourth quarter of the fiscal year coming in 57% below their levels from a year earlier. Two insiders were buying the stock in the middle of October (see a history of insider purchases at Air Products & Chemicals).
3M Co (NYSE:MMM). Greenhaven cut its stake in 3M by 7% but still owned 3.1 million shares, and so the conglomerate was still one of its top five picks. Eagle Capital Management, managed by Boykin Curry, reported owning 4.6 million shares of the stock (research more stocks that Eagle owns). 3M carries trailing and forward P/E multiples of 16 and 14, respectively, though the business is not likely to see significant growth.
Baker Hughes Incorporated (NYSE:BHI). Wachenheim and his team kept their position in the $18 billion market cap oil and gas drilling equipment and services company about constant between July and September. The stock trades at only 13 times trailing earnings; while this might seem like an excellent opportunity given high drilling activity in the U.S., the company’s net income has actually been down. Billionaire Kerr Neilson’s Platinum Asset Management initiated a position in Baker Hughes during the third quarter of 2012.
Disclosure: I own no shares of any stocks mentioned in this article.
