Editor’s Note: Related tickers: Forest City Enterprises, Inc. (NYSE:FCE.A), American International Group, Inc. (NYSE:AIG), The Bank of New York Mellon Corporation (NYSE:BK), Devon Energy Corporation (NYSE:DVN), Brookfield Asset Management Inc. (NYSE:BAM), KeyCorp (NYSE:KEY), Brookfield Property Partners LP (NYSE:BPY)
Martin Whitman, a value investor, founded Third Avenue Management in 1990. Third Avenue currently has over $10 billion worth of assets under management. By doing fundamental research on companies, the fund attempts to find stocks that are “safe,” i.e. understandable businesses with stable financials that also sell at a discount to their intrinsic value.The fund recently filed its first quarter 13F with the SEC, describing some of its main investments during the first three months of 2013.This is important because retail investors can benefit from watching hedge fund sentiment; discover the details of this strategy.
Top pick
According to the latest 13F, the fund holds 13,929,759 shares of real estate manager and developer Forest City Enterprises, Inc. (NYSE:FCE.A). Whitman sold off 247,490 shares of the fund’s holding in the quarter, but despite this decrease, the value of the stake climbed by 8.11% to $247.532 million. Known for developing the New York Times Building in New York City, Forest City Enterprises, Inc. (NYSE:FCE.A) itself has a diverse range of real estate assets, ranging from military housing to apartments.
Highlighting its turnaround success, fourth quarter—its latest on record—funds from operations were a solid 36 cents a share, compared to a loss of 24 cents one year earlier. In addition to a favourable credit negotiation, Forest City Enterprises, Inc. (NYSE:FCE.A) recently announced a strategic partnership with American International Group, Inc. (NYSE:AIG)’s Global Real Estate division, in which the two are developing a massive apartment project in Dallas.
Needless to say, Mr. Market is bullish—shares are up 17.6% in the last month alone—and for good reason. The combination of Forest City Enterprises, Inc. (NYSE:FCE.A)’s growth over the past year with its strong prospects continues to make it a good momentum play.
The best of the rest
The next largest holding in the fund’s 13F is The Bank of New York Mellon Corporation (NYSE:BK), with a position of 8,151,216 shares valued at $228.153 million, as of March 31, 2013. Third Avenue is one of the top 30 institutional investors in Mellon, although it has been slightly bearish on the stock, selling 727,125 shares during the quarter. The Bank of New York Mellon Corporation (NYSE:BK) has a P/E ratio of 23.22, while the forward rate is a lower 11.79.
A dividend yield near 2% is above average for its industry, and a profit margin of 11.40% is solid. In addition, The Bank of New York Mellon Corporation (NYSE:BK)’s mid-sized preferred offering earlier this month has given investors reason to be bullish, along with its following redemption in the middle of this month. There are flashier banking plays out there, but Whitman’s presence is worth watching.
Devon Energy Corporation (NYSE:DVN) is next in the fund’s top five with a 300,371-share increase during the quarter, taking the fund’s total stake to 3,612,432 shares worth $203.813 million, a rise of 18.25%. Devon Energy Corporation (NYSE:DVN)’s forward P/E is right in line with industry norms near 12 times year-ahead EPS, though it’s worth noting that the Street expects Devon Energy Corporation (NYSE:DVN) to contain upside of about 16% from current levels. Long-term asset sales have boosted this company’s focus, and a diverse range of assets throughout the U.S. and Canada gives Devon Energy Corporation (NYSE:DVN) good exposure to plenty of oil and liquids plays for the coming years.
Next up is Brookfield Asset Management Inc. (NYSE:BAM). Third Avenue holds 5,463,358 shares of the company, down by 890,070 units in comparison with the last quarter. Thus, the value of the position decrease by 14.38% to $199.358 million. Brookfield Asset Management Inc. (NYSE:BAM) pays a dividend yield of 1.56%, and while its valuation isn’t extremely attractive, earnings growth is accelerating at a rather impressive rate. Considering that Brookfield Asset Management Inc. (NYSE:BAM)’s bottom line expanded by an average rate of just 4.5% a year between 2007 and 2012, it’s promising that the sell-side predicts 13% annual growth over the next half-decade. A recent spinoff of Brookfield Property Partners LP (NYSE:BPY) gives Brookfield Asset Management Inc. (NYSE:BAM) some added momentum, and as we’ve seen before, the smart money tends to prefer the spinning-off organization, rather than the spun off entity. Either way, we’re paying attention.
KeyCorp (NYSE:KEY) rounds out the top five, with the fund’s holding expanding by 707,720 shares to a total of 19,631,029. The value of the position as of March 31 works out to$195.525 million, 22.71% higher than the prior quarter. The company’s shares trade at a trailing P/E ratio of 11.85 with a diluted trailing EPS of 0.89. KeyCorp (NYSE:KEY), a financial company, has a profit margin of 20.30%, placing it in the upper echelon of profitability in the money center baking industry.
Final thoughts
Third Avenue concentrates around 20% of its 13F equity to these top five positions, a highly diversified group of companies. KeyCorp (NYSE:KEY), New York The Bank of New York Mellon Corporation (NYSE:BK) and Brookfield Asset Management Inc. (NYSE:BAM) offer solid exposure to the financial sector—with the latter being a spinoff play—and Devon Energy Corporation (NYSE:DVN)’s diversity is worth investing in.The fund’s top holding, Forest City Enterprises, Inc. (NYSE:FCE.A), is in the middle of quite a turnaround, and the future looks even brighter than its prospects have been over the past year.
Disclosure: none
