Murray Stahl founded Horizon Asset Management- which has since grown into the larger investment organization Horizon Kinetics- in 1994. Stahl, as with many other investment managers, believed that the broader stock market was too focused on short-term results, deciding (not entirely inaccurately) that as professional investors they would need to deliver attractive returns each year, quarter, and even month. Stahl in turn thought that an investor could capture a good deal of value merely by following a longer time horizon. Even though pure value investing has become more challenging, in the sense that it is easier for investors to compare valuation to financial metrics such as book value (and therefore reduced the number of companies trading at discounts to book), Horizon Kinetics believes that it can continue to realize good returns merely by looking out further.
When we look at Horizon’s most recent 13F filing, we see an emphasis on financial and services stocks, as has been the case for the last several quarters of reports. We also see- unsurprisingly, given Stahl’s emphasis on long term investing- that the sizes of many of the fund’s largest positions showed very little change from three months earlier. As a result, even though we are working with stock picks from the end of September we think that we can assume most of these stocks are still among Horizon’s top holdings. Read on for a quick look at five of the fund’s top picks or see the full list of stocks Horizon reported owning.
The fund owned 3.1 million shares of real estate developer Howard Hughes Corp (NYSE:HHC). As a real estate related company, Howard Hughes tends to be dependent on the broader economy- the stock’s beta is 2.2- and has risen strongly over the last year (up 51%) as the markets have seen an improvement in the real estate markets. Billionaire Bill Ackman’s Pershing Square owned 3.6 million shares in its own portfolio at the end of the third quarter (check out Ackman’s stock picks).
AutoNation and three other stock picks from Horizon’s 13F:
Horizon also liked Jarden Corporation (NYSE:JAH), with a position of 3.7 million shares in the $4.4 billion market cap company which provides outdoor equipment, home accessories, and other products. Jarden has been another big gainer over the last year, up 74%, and with earnings actually declining in its most recent quarterly report versus a year earlier the trailing P/E is 21. Fisher Asset Management, managed by billionaire Ken Fisher, was another investment fund with a position in Jarden (find Fisher’s favorite stocks).
AutoNation, Inc. (NYSE:AN), an auto dealer primarily located in the Sunbelt, was another of Horizon’d top picks; billionaire Eddie Lampert and his team at ESL Investments had over $2 billion invested in the stock. Research more companies where Lampert is a major investor. Revenue and earnings both saw double-digit growth rates in the third quarter of 2012 compared to the same period in the previous year, and at 19 times trailing earnings AutoNation may qualify for “growth at a reasonable price” status.
Stahl’s fund owned 3.9 million shares of Brookfield Asset Management Inc. (NYSE:BAM), a holding company with a strong real estate component. Marty Whitman’s Third Avenue Management cut its stake in the third quarter, but at 7.8 million shares Brookfield was still its top holding by market value. Brookfield has a market capitalization of $23 billion, which places it at 18 times trailing earnings with analysts expecting lower net income this year.
Another holding company that Horizon liked was Leucadia National Corp. (NYSE:LUK), though Leucadia is quite diversified in its business operations. Bruce Berkowitz, manager of Fairholme, was another manager reporting a large position in Leucadia (see more stocks Fairholme owned). This stock did not have a good 2012, and is down 12% in the last year. It now trades at a slight discount to book value.
Disclosure: I own no shares of any stocks mentioned in this article.
