Gardner Russo & Gardner Betting on Beer, Cigarettes, and the Credit Needed to Buy Them

The current round of 13F filings is nearing its conclusion as smart money investors continue to reveal their equity holdings as of March 31. In this article, we are going to take a look at the top stock picks of Tom Russo‘s Gardner Russo & Gardner, which revealed an equity portfolio worth $11.83 billion as of the end of March, with the consumer staples sector representing 56% of that value. The fund primarily invests in large-cap companies and uses external research to complement its in-house research to employ fundamental analysis in seeking out value investments across the globe. Let’s dig deeper into the future prospects of the fund’s top holdings to see if they could serve as valuable ideas for retail investors.

At Insider Monkey, we follow around 800 smart money investors, whose 13F portfolios we analyze quarterly to determine how they are trading thousands of stocks collectively. We identify 15 stocks in the small-cap space using this data as part of our market-beating investment strategy (see more details here).

#5 HEINEKEN HOLDING (OTCMKTS:HKHHF)

 – Shares Owned by Gardner Russo & Gardner (as of March 31): 10.83 Million

 – Value of Holding (as of March 31): $846.37 Million

Gardner Russo & Gardner’s Heineken position was cut by 40,000 shares during the first quarter, to 10.83 million shares. Heineken’s first quarter beer volumes rose by 11% year-over-year, with the Asia Pacific region showing the most growth in organic volume, at 23%. A strong Vietnamese and Chinese New Year period and the earlier timing of Easter in 2016 underpinned this trend. HEINEKEN HOLDING EUR1.60 (OTCMKTS:HKHHF)’s shares are up by a little over 3% this year. There were no other investors in our database with positions in Heineken on December 31.

#4 Mastercard Inc (NYSE:MA)

 – Shares Owned by Gardner Russo & Gardner (as of March 31): 9.73 Million

 – Value of Holding (as of March 31): $919.06 Million

Mr. Gardner added about 24,000 Mastercard Inc (NYSE:MA) shares to his fund’s portfolio during the first quarter, with the holding representing 7.77% of its value at the end of March. While Mastercard’s CEO Ajay Banga has sold 50% of his shares this month, it should be stressed that the sale was planned months in advance, rather than being related to a sudden fit of bearishness. Mastercard managed to beat both the top and bottom line-estimates with its financial results for the first quarter, with the company’s worldwide purchase volume growing by 12% year-over-year on a local currency basis. Mastercard Inc (NYSE:MA)’s stock is down by a little over 2% in 2016. Jim Simons‘ renowned managed futures fund Renaissance Technologies was bullish on the $102.8 billion transaction and payment services company during the first quarter, hiking its stake by 16% to 3.50 million shares.

We’ll have a look at Gardner Russo’s top-3 stock holdings on the next page.

#3 Philip Morris International Inc. (NYSE:PM)

 – Shares Owned by Gardner Russo & Gardner (as of March 31): 10.51 Million

 – Value of Holding (as of March 31): $1.03 Billion

Gardner Russo has held a stake in the New York-based cigarette company since the first quarter of 2008 and added about 54,100 shares to the holding in the January-to-March period. Philip Morris International Inc. (NYSE:PM)’s stock has gained a solid 14.8% this year, even though the company fell short of first quarter earnings expectations. Philip Morris has received an array of upgrades recently, including from Exane BNP Paribas, Bank of America Merrill Lynch, and Societe Generale, as the company continues to combat sales declines through price increases. Harris Associates initiated a stake in Philip Morris International Inc. (NYSE:PM) during the first three months of this year, consisting of about 3.76 million shares.

#2 Berkshire Hathaway Inc. (NYSE:BRK.A)

 – Shares Owned by Gardner Russo & Gardner (as of March 31): 5,013

 – Value of Holding (as of March 31): $1.07 Billion

Warren Buffett’s holding company is another one of Gardner Russo & Gardner’s long-term holdings and was initiated in the first quarter of 2001. As a number of utility companies continue to transform their operations towards renewable energy, Berkshire Hathaway Inc. (NYSE:BRK.A)’s MidAmerican Energy recently announced its own initiative along the same lines in the form of an investment of $3.6 billion in wind energy by 2020, which amounts to one of the largest wind energy investments ever made. Although up by over 7.2% this year, shares of Berkshire Hathaway are down by 4.8% over the past 12 months. The Bill & Melinda Gates Foundation Trust, which is managed by Michael Larson, held 63.38 million shares of Berkshire Hathaway Inc. (NYSE:BRK.A) at the end of March.

#1 Nestle SA (ADR) (OTCMKTS:NSRGY)

 – Shares Owned by Gardner Russo & Gardner (as of March 31): 15.82 Million

 – Value of Holding (as of March 31): $1.07 Billion

Gardner Russo & Gardner’s holding in the Switzerland-based consumer staples giant received a modest trimming amounting to about 53,000 shares during the first quarter. Nestle SA (ADR) (OTCMKTS:NSRGY)’s recently reported quarterly financial results showed impressive sales growth of 3.9% on the back of an improvement in product volumes, beating analysts’ expectations. Moreover, following the recall and subsequent destruction of 400 million packets of Maggi noodles in India last year over fears that they contained harmful levels of lead, the ban on the product, which had market share of 80% in the country, has since been lifted, which has resulted in it gaining back significant ground in the first quarter. Ed Beddow and William Tichy’s Beddow Capital Management held about 155,700 shares of Nestle SA (ADR) (OTCMKTS:NSRGY) at the end of last year.

Disclosure: None