Hedge funds and other major investors are required to publicly file 13F filings within six to seven weeks after the end of a quarter. This provides the investing public with a relatively in-depth view of what a fund owns, though the picks are somewhat stale. While it isn’t a good idea to blindly follow any fund, we think that these filings can be a good source of free investment ideas from money managers that retail investors can then go on to research if they like what they see. Gardner Russo & Gardner, much of whose capital is managed by Tom Russo, has already filed its 13F for the end of December. Read on for our quick take on five of the fund’s top stock picks for 2013 and compare them to previous filings.
Gardner Russo & Gardner’s top stock pick was Berkshire Hathaway Inc. (NYSE:BRK.B), with about 4,600 of the holding company’s Class A shares and a large position in the Class B shares as well. Apparently Russo is confident enough in Warren Buffett’s investing prowess that he feels that Berkshire should have a prime place in any true value investor’s portfolio (see Buffett’s stock picks). Berkshire Hathaway trades at a premium to the book value of its equity, with a P/B ratio of 1.3. Our primary concern about the company concerns whether Buffett’s successors will be able to perform at a similar level.
Three more stock picks, including a Buffett favorite:
The fund slightly increased the size of its position in Mastercard Inc (NYSE:MA) to a total of about 890,000 shares. Analysts expect considerable earnings growth at Mastercard in 2013, with the result being a current-year P/E multiple of 20. However, we think that credit card companies such as Discover Financial Services (NYSE:DFS) or Capital One (NYSE:COF) might be better values given their considerably lower earnings multiples. Renaissance Technologies, founded by billionaire Jim Simons, was another fund which reported a large stake in Mastercard for Q3 2012 (find Renaissance’s favorite stocks).
Gardner Russo & Gardner didn’t only invest in Berkshire, they also invested separately in one of Buffett’s top picks: Wells Fargo & Company (NYSE:WFC), reporting a position of almost 12 million shares. Wells Fargo is seen as a relatively stable bank and so it trades at a premium to book value with a P/B ratio of 1.3. However, the company has been very strong in terms of monetizing its assets: the same valuation is only 10 times its trailing earnings, and in the fourth quarter of 2012 earnings increased 24% from a year earlier. Wells Fargo was one of the most popular stocks among hedge funds in the third quarter of last year (see the full top ten list).
Russo and his team owned about 4 million shares of Anheuser-Busch InBev NV (NYSE:BUD), making the brewer another of their favorite stocks. Lee Ainslie’s Maverick Capital had been buying the stock between July and September. Anheuser-Busch is up 49% in the last year, which has brought it to a multiple of 18 times expected earnings for 2013. In Q3 2012 net income was up 16% from its levels in the same period in 2011. It might be worth looking into the sources of that growth- sales growth was not nearly as high- to see if the company can sustain that performance.
Disclosure: I own no shares in any stocks mentioned in this article.
