Highlights From Third Avenue’s Investor Letters

Third Avenue Management is a New York-based investment fund that uses a deep value investing strategy for stock selection. The fund was founded by Martin Whitman and has been in the investment business since 1974. In its July newsletter, Third Avenue said that its focus is on the micro and not on the macro, since the latter is unpredictable in nature. The letter cites the example of the Brexit, which was totally unexpected and resulted in more quantitative easing by global central banks and further deferred an interest rate increase by the Federal Reserve.

The Fund used the volatility created by the Brexit to establish positions in two new stocks, Amgen Inc (NASDAQ:AMGN) and LivaNova Plc (NASDAQ:LIVN). It also closed out its position in internet security leader Symantec Corporation (NASDAQ:SYMC) after earning a cumulative IRR of more than 54% on the stock.

Having already covered the fund’s small-cap investor letter, in this article we’ll go through the funds other recent investor letters and share its thoughts on five stocks.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

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Amgen Inc (NASDAQ:AMGN) is one of the world’s biggest biotech companies, and has a diversified product portfolio spread across six healthcare segments. It is a large company with stable operating cash flows of more than $9 billion a year and returns a large portion of its cash to shareholders. Amgen Inc (NASDAQ:AMGN) has sharply improved its margins from 38% in 2013 to 55% in the first quarter of 2016, after reducing $1.5 billion in annual costs through a transformation program. While Third Avenue thinks that Amgen faces competitive threats, particularly from bio similar drugs launched by other companies, it is of the opinion that the risk is already priced into the stock and that Amgen has upside potential if its pipeline of 31 products leads to some blockbusters in the future. As per our database, 58 hedge funds held Amgen shares worth $2.09 billion at the end of June.

LivaNova Plc (NASDAQ:LIVN) is the company that was formed after the merger of Sorin and Cyberonics. Third Avenue thinks that there is significant opportunity in the company because of potential investor neglect concerning the new name. The $3 billion company has a leading position in cardiac surgical equipment, surgical health valve replacement, neuromodulation, and cardiac rhythm management. It is the number-one player in a number of these segments and is gaining market share in developed markets. The merger of the two companies was also expected to result in $80 million in cost synergies of which only $19 million has been realized. Third Avenue also believes that LivaNova has strong R&D capabilities and is pursuing ground-breaking research in three new areas which could have market potential of more than $1 billion each. The fund states that the stock trades at a strong discount to its US-based peers and offers downside protection for this reason. The number of hedge funds from within our database holding a position in LivaNova declined to 20 from 23 during the June quarter. Those 20 funds still held 16% of LivaNova Plc (NASDAQ:LIVN)’s float as of June 30.

We’ll check out Third Avenue’s thoughts on three other companies on the next page.