Bonhoeffer Capital Management, an asset management company, released its first-quarter 2024 investor letter. A copy of the letter can be downloaded here. In the first quarter of 2024, the fund returned 5.9% net of fees compared to 5.7% returns for MSCI World ex-US, a broad-based index, and 5.3% return for the DFA International Small Cap Value Fund. The fund’s stocks have an average EV/EBITDA of 4.4 and a weighted average earnings/free cash flow yield of 12.3% as of March 31, 2024. During the first quarter, the firm continued to replace slower-growing enterprises with durable, faster-growing firms. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Bonhoeffer Capital Management highlighted stocks like Warner Bros. Discovery, Inc. (NASDAQ:WBD) in the first quarter 2024 investor letter. Warner Bros. Discovery, Inc. (NASDAQ:WBD) is a media and entertainment company. Warner Bros. Discovery, Inc. (NASDAQ:WBD) one-month return was 6.05%, and its shares lost 31.90% of their value over the last 52 weeks. On June 4, 2024, Warner Bros. Discovery, Inc. (NASDAQ:WBD) stock closed at $8.24 per share with a market capitalization of $20.191 billion.
Bonhoeffer Capital Management stated the following regarding Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its first quarter 2024 investor letter:
In remembrance of Charlie Munger, I listened to and read his investment speeches in Poor Charlie’s Almanac. His speech to the University of Southern California business school specifically dealt with the application of worldly wisdom to investment management and business. There were five ideas presented by Munger in that speech which are particularly relevant in the Bonhoeffer portfolio. First, over the long term, it’s hard for a stock to earn more than the underlying business earns. As an illustration of this principle, we examined two firms, Old Dominion Freight Line (ODFL) and Warner Bros. Discovery, Inc. (NASDAQ:WBD).
WBD is an example of a value stock whose value has been impaired by a declining intrinsic value over time. Historically, WBD has been consolidating media content and distribution firms. However, the media content and distribution industry has been fragmenting over the past 20 years, with many new competitors and lower barriers to entry. Based upon Morningstar’s estimates, WBD is almost always undervalued, but stock price declined by 13.4% per year less than intrinsic value which declined by 5% per year, which is still a disaster compared to the index which increased by 12.7% per year. The average RoE was 7.2% and was declining through the period and ended negative. The chart below shows both the stock and Morningstar’s estimate of its intrinsic value over time.
These trends of growth and their effects on returns are reflected in the new investments we have invested in and those firms we have sold recently. We have sold most of our telecom and media firms (which have had flat to declining intrinsic values over time). These firms have been replaced by consolidating capital light distribution firms and specialized financial services firms (which have had increased intrinsic value over time) one of which is described below.
A movie theater auditorium filled with an audience enjoying a blockbuster film.
Warner Bros. Discovery, Inc. (NASDAQ:WBD) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 55 hedge fund portfolios held Warner Bros. Discovery, Inc. (NASDAQ:WBD) at the end of the first quarter which was 56 in the previous quarter. Warner Bros. Discovery, Inc.’s (NASDAQ:WBD) trailing 12 months revenue is $40.58 billion and year over year quarterly revenue growth rate is -6.90%. While we acknowledge the potential of Warner Bros. Discovery, Inc. (NASDAQ:WBD) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Warner Bros. Discovery, Inc. (NASDAQ:WBD) and shared Artisan Value Fund’s views on the company. Warner Bros. Discovery, Inc. (NASDAQ:WBD) was the top detractor of Longleaf Partners Fund in the first quarter 2024. In addition, please check out our hedge fund investor letters Q1 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
