Southeastern Asset Management’s Top Stock Picks

In its most recent 13F, Mason Hawkins‘ Southeastern Asset Management has disclosed an equity portfolio valued at around $11.8 billion for the third quarter. Tennessee-based Southeastern is a global investment management firm founded in 1975 by Mason Hawkins, whose investment style resembles the one of Warren Buffett. The firm focuses on a long-term horizon, and takes on a value-oriented approach to investing and focuses on a long-term time spectrum. Currently, Southeastern oversees more than $26 billion in assets under management. In this article, we are going to take a look at Southeastern’s top stock picks for the third quarter.

Top investors spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned 102% and beaten the market by more than 53 percentage points since the end of August 2012 (see more details).

#5 Alphabet Inc (NASDAQ:GOOG)

Shares held (as of September 30): 1.27 million

Total Value (as of September 30): $774.93 million

Percent of Portfolio (as of September 30): 6.54%

Alphabet Inc (NASDAQ:GOOG) represents Southeastern’s fifth-largest holding and the investor trimmed its stake by about 5% during the quarter. The financial position of Alphabet Inc (NASDAQ:GOOG) looks solid, as the company’s revenue for the third quarter rose to $18.7 billion, compared to $16.5 billion for the same quarter last year. The company generated income of about nearly $4 billion, compared to $2.7 billion in the year-ago period. Alphabet Inc (NASDAQ:GOOG)’s stock has been performing well, increasing by 36.21% year-to-date. Another investor betting big on the company is William Von Mueffling’s Cantillon Capital Management, which was holding 888,378 shares at the end of the third quarter.

#4 Aon plc (NYSE:AON)

Shares held (as of September 30): 9.24 million

Total Value (as of September 30): $818.71 million

Percent of Portfolio (as of September 30): 6.91%

Southeastern reduced its position in Aon plc (NYSE:AON) by about 16% during the third quarter. London-based Aon plc (NYSE:AON) is a global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. The company reported a decline in third-quarter income attributable to shareholders to $295 million, or $1.04 per share, compared to $309 million, or $1.04 per share, in last year’s quarter. Its revenue also dropped by 5% to $2.7 billion, compared to the prior year quarter. Aon plc (NYSE:AON)’s shares have lost 1.82% year-to-date. Another investor that loves Aon plc is Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, which holds 385,017 shares of the company as of the end of September.

On the next page, we will talk about McDonald’s Corporation (NYSE:MCD) and two other top stocks.

#3 McDonald’s Corporation (NYSE:MCD)

Shares held (as of September 30): 8,441,032

Total Value (as of September 30): $831.70 million

Percent of Portfolio (as of September 30): 7.02%

Southeastern’s stake in McDonald’s Corporation (NYSE:MCD) decreased by 14% over the quarter. The company’s stock trades up 17.42% year-to-date. After a number of disappointing quarters, McDonald’s Corporation (NYSE:MCD) reported better-than-expected financial results for the third quarter with income of $1.3 billion, compared to $1.1 billion in a year ago quarter, while its revenue amounted to $6.6 billion, compared to about $7 billion in the same quarter a year ago. Shares of McDonald’s Corporation (NYSE:MCD) have been doing well, gaining 17.42% year-to-date. In most recent 13F, Stephen J. Errico’s Locust Wood Capital Advisers reported owning 464,587 shares of McDonald’s.

#2 FedEx Corporation (NYSE:FDX)

Shares held (as of September 30): 6,386,107

Total Value (as of September 30): $919.47 million

Percent of Portfolio (as of September 30): 7.76%

Southeastern added about 1.25 million shares to its holding of FedEx Corporation (NYSE:FDX) during the third quarter. For the quarter ended August 31, FedEx Corporation (NYSE:FDX) posted revenue of $12.3 billion, up from $11.7 billion in the same period last year. The company’s net income rose to $692 million, compared to $653 million delivered a year earlier. FedEx Corporation (NYSE:FDX)’s stock has declined by 8.94% year-to-date. Another investor that likes FedEx is Edgar Wachenheim’s Greenhaven Associates, with ownership of 4.52 million shares of the company as of the end of the third quarter.

#1 Level 3 Communications Inc. (NYSE:LVLT)

Shares held (as of September 30): 40,494,314

Total Value (as of September 30): $1.77 billion

Percent of Portfolio (as of September 30): 14.93%

Level 3 Communications Inc. (NYSE:LVLT) is represented as Southeastern’s top holding, despite the investor reducing its share ownership by 1.39 million shares over the quarter. With a market cap of nearly $18 billion, Level 3 Communications Inc. (NYSE:LVLT) is a provider of a range of integrated communications services. The company’s s net income for the third quarter declined to $1 million from $81 million year over year on the back of a non-recurring charge of about $171 million related to the deconsolidation of the company’s Venezuelan subsidiary’s operations. Excluding this charge, the company’s income amounted to $172 million. Shares of Level 3 Communications Inc. (NYSE:LVLT) have gained 3.45% during the last three months. Jim Simons’ Renaissance Technologies holds 942,141 shares of the company as of the end of the third quarter.

Disclosure: none