In this article, we reviewed David Abrams’ investment philosophy and portfolio management strategy. We also examined the top 10 stock picks of value investor David Abrams. You can skip our detailed discussion about David Abrams’ investment philosophy and portfolio management strategy and jump directly to Top 5 Stock Picks of Value Investor David Abrams.
Seth Klarman’s protégé billionaire David Abrams is a pure value investor and one of the most successful hedge fund managers. He has generated billions of dollars for investors since he established Abrams Capital Management in 1999, which has posted a 15% average return over the first fifteen years since inception. Based on HFR Inc.’s data, this is nearly double the average for hedge funds and triple the S&P 500 index returns.
In addition to investing money in Abrams’ fund, Klarman described his protégé as “smart as a whip”. Abrams Capital follows a fundamental, value-oriented approach and invests in a wide spectrum of assets with a long-term time horizon.
As of December 2021, Abrams Capital held $4.5 billion in a 13F securities portfolio. The top 10 stock picks of value investor David Abrams include Camping World Holdings, Inc. (NYSE:CWH), Willis Towers Watson Public Limited Company (NASDAQ:WTW), Coupang, Inc. (NYSE:CPNG), AMERCO (NYSE:UHAL) and TransDigm Group Incorporated (NYSE:TDG).
David Abram of Abram Capital Management also holds a big stake in large-cap stocks like Alphabet Inc. (NASDAQ:GOOG) and Meta Platforms, Inc. (NASDAQ:FB). By the end of December, Alphabet Inc. (NASDAQ:GOOG) was ranked the second-largest holding of Abrams Capital, followed by Meta Platforms, Inc. (NASDAQ:FB). It seems that the firm has also benefited from its stake in Meta Platforms, Inc. (NASDAQ:FB) and Alphabet Inc. (NASDAQ:GOOG) since shares of both companies have rallied in the past couple of years.
Our Methodology:
We made use of Abrams Capital Management’s 13F securities portfolio as of December for this analysis.
David Abrams of Abrams Capital Management
Top 10 Stock Picks of Value Investor David Abrams
10. Camping World Holdings, Inc. (NYSE:CWH)
Abrams Capital Management’s stake value: $206 million
Percentage of Abrams Capital Management’s portfolio: 4.52%
Number of hedge fund holders: 22
A stake in Camping World Holdings, Inc. (NYSE:CWH) was first purchased by Abrams Capital in the third quarter of 2018 when its shares began to tumble, and the firm added to that investment in 2019 when the company’s shares fell below $10. The value investing strategy of Abrams Capital worked in the case of Camping World Holdings, Inc. (NYSE:CWH). This is because shares of Camping World Holdings, Inc. (NYSE:CWH) rebounded in the following two years and reached $45 by the end of 2021.
Camping World Holdings, Inc. (NYSE:CWH) sells recreational vehicles, parts for recreational vehicles, and services for recreational vehicles. The company is the largest retailer by revenue and number of locations in the United States. The company posted revenue of $6.9 billion in 2021, an increase of 26.9% from the previous year. Since going public at the end of 2016, the company’s revenue has more than doubled and its net income has more than tripled.
Unlike Alphabet Inc. (NASDAQ:GOOG) and Meta Platforms, Inc. (NASDAQ:FB) which do not offer dividends, Camping World Holdings, Inc. (NYSE:CWH) pays out healthy dividend payments to investors. Currently, its dividend yield is around 6.79%.
Of the 924 elite funds tracked by Insider Monkey, Camping World Holdings, Inc. (NYSE:CWH) was in 22 portfolios as of December. Like David Abrams, several other popular hedge funds such as Millennium Management and D E Shaw were among the leading stakeholders in the company.
9. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Abrams Capital Management’s stake value: $253 million
Percentage of Abrams Capital Management’s portfolio: 5.56%
Number of hedge fund holders: 66
Willis Towers Watson Public Limited Company (NASDAQ:WTW) has been a member of Abrams Capital’s portfolio since the fourth quarter of 2016. Shares of the insurance brokerage and advisory company surged 88% in the past five years. Willis Towers Watson Public Limited Company (NASDAQ:WTW) has been generating sustainable revenue and earnings growth over the years to back to its share price gains.
In the fourth quarter investor letter, Artisan Partners, a high value-added investment management firm, mentioned a few stocks including Willis Towers Watson Public Limited Company (NASDAQ:WTW). Here is what Artisan Partners stated:
“During the quarter, we made meaningful new investments in two UK domiciled companies, (one of which is) Willis Towers Watson (WTW). Long-term investors will recognize Willis Towers Watson since it was in the portfolio from 2018 to early 2021. We exited that investment after WTW agreed to merge with Aon. Unfortunately for WTW and Aon, that proposed merger was rejected by the US Department of Justice in July 2021. In fact, there is significant market power in this industry, which is what makes it a great business. That market power is exerted not with the insurance brokers’ corporate customers, but with their suppliers (insurance underwriters). We were surprised at Aon’s attempted merger, and our concerns regarding antitrust approval encouraged us to sell.
WTW operates two businesses: insurance brokerage and HR consulting. Both are market-leading with attractive financial profiles and mostly recurring revenue streams. Despite these strengths, WTW operates with lower margins versus peers. The margin opportunity is most pronounced in the insurance brokerage business. Management has slowly increased the insurance brokerage margin over time, but a large gap remains with best-in-class peers like Marsh & McLennan and AJ Gallagher. Management presented a plan to increase the insurance brokerage business’s margins by 5% by year-end 2024. This plan follows the outline other insurance brokers have previously used to increase their margins—giving us confidence the targets are achievable.
The merger’s demise brought a new and experienced CEO, a new CFO and a refreshed shareholder-aligned board of directors. In addition, the merger’s cancellation transformed the company’s financial position. As part of the agreement, Aon paid WTW a $1 billion “break fee.” WTW also sold a re-insurance brokerage business for $3.25 billion along with the potential to earn $750 million through an earnout agreement. With the proceeds, WTW expects to repurchase approximately $4 billion of stock between the second half of 2021 and the end of 2022. With existing cash on hand and cash generation over the next three years, we estimate the company can return another $6 billion to shareholders through dividends and share repurchases representing over 20% of today’s market capitalization. We forecast earnings of approximately $20 per share in 2024—a price to earnings (P/E) ratio of 11.5X. We believe that valuation significantly undervalues this high-quality business.”
8. Coupang, Inc. (NYSE:CPNG)
Abrams Capital Management’s stake value: $284 million
Percentage of Abrams Capital Management’s portfolio: 6.24%
Number of hedge fund holders: 29
In contrast to Alphabet Inc. (NASDAQ:GOOG) and Meta Platforms, Inc. (NASDAQ:FB), Coupang, Inc. (NYSE:CPNG) is a new addition to David Abrams portfolio. The value investor bought a large stake in Coupang, Inc. (NYSE:CPNG) during the third and fourth quarters of 2021.
Coupang, Inc. (NYSE:CPNG) is likely to see slower revenue growth in 2022 when compared to the previous two years.
While David Abrams is bullish on the future fundamentals of Coupang, Inc. (NYSE:CPNG), many other elite funds have slashed their stakes in the company. As of December, Coupang, Inc. (NYSE:CPNG) was in 29 portfolios compared to 46 positions in the previous quarter.
7. AMERCO (NYSE:UHAL)
Abrams Capital Management’s stake value: $325 million
Percentage of Abrams Capital Management’s portfolio: 7.13%
Number of hedge fund holders: 29
AMERCO (NYSE:UHAL) is one of the favorite stocks of David Abrams. His hedge fund has been holding a stake in the company over the past 21 quarters. As of December, the firm allocated 7.13% of its portfolio weighting to AMERCO (NYSE:UHAL). After years of depressed performance, the stock price of AMERCO (NYSE:UHAL) rallied sharply in the past two years. The business model of AMERCO (NYSE:UHAL) is thriving. This is reflected in its sustainable earnings growth.
Elite funds’ bullish bets have also been increasing in the company. As of December, the number of long hedge funds’ positions was 29 compared to 25 in the previous quarter. Yacktman Asset Management and Abrams Capital Management were the leading stakeholders in the company.
6. TransDigm Group Incorporated (NYSE:TDG)
Abrams Capital Management’s stake value: $343 million
Percentage of Abrams Capital Management’s portfolio: 7.52%
Number of hedge fund holders: 64
Like Alphabet Inc. (NASDAQ:GOOG) and Meta Platforms, Inc. (NASDAQ:FB), TransDigm Group Incorporated (NYSE:TDG) is one of the top stock picks of David Abrams. He initiated a position in the aerospace manufacturing company during the first quarter of 2020 when its shares plummeted due to the pandemic. However, the share price of TransDigm Group Incorporated (NYSE:TDG) surged substantially in the following quarters of 2020 and extended those gains into 2021. As traveling restrictions eased across the world, TransDigm Group Incorporated (NYSE:TDG) saw significant growth in demand. TransDigm Group Incorporated (NYSE:TDG) reported adjusted earnings of $3 per share for the first quarter of 2022, up more than 50% from the past year period.
TransDigm Group Incorporated (NYSE:TDG) was in 64 hedge fund portfolios as of December. Stockbridge Partners and AltaRock Partners were among the leading stakeholders in the company.
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Disclosure: The article Top 10 Stock Picks of Value Investor David Abrams is originally published on Insider Monkey.
