Lou Simpson, a former understudy of Warren Buffett, is the manager of SQ Advisors. Simpson has enjoyed great success running GEICO, returning an average of 24% annually. Following the takeover of GEICO by Berkshire Hathaway, Simpson stayed to work under Buffett managing approximately $4 billion worth of stock investments. In 2011 he started his own fund, SQ Advisors, managing to raise approximately $1.3 billion. Like his former boss, Simpson is an advocate for value investing, basing his decisions on his own research and analysis of the company and industry in question.
The similarities between the two great investors can be seen in their current stock holdings as well. Both Berkshire Hathaway and SQ Advisors hold impressive stakes in companies like Wells Fargo & Co (NYSE:WFC) and Moody’s Corporation (NYSE:MCO). Let us have a closer look at Simpson’s top stock picks!
Top dog is United Parcel Service, Inc. (NYSE:UPS). During the fourth quarter of 2013, Simpson has increased his fund’s position by 8%. SQ now holds 2.37 million shares worth approximately $250 million. United Parcel Service has a market cap of $89 billion and pays an annual dividend of $2.53 which represents a yield of 2.6%. The stock is traded at a Price to Earnings (P/E) ratio of 21.06, well below the industry average of 51.30. For the fourth quarter of 2013, UPS posted revenues of $14.9 billion and earnings per share (EPS) of $1.25. For the current quarter, the market expects UPS to register revenues of $13.9 billion and EPS of $1.13.
Simpson is also bullish on Wells Fargo & Co (NYSE:WFC), which is Warren Buffett’s biggest position at the moment. According to SQ Advisors’ latest 13F report, Simpson has increased his investment by 10% to 4.8 million shares, valued at $218 million. Following the massive fall in the price of the stock generated by the 2008 financial crisis, Wells Fargo has been constantly advancing to a current price of $47.08 per share. The company has a market cap of $247 billion and pays an annual dividend of $1.20 – a yield of 2.6%. Wells Fargo posted revenues of $21.7 billion and earnings of $1 per diluted share for the three months ending December 31, 2013. Revenue and EPS are expected to fall during the current quarter to $20.6 billion and $0.96 respectively.
Next up is Moody’s Corporation (NYSE:MCO). Simpson has made only a minor adjustment, adding around 600 shares during the last quarter, while Buffett has decreased his exposure by 1%. SQ now holds a little over 2 million shares worth around $157 million. Moody’s Corporation has also been in an uptrend since the credit crunch and is currently traded at approximately $82 per share. The company has a market cap of $17.49 billion and pays an annual dividend of $0.98, which represents a yield of 1.20%. The company’s latest financial report revealed revenues of $779 million and EPS of $0.94 for Q4 of 2013. It is expected to replicate the same performance in the current quarter, with the market predicting revenues of $772 million and earnings of $0.92 per share.
Simpson has high hopes for U.S. Bancorp (NYSE:USB) as well. During the fourth quarter of last year, SQ Advisors doubled its position to 3.89 million shares valued at $157 million. The company has a market cap of $75.8 billion and pays an annual dividend of $0.89. The stock trades at a trailing P/E ratio of 13.xx, basically in line with the industry average. For the last quarter of 2013, U.S. Bancorp posted revenues of $5.22 billion and earnings per diluted share of $0.76. Analysts expect the company to register revenues of $4.82 billion and EPS of $0.73 for the three months of 2014.
Last but not least is DIRECTV (NASDAQ:DTV). Simpson has almost halved his fund’s stake in the company to 1.66 million shares worth approximately $115 million. However, Berkshire The company has a market cap of $39.7 billion and does not pay a dividend. The stock trades at a P/E ratio of 15.06 and has a beta of 1.13. For the three months ending December 31, 2013, DIRECTV posted revenues of $8.6 billion and earnings of $1.53 per diluted share. Expectations for the current quarter are as follows: revenues of $7.9 billion and EPS of $1.52.
Disclosure: none.
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