It’s supposed to be hard to find good companies with excellent management teams selling at cheap prices, and David Winters of Wintergreen Advisors has a history of dealing with this challenge by going as far afield as necessary- and digging into financial reports as deep as necessary- to find stocks that meet this criteria. As a relatively small fund, Wintergreen also doesn’t need to find too many stock picks- it only reported 12 positions reported in its 13F portfolio for the third quarter of 2012. The five largest of these holdings accounted for 61% of the portfolio. This gives it an advantage over larger value funds, which might need to find 20 or 30 stock picks and thus would be forced to compromise on pricing or growth potential.
Winters worked at Franklin Mutual Advisers before founding Wintergreen, serving as the Chief Investment Officer. More recently, in contrast to his history of getting involved in more obscure companies, Winters has been quite capable of finding large cap stocks which he believes are undervalued by the market. While the end of September was some time ago, as we’ve mentioned Wintergreen tends towards a longer holding period and none of these five positions had changed by more than 4% in terms of share count in the previous three months. Read on to learn more about these five stock picks or see the rest of Wintergreen’s favorite stocks.
Berkshire Hathaway Inc. (NYSE:BRK.B). A number of value investors praise Warren Buffett, but it’s rare to see one so modest as to make Berkshire their top pick- essentially admitting that they have a tough time finding better values than what they know Buffett will deliver (see Buffett’s stock picks). Wintergreen owned 1.2 million Class B shares and this made Berkshire the fund’s top holding by market value. Berkshire Hathaway currently trades at a moderate premium to the book value of its equity. Some investors are concerned that the succession to Buffett will not invest as productively, but Winters appears confident in the management team.
Altria Group (NYSE:MO). Whether it’s because other investors are turning up their noses at cigarette companies or some other factor, Winters seems to think the industry is undervalued: 3 of his 12 picks are cigarette companies. Altria, which focuses on Philip Morris products in the U.S., has a trailing P/E multiple of 17- not exactly screaming buy territory- though the forward P/E is only 14. In addition, the dividend yield is over 5% and the beta of 0.4 means that it has little exposure to the broader market. Renaissance Technologies, founded by billionaire Jim Simons, owned 3.8 million shares at the end of September (find more stocks Renaissance owned).
Franklin Resources, Inc. (NYSE:BEN). Winters and his team reported a position of about 740,000 shares of Winters’ former employer. Earnings were up 18% in the fiscal quarter ending in September (the fourth of the company’s fiscal year) versus a year earlier. The trailing P/E here is 15, so again Wintergreen is not going for pricing above all else: in order for this to be a good buy Franklin will have to continue to demonstrate good business performance. Southeastern Asset Management, which is run by Mason Hawkins, added to its position for a total of 4.2 million shares (check out more stocks Southeastern was buying).
Philip Morris International Inc. (NYSE:PM). The fund owned about 920,000 shares in this internationally operating tobacco company. At 17 times trailing earnings with moderate declines in revenue and net income in its most recent reported quarter compared to the same period in 2011, the value story doesn’t look too attractive here. The dividend yield is high, at close to 4%, though that is lower than at Altria. Billionaire Ken Fisher’s Fisher Asset Management doubled its stake in Philip Morris during the third quarter (research more of Fisher’s stock picks).
Canadian Natural Resource Ltd (NYSE:CNQ). The $33 billion market cap global oil and gas company rounded out Wintergreen’s top five picks. Revenue has been up, though earnings have been down; this likely signals a combination of increasing production and lower prices (particularly lower natural gas prices). The stock is down 21% in the last year and so the trailing and forward P/E multiples remain in the low teens. Highfields Capital Management, managed by Jonathon Jacobson, was another major holder of the stock.
