Martin Whitman

Martin Whitman

Last Update: 01-09-2017
Related: Third Avenue Management

Number of Stocks: 36
Number of New Stocks: 2

Total Value: $1,084 Mil
Q/Q Turnover: 3%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

Martin Whitman Watch

  • Third Avenue Management Comments on Lennar

    We initiated Lennar (NYSE:LEN) in October, and thus wrote up our comments in our prior shareholder letter, but due to the shift in our letter cadence, we are republishing our thoughts from our initial purchase.


    Marty Whitman said in October 1996: "Given Third Avenue's investment criteria, it is more accurate to view the situation as the industry selecting the Fund, rather than Third Avenue choosing the industries in which to invest' We think this quote superbly describes the opportunity the Value Fund saw in establishing a position in Lennar Corporation common in the quarter, as the shares sold off somewhat inexplicably from nearly $50 per share at their recent peak and allowed us to establish a position at just over $41.

      


  • Third Avenue Management Comments on Cerner

    Cerner (NASDAQ:CERN) is a leading health care information technology company. We have long admired Cerner as it is a well-financed compounder, having compounded book value at an average rate of 16% over the past 10 years. Delays in customer adoption of healthcare Information Technology (IT) systems as regulatory mandates have lengthened, exacerbated by concerns about potential changes to the ACA and the impact on healthcare IT spend, have negatively pressured Cerner's common stock price down from over $67 to our initial purchase cost of approximately $48, giving us an opportunity to acquire shares of Cerner common stock at an attractive valuation.


    Healthcare IT has been in the sweet spot of spending for hospitals as regulatory reform and increasingly complex regulatory requirements have driven a greater need for IT solutions. The ACA and Health Information Technology Economic and Clinical Health Act (HITECH) were established to transition the U.S. healthcare system from fee-for-service towards value-based outcomes, i.e., incentivizing hospitals and providers for increasing quality of care and patient outcomes rather than the volume of procedures performed. As part of this initiative, electronic health records systems were required and analytics and data collection to monitor outcomes is increasing. Cerner is one of the market leaders in these systems. Similar to other IT companies, services and software for the installed base of systems generates high-margin recurring revenue. Further, many legacy systems are in need of upgrades to enable them to meet the new regulatory requirements. Given its market leading position, Cerner has been gaining share and is well-positioned to continue to take share. In addition, there has been consolidation within the industry, including some vendors discontinuing products.

      


  • Calendar 4th Quarter Shareholder Letter From Marty Whitman's Third Avenue Value Fund

    Dear Fellow Shareholders:


      



  • Third Avenue Management Comments on Petroleum Geo-Services

    Petroleum Geo-Services ("PGS") (OSL:PGS) Throughout December and early January, PGS completed its refinancing activities as described in our previous letter. PGS conducted an equity raise primarily for the purpose of refinancing its 2018 bonds. The Fund was a holder of both PGS equity and its 2018 bonds. We were pleased to participate in improving PGS’ capital structure via the equity offering, which precipitated a meaningful price appreciation of both our equity and credit positions. PGS tendered for our 2018 bonds PGS on terms favorable to bondholders, and meanwhile the company’s equity responded very favorably to the improvement in the company’s capital structure and the elimination of its nearest debt maturity. Our investments in PGS securities have been important contributors to performance of late.

      


  • Third Avenue Management Comments on Lundin Mining

    Lundin Mining (“Lundin”) (TSX:LUN) In mid-November, Lundin announced that it had entered into an agreement to sell its holding in an entity called TF Holdings Ltd. TF is the entity through which Lundin and Freeport-McMoRan have for many years controlled a Central African copper mine called Tenke Fungurume. The Lundin transaction essentially is the sale of a 24% economic interest in the mine for the agreed price of CAD 1.14 billion. This transaction is expected to close during the first half of 2017 and would add considerable cash to what is already one of the mining industry’s best balance sheets. While Tenke Fungurume is an unusually high quality mine, its jurisdiction can at times be an unusually challenging place to do business. We view the transaction price as reasonable and look positively upon the prospective reduction of political risk embedded within Lundin. With the transaction proceeds Lundin would also bolster its position as one of the very few companies in a position to acquire mining assets at one of the rare times when some very decent assets may be available for sale.

      


  • Third Avenue Management Comments on Lundin Mining

    Lundin Mining (“Lundin”) (TSX:LUN) In mid-November, Lundin announced that it had entered into an agreement to sell its holding in an entity called TF Holdings Ltd. TF is the entity through which Lundin and Freeport-McMoRan have for many years controlled a Central African copper mine called Tenke Fungurume. The Lundin transaction essentially is the sale of a 24% economic interest in the mine for the agreed price of CAD 1.14 billion. This transaction is expected to close during the first half of 2017 and would add considerable cash to what is already one of the mining industry’s best balance sheets. While Tenke Fungurume is an unusually high quality mine, its jurisdiction can at times be an unusually challenging place to do business. We view the transaction price as reasonable and look positively upon the prospective reduction of political risk embedded within Lundin. With the transaction proceeds Lundin would also bolster its position as one of the very few companies in a position to acquire mining assets at one of the rare times when some very decent assets may be available for sale.


     

      


  • Third Avenue Management Comments on Global Logistic Properties

    Global Logistic Properties (“GLP”) (SGX:MC0) We have been satisfied owners of GLP for some time. From an execution standpoint, this logistics facility developer, owner and operator continues to do a fine job operationally. The company has judiciously grown its facilities network in China, Japan, Brazil and the U.S., both organically and through acquisition, at a pace appropriate for each respective geographic market while maintaining a conservative balance sheet. Meanwhile, the company has made great strides in growing its fund management platform, which has the benefit of improving overall returns through the incorporation of fee-paying third party capital. However, the stock had until recently languished at a low valuation presumably as a result of the broad perception that macroeconomic growth in China is slowing and that the growth of GLP’s network development will also slow in turn. Yet investors fixated on rapid growth of earnings fail to appreciate the value of the existing in-place network of facilities, a reasonable replacement cost analysis of those assets, the extreme difficulty in replicating the assets and the long-term secular drivers that are likely to make the assets increasingly critical and valuable over time. On the other hand, these concepts appear to be better appreciated by potential acquirers of GLP. In early November, it was widely rumored that a consortium of buyers had approached GLP with an interest in purchasing the company. One month later the company disclosed that it had opted to undertake a strategic review to identify means by which shareholder value could be enhanced. It was also disclosed that investment bankers had been hired for that purpose. We believe GLP’s assets and platform to be of exceptional quality and without rival in Asia. We suspect that GLP’s apparent willingness to entertain a transaction is likely to bring forth a number of potential buyers. In reaction to the above-mentioned rumors and press releases, shares of GLP appreciated by 24% in Singapore dollar terms during November and December.


     

      


  • Third Avenue Real Estate Value Fund 4th Quarter Commentary

    Dear Fellow Shareholders:


    We are pleased to provide you with the Third Avenue Real Estate Value Fund’s (the “Fund”) report for the quarter ended December 31, 2016. This quarter marks an abbreviated period as the Third Avenue Funds have elected to circulate our quarterly letters on a calendar year-end going forward (previously October 31) to more closely align with the reporting periods for a number of the Funds’ stakeholders. For the year ended December 31, 2016, the Fund returned +5.82% (net of fees)¹ versus +4.99% (before fees) for the Fund’s most relevant benchmark, the FTSE EPRA NAREIT Developed Index². While the Fund outperformed for the calendar year, Fund Management remains most focused on long-term performance where it has also exceeded the index, earning an +10.63% annualized return since its inception in 1998.

      


  • Third Avenue International Value Fund 4th Quarter Letter

    Dear Fellow Shareholders:

    With this investment letter, Third Avenue Management (Trades, Portfolio), including the Third Avenue International Value Fund, transitions to a calendar quarter shareholder letter schedule. We make this change in order to align more closely with interested financial intermediaries, many of whom have calendar quarter reporting requirements. It is our hope to better serve our fellow shareholders by making this transition. We have historically made these communications following the Funds’ fiscal quarters, the most recent of which concluded on October 31st. Therefore, this letter serves as an update for the two month “stub” period beginning November 1st and ending December 31st.  


  • Arnold Van Den Berg Axes 3 Positions in 4th Quarter

    Arnold Van Den Berg (Trades, Portfolio), founder of Century Management, invests in companies that trade 40% to 65% below the company’s intrinsic value. During the fourth quarter, Van Den Berg eliminated his positions in General Motors Inc. (NYSE:GM), US Bancorp (NYSE:USB) and Avid Technology Inc. (NASDAQ:AVID) as these companies have low value potential in early 2017.


    General Motors

      


  • Martin Whitman Invests in Homebuilder in 4th Quarter

    Martin Whitman (Trades, Portfolio), founder and portfolio manager of Third Avenue Value Fund, bought two new holdings in the fourth quarter (ended Oct. 31, 2016), but most of his activity involved reducing positions.

    One of his new buys – Lennar Corp. (NYSE:LEN) – was the guru’s largest transaction of the quarter. He purchased 571,000 shares of the Miami-based homebuilder for an average price of $44.38 per share. The deal had a 2.2% impact on the portfolio.  


  • Third Avenue Value Fund Buys 2 Stocks and Adds to 2 Positions in Q4

    Third Avenue Management (Trades, Portfolio), a private investment firm founded by legendary value manager Martin Whitman (Trades, Portfolio), ends its quarter on Oct. 31 and revealed the fourth-quarter trades of its Third Avenue Value Fund in its recent letter.

    The leader portfolio manager on the value fund is Chip Rewey. The firm’s philosophy focuses on fundamental, bottom-up research in a hunt for companies with strong capitalization, potential to compound value and shareholder-oriented management. They purchase when the companies trade at a discount to their net asset values.  


  • Third Avenue Focused Credit Fund Letter a Year After Starting Wind Down

    Dear Fellow Shareholders,


    As we wrote to you in our letter dated November 29, 2016, the Third Avenue Focused Credit Fund (the "Fund" or "FCF") recently paid its fourth liquidating distribution. Fund management has continued the orderly wind down of FCF and cumulative distributions now account for approximately 40% of the Fund's total assets since FCF announced its plan of liquidation on December 9, 2015.

      


  • Third Avenue Management Comments on Korn Ferry International

    Many of you may recognize the strong brand name of Korn Ferry International (NYSE:KFY), another purchase in the quarter, but you may not have noticed the business transformation the company has undertaken anchored by its December 2015 purchase of the Hay Group. Korn Ferry is best known for its executive recruiting. It is a top brand name in this highly fragmented industry, with a strong offering on the more resilient and niche C-suite space. Most of its job searches have annual compensation of $300,000 or more.


    With the acquisition of the Hay Group, Korn Ferry has leveraged this valuable network at the C-suite level and brought critical mass to its human resources advisory businesses. The goal is to engage more with its corporate clients beyond placing top level personnel and to provide a more stable revenue stream than a purely search-driven business model. When acquired, Hay Group earned an uninspiring 8% on its revenue, or $40 million in EBITDA. 11 months after the integration, the Hay Group has begun to deliver on its projected benefits and synergies. We estimate that Hay's EBITDA margin already improved from 8% to 12%, and should continue to grow to 15-16% over the next two years.

      


  • Third Avenue Management Comments on Comfort Systems USA

    Beyond a strong balance sheet, other key characteristics that we look for in our companies include a strong business model and a large addressable market to support long-term revenue and earnings compounding. Our addition of Comfort Systems USA (NYSE:FIX) is a good example of these factors. Comfort Systems offers design, installation, retrofit and service for HVAC and electrical systems for facilities such as office buildings, plants, retail centers, hospitals and universities. Comfort Systems is unique in that it focuses mostly in smaller cities where, relative to large urban settings, there is less competition for both projects and for skilled labor. The company works on approximately 4,000 jobs annually and most of the contracts are under $1 million. More than half of these are for renovations and repairs and are recurring in nature, rather than from new constructions.


    The outlook for revenue growth is solid, as the aging existing HVAC stock in the U.S. should provide a good organic growth rate of approximately 3 to 5% annually over many years. We particularly like the management team's skillset in acquiring smaller competitors to add geographic coverage and achieve operational synergies. Management buys small, local competitors that earn only 2 or 3% operating margins (the margins are low in this business because they include pass-through equipment costs) and pay only 5-6X EBITDA. After overlaying Comfort Systems' buying power and operational standards, margins of the acquired companies normally double to 4-6% after a year, effectively cutting the purchase price in half. We think that a combination of a solid core business, operational leverage and large acquisition opportunities will provide higher sales and higher margins for many years. Net of cash, the company has no debt. At our purchase price of just over $28, we see solid upside to our mid-$30's estimate of fair value NAV, with a solid outlook for book value growth and a 6.2% free cash flow yield.

      


  • Third Avenue Management Comments on Cubic Corp

    Cubic Corp (NYSE:CUB), another top holding for the Fund, is a small company with about $1.1 billion in market cap that has three main businesses: military communication equipment, military training (for example, they run the Top Gun flight school), and in our view the most interesting part is its transportation segment. The company's transportation segment is the world leader in design and management of public bus and subway systems, handling the fare systems for major cities such as London, New York City, Chicago, and Vancouver. Cubic is also leading technology efforts, such as smart phone payments and dynamic re-routing, to help keep us all on time for work.


    The company meets all of our requirements, with low (and declining) financial leverage, highly visible means to compound earnings and book value growth. And, at $43 per share, we think the stock is very under-valued, with upside to north of $60 within a couple of years.

      


  • Third Avenue Management Comments on Multi-Color Corporation

    Multi-Color Corporation (NASDAQ:LABL) 1 is a good example of a name that is not in our benchmark and is a high conviction top ten holding for the Fund. The company produces numerous types of labels for a variety of consumer products, such as detergent, wine bottles, motor oil, etc. Multi-Color meets the tenets of our investment philosophy of creditworthiness, book value compounding and a discounted valuation.


    On the first tenet, Multi-Color has manageable debt. Our companies must have the wherewithal to weather economic cyclicality as well as the ability to take advantage of opportunities within their industry. Excessive debt brings more than financial risk. Many companies have declined in value not because they could not repay their debt, but because they did not have left over money to reinvest to develop new products or keep up with innovations.

      


  • Third Avenue Small-Cap Value Fund 3rd Quarter Commentary

    Dear Fellow Shareholders:


    On November 10th, we were excited to host Third Avenue's 19th Annual Value Equity Conference. It was a pleasure to see and speak with all of you that attended. As we reflect on the quarter and the conference, we want to share some thoughts from the day for those of you who could not attend.

      


  • Third Avenue Value Fund 4th Quarter Portfolio Manager Commentary

    Dear Fellow Shareholders:


    We hosted Third Avenue's 19th annual Value Conference in November. We were thrilled to see and speak to many of you at the conference, and for those of you who were unable to attend, we thought it might be interesting/instructive to share highlights of our discussion.

      


  • 17 Questions With Tim Travis of T&T Capital Management

    1. How and why did you get started investing? What is your background?


    When I was a teenager my Dad gave me the book the "Intelligent Investor" for me to read on a trip to Hawaii. For the first time investing, which had previously seemed a very abstract concept to me, made tangible sense. I found it so interesting that the relatively simple concept of value investing, which has been used by so many successfully, was the furthest thing from the status quo on Wall Street. I have a naturally contrarian personality so value investing was a great fit for me.

      


  • Does the Increase in Volatility Signal a Dangerous Market Environment?

    Over the last several weeks stock price volatility has increased significantly above norms. All of a sudden it is not uncommon to see stock prices moving 5%, 10% or more in a single trading day. Interestingly, this volatility is occurring both to the upside and the downside. Common sense would suggest that the intrinsic value of a business cannot change by those orders of magnitude from one day to the next. Logic dictates that the market is either inaccurately pricing the stocks now or it was incorrectly pricing them the day before.


    Stock price volatility is an unavoidable and undeniable reality. The stock market is an auction, and as a result, prices are continuously fluctuating up and down. Of course, that is stating the obvious because every investor in common stocks surely understands the associated daily volatility. However, my experience in talking with investors suggests that not every common stockholder embraces the complete unpredictability of stock price movements in the short run.

      


  • T Rowe Price Equity Income Fund Seeks Strong Value in 3rd Quarter

    During the third quarter, the T Rowe Price Equity Income Fund (Trades, Portfolio) took a position in KeyCorp (NYSE:KEY) and tripled its stake in Johnson Controls International PLC (NYSE:JCI). Additionally, the fund trimmed its position in General Electric Co. (NYSE:GE) and Bank of America Corp. (NYSE:BAC). These transactions align with the mutual fund’s value-oriented investment approach.


    Introduction to the fund and its investing strategy

      


  • Whitman Adds to 3 Positions in 3rd Quarter

    Martin Whitman (Trades, Portfolio), founder and portfolio manager of the Third Avenue Value Fund and adjunct faculty member at Yale’s School of Management, added to three positions in the portfolio in the third quarter. It was the fewest quarterly additions the guru has made since the third quarter of 2013.


    The largest addition was to Johnson Controls International PLC (NYSE:JCI), a producer of auto parts and heating/ventilation/air conditioning equipment with offices in Wisconsin and Ireland. The purchase of 232,800 shares for an average price of $43.6 per share elevated the position by more than 71% with a 0.95% impact on the portfolio.

      


  • Martin Whitman's Top Recent Investments

    Martin Whitman (Trades, Portfolio) is the founder and portfolio manager of the Third Avenue Value Fund. During the third quarter, the guru traded some stocks. The following are the ones with the highest performance.


    Amgen Inc. (NASDAQ:AMGN)

      


  • Martin Whitman Exits Baxalta in 3rd Quarter

    Martin Whitman (Trades, Portfolio) is the founder and portfolio manager of the Third Avenue Value Fund (TAVFX). He manages a portfolio composed of 36 stocks with a total value of $1,127million. During the third quarter, the guru’s largest sales are as follows:


    The investor exited his stake in Baxalta Inc. (NYSE:BXLT) with an impact of -1.62% on the portfolio.

      


  • Third Value Fund Avenue Buys 3 Stocks in 3rd Quarter

    Third Avenue Management (Trades, Portfolio) reported owning three new stocks in the third quarter, all from the pharmaceutical sector.


    The firm, founded by noted investor Martin Whitman (Trades, Portfolio), managed $6.3 billion as of Dec. 31 and returned 6.45% in its Value Fund for the calendar year through July 31, versus 7.65% for the S&P 500. The fund’s managers described their third-quarter trading activity in their recent letter:

      


  • Third Avenue International Value Fund Portfolio Manager 3rd Quarter Commentary

    Dear Fellow Shareholders:


    We are pleased to provide you with the Third Avenue International Fund (the "Fund") report for the quarter ended July 31,2016.

      


  • Third Avenue Small-Cap Value Fund Comments on Seaboard Corp

    We actually initiated our investment in Seaboard Corporation (SEB) ("Seaboard") with a small weighting at the end of 2Q16 and continued to build our position in 3Q16. Seaboard is a diverse global agribusiness and transportation company. In the U.S., Seaboard is primarily engaged in pork production and processing as well as ocean cargo shipping. Overseas, Seaboard engages in commodity merchandising, grain processing, sugar production and electric power generation. Seaboard also has a 52% interest in the turkey company Butterball, a brand very well-known to many consumers in the U.S.


    Despite what we see as high investor neglect of Seaboard due to low name recognition among most investors, we were drawn to the company by the stable demand for its products and services and its impressive asset portfolio, which has allowed Seaboard to compound its book value at double-digit rates over the long-term. The opportunity to invest was presented largely due to a challenged 2015 for the company when industry pork production outgrew demand. This resulted in a decline in pork prices and weighed on the company's profits and stock price.

      


  • Third Avenue Small-Cap Value Fund Comments on SP Plus

    After merging with Central Parking in 2013, effectively doubling its size, SP Plus (NASDAQ:SP) ("SP") is now the largest parking company in the U.S. In its main business, which contributes about 72% of total EBITDA, SP Plus manages 3,900 parking facilities encompassing some 2 million parking spaces in 346 cities around the country. Its clients include property owners and institutions such as municipalities, corporations, hotels, hospitals and universities. The company earns fees based on its general parking and labor management expertise. The revenue base is very stable because most of the contracts are independent of volume. SP leases about 20% of the garages and assumes all business risks. In its corporate name, the word "Plus" refers to related services like managing airport parking and


    We like this company because of its cash flow stability, consolidation opportunities for stronger players, and economies of scale. Some 90% of contracts are renewed each year. Since the company collects money from parkers upfront and keeps its share before submitting the remaining to clients, the business doesn't require working capital. While it is the largest player, SP's market share is only about 10%, which leaves plenty of opportunity for growth through mergers and acquisitions. Being larger helps establish brand names and also offers advantages on schedule optimization and purchases.

      


  • Third Avenue Small-Cap Value Fund Comments on Fiesta Restaurant Group

    Fiesta Restaurant Group (NASDAQ:FRGI) ("Fiesta") was spun-off from Carrols Restaurant Group in 2012 and now operates two restaurant brands, Polio Tropical and Taco Cabana. Both brands have had success in core markets, with 85% of Polio Tropical's restaurants in Florida and 99% of Taco Cabana's in Texas. The company is now expanding into other regions. Both restaurants are well-positioned to benefit from the healthy diet trend. Polio Tropical is one of the fastest growing ethnic food choices over the past 15 years as it takes advantage of diners' growing demand for Caribbean cuisine. Taco Cabana offers freshly prepared and authentic Mexican food and many of its restaurants are open 24 hours a day.


    Restaurant-level results have been outstanding. Polio Tropical's average annual sales per restaurant are $2.6 million. Taco Cabana's $1.9 million per restaurant compares favorably to much larger competitors Chipotle and Qdoba. The company plans to expand its current small footprint (344 locations for the two restaurants combined, split evenly at 172 locations apiece), by adding 8-10% to its store base every year. Unlike many of its peers, Fiesta's balance sheet is healthy. It hasn't overindulged in debt to fund its expansion. The company has a history of generating ample operating cash flow and compounding book value.

      


  • Third Avenue Small-Cap Value Fund Comments on G-III Apparel Group

    G-I I I (NASDAQ:GIII) Apparel Group ("G-I I I") is a designer, manufacturer, and marketer of men's and women's apparel. While not a household name, the numerous brands G-111 works with very much are, including Calvin Klein and Tommy Hilfiger. G-I I I was founded in the 1950s and today is one of the larger companies in the apparel industry with more than $2 billion of annual sales and a remarkable track record.


    Perhaps the aspect that attracted us most to G-111 is its increasingly strong opportunities for growth. In particular, it was recently awarded the license for the Tommy Hilfiger North America women's line. Hilfiger's licensor, PVH Corp., awarded G-I II the license in recognition of the strong growth G-111 has been able to generate for Calvin Klein. PVH awarded the Klein licenses to G-Illover the last decade, and if past is prologue, Hilfiger could be a billion dollar sales opportunity for G-I II. G-I II has also added other prominent brands to its portfolio, including Karl Lagerfeld and G.H. Bass, some licensed and some fully owned. Company management believes Lagerfeld and Bass alone represent an opportunity to grow G-Illsales about a billion dollars over the coming years. Simultaneously, e-commerce represents a large opportunity for G-111as it is very actively expanding business through the websites of department stores and Amazon, unlike many of its apparel peers.

      


  • Third Avenue Fund Comments on LivaNova

    Livallova

    Investor neglect can be a source of new ideas while also providing an element of downside protection. We found this combination to be compelling in our purchase of Livallova (NASDAQ:LIVN), which is the new name for Sorin and Cyberonics post their late-2015 merger. We think investor neglect was paramount, for Sorin, an Italian company, which merged with Cyberonics, based in Houston, changed its name and reincorporated in London. Indeed, we came across the company on a screen of our potential universe of companies, and had to do some digging into the new name we did not recognize, to realize the potential for these two well-known companies and the significant potential their merger offers.

    Livallova is a healthcare company with a $3 billion market capitalization that holds leading positions in cardiac surgical equipment, surgical heart valve replacement, neuromodulation and cardiac rhythm management. In its cardiac surgery division, Livallova holds number one positions in Oxygenators and Heart Lung machines. It also is rapidly gaining share with its new sutureless Perceval heart valve, with a history of successful procedures in Europe and recently approved in the U.S. In Neuromodulation, Livallova holds the number one position in devices for the treatment of drug resistant epilepsy, led by its success with its AspireSR device. Livallova is also rapidly gaining share in cardiac rhythm management with Kora250 and Platinium in Japan and Europe, while retaining options on strategies to re-enter the U.S. market. In all, Livallova holds number one positions in over 60% of its revenues.

    Livallova also has a strong self-help profile, with targeted synergies from its merger of $80 million over three years. As of its second quarter earnings call, Livallova indicated it was ahead of the first phase of $19 million expected in 2016. Creditworthiness for the company is easily demonstrated by net debt of roughly $75 million.

    The ability to compound earnings and book value growth is not only supported by its new product introductions and merger synergies, but also its compelling research and development pipeline, which Livallova refers to as its New Ventures unit. In this unit, Livallova is pursuing groundbreaking new technologies in percutaneous mitral valve repair and replacement, the adaption of its Neuromodulation technologies for treatment of central and obstructive sleep apnea and also the potential to treat heart failure through vagus nerve stimulation. Not only is the potential market opportunity for all three of these areas separately in excess of a billion dollars, but through its merger, Livallova has multiple research efforts in each area to evaluate, streamline and prioritize.

    Brexit created a window to initiate a position at under $50 per share for the Fund, which represents a compelling 50% upside to our fair value NAV target. Perhaps due to investor neglect on the name, Livallova trades at a substantial discount to its U.S. peers. We think this discount and its relatively smaller market capitalization also provide downside protection, for the company would likely be attractive to a larger entity looking to expand its product franchise.


    From Third Avenue Value Fund's third quarter 2016 letter.

      


  • Third Avenue Fund Comments on Amgen

    Livallova

    Investor neglect can be a source of new ideas while also providing an element of downside protection. We found this combination to be compelling in our purchase of Livallova (NASDAQ:LIVN), which is the new name for Sorin and Cyberonics post their late-2015 merger. We think investor neglect was paramount, for Sorin, an Italian company, which merged with Cyberonics, based in Houston, changed its name and reincorporated in London. Indeed, we came across the company on a screen of our potential universe of companies, and had to do some digging into the new name we did not recognize, to realize the potential for these two well-known companies and the significant potential their merger offers.

    Livallova is a healthcare company with a $3 billion market capitalization that holds leading positions in cardiac surgical equipment, surgical heart valve replacement, neuromodulation and cardiac rhythm management. In its cardiac surgery division, Livallova holds number one positions in Oxygenators and Heart Lung machines. It also is rapidly gaining share with its new sutureless Perceval heart valve, with a history of successful procedures in Europe and recently approved in the U.S. In Neuromodulation, Livallova holds the number one position in devices for the treatment of drug resistant epilepsy, led by its success with its AspireSR device. Livallova is also rapidly gaining share in cardiac rhythm management with Kora250 and Platinium in Japan and Europe, while retaining options on strategies to re-enter the U.S. market. In all, Livallova holds number one positions in over 60% of its revenues.

    Livallova also has a strong self-help profile, with targeted synergies from its merger of $80 million over three years. As of its second quarter earnings call, Livallova indicated it was ahead of the first phase of $19 million expected in 2016. Creditworthiness for the company is easily demonstrated by net debt of roughly $75 million.

    The ability to compound earnings and book value growth is not only supported by its new product introductions and merger synergies, but also its compelling research and development pipeline, which Livallova refers to as its New Ventures unit. In this unit, Livallova is pursuing groundbreaking new technologies in percutaneous mitral valve repair and replacement, the adaption of its Neuromodulation technologies for treatment of central and obstructive sleep apnea and also the potential to treat heart failure through vagus nerve stimulation. Not only is the potential market opportunity for all three of these areas separately in excess of a billion dollars, but through its merger, Livallova has multiple research efforts in each area to evaluate, streamline and prioritize.

    Brexit created a window to initiate a position at under $50 per share for the Fund, which represents a compelling 50% upside to our fair value NAV target. Perhaps due to investor neglect on the name, Livallova trades at a substantial discount to its U.S. peers. We think this discount and its relatively smaller market capitalization also provide downside protection, for the company would likely be attractive to a larger entity looking to expand its product franchise.


    From Third Avenue Value Fund's third quarter 2016 letter.

      


  • Third Avenue Fund Comments on Amgen

    Amgen (NASDAQ:AMGN), which was founded in 1980, is one of the world's leading biotechnology companies. Interestingly, the biotech industry has matured over the years and some of the companies generate stable cash flows, not unlike some of the larger pharmaceutical companies. Amgen is one of these. Competitive issues, largely surrounding the biosimilar debate, have put pressure on Amgen's stock. Post-Brexit market volatility provided us an opportunity to acquire shares.

    Amgen has a diversified product portfolio across six therapeutic areas: oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology and neuroscience. Its key products are Enbrel for long-term inflammatory diseases such as rheumatoid arthritis; Epogen and Aranesp for anemia; Neupogen and Neulasta for treating neutropenia (a lack of certain white blood cells caused by cancer, bone marrow transplant, or after chemotherapy). Newer drugs include Repatha, which targets high cholesterol for the roughly 20% of the population who are intolerant of statins (the typical first line treatment), and Kyprolis for multiple myeloma, an incurable bone cancer. Its pipeline consists of 31

    preclinical and clinical targets, 12 of which are in the later stages. Amgen also has a pipeline of 9 biosimilars, of which 3 are in late stage and for which the worldwide sales of the originator drugs totaled approximately $54 billion in 2015.

    The company generated $9 billion in operating cash flow in 2015, up from $5.1 billion in 2011. The company has used its excess cash flow to fund growth as well as return cash to shareholders via both share buybacks and dividends. It expects to return 60% of adjusted net income to shareholders by 2018.

    Amgen has longer-term opportunities for margin improvement from synergies and cost controls. The company initiated a large-scale "transformation" program in 2013 to focus on efficient allocation of resources. The plan included an approximately 23% reduction in its facilities footprint and a 20% reduction in headcount by the end of 2015, with a goal of generating $1.5 billion of annual savings and a 15-point increase in adjusted operating margin by 2018. So far, the company's adjusted operating margin has increased from 38% in 2013 to 48% in 2015 and 55% in 1Q16. Management believes it is on a path to achieve 52-54% by 2018. In addition, the company's new next-generation bio-manufacturing facility is on track. The facility is expected to increase bulk production capabilities at a quarter of capital costs, 1/3 of operating costs and 2x speed vs. conventional facilities, resulting in an estimated cost reduction of 60%+ per gram of protein.

    Competitive threats confront any company and even more so for biotech and pharma companies as their products face patent expirations. Biosimilar products are newer to the marketplace and the regulatory pathway is still evolving, with questions of interchangeability with the branded drug still progressing. Biologics are scientifically more challenging than small molecule generic development, more costly to develop and require high-quality complex manufacturing. Price discounting to date has been substantially less than small molecule generics, but may vary over the longer-term. As such, we look to acquire shares at a reasonable estimate of the company's base business without giving much credit to the pipeline. We believe this provides downside protection for the competitive threats while providing opportunity for upside given the growing pipeline. We took advantage of volatility during the quarter to acquire shares of Amgen common at around a 25% discount to our estimate of NAV.


    From Third Avenue Value Fund's third quarter 2016 letter.

      


  • Third Avenue Small-Cap Value Fund 3rd Quarter Portfolio Manager Commentary

    Dear Fellow Shareholders:


    We are pleased to provide you with the report of the Third Avenue Small-Cap Value Fund (the "Fund") for the quarter ended July 31,2016.

      


  • Third Avenue Value Fund 3rd Quarter Letter

    Dear Fellow Shareholders:


    We are pleased to provide you with the Third Avenue Value Fund's (the "Fund") report for the quarter ended July 31, 2016.

      


  • Martin Whitman’s Third Avenue Management Purchases 8 Stocks

    Martin Whitman (Trades, Portfolio)’s investment firm Third Avenue Management (Trades, Portfolio) bought eight new stocks in the second quarter.


    They have a portfolio of 114 positions that together have a value of $2.45 billion. Half are companies in the real estate sector (27%) and financial services sector (22.3%). The firm is guided by a value-driven investment philosophy.

      


  • Chip Rewey Cuts General Motors Position in Half

    Third Avenue Value Fund manager, Robert “Chip” Rewey, slashed 696,700 shares of General Motors (NYSE:GM), a 53% reduction to his position, during the second quarter. The sell had a -1.75% impact on the Third Avenue Value Fund portfolio.


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  • Third Avenue Management Buys 6 Stocks in Second Quarter

    Third Avenue Management (Trades, Portfolio) has based its investing on value-driven, bottom-up principles since a recognized leader in the field, Martin Whitman (Trades, Portfolio), founded it in 1986. The firm frequently files its quarterly portfolio update ahead of the deadline of 45 days past the end of the quarter and before many other investors. Third Avenue reported buying one new stock and buying more shares of five of its existing holdings on Thursday, the final day of the second quarter.


    Whitman, chairman of Third Avenue, already posted his second-quarter thoughts in a letter on April 30, where he primarily reflected on the shortcomings of one of the central pieces of his investing strategy: buying growth in net asset value at a discounted price. Namely, managements of well-financed companies are in 2016 often hording cash at the expense of getting returns on it or are apathetic because they do not own any stock or have Wall Street pressure.

      


  • Third Avenue Value Fund Purchases Stake in Johnson Controls

    Third Avenue Value Fund purchased a 325,700-share stake in Johnson Controls Inc. (NYSE:JCI) on April 30.


    Milwaukee-based Johnson Controls is a global technology and industrial leader serving customers in more than 150 countries. The company invented the first electric room thermostat in 1885; since then it has been using the principles of delivering innovative products that help the world run in an efficient, rational and safe manner. The company creates products, services and solutions to increase energy efficiency and lower operating costs for buildings worldwide. The company also creates batteries and energy storage — including advanced batteries for hybrid and electric vehicles as well as stationary energy storage.

      


  • Thoughts on the Brexit - Third Avenue Management

    On June 23, 2016, the United Kingdom held a referendum which resulted in the majority of voters expressing a will for the United Kingdom to sever its existing arrangement with the European Union (“EU”). By voting to abandon the existing terms of its relationship with the EU, the referendum result has opened a host of European economic and sovereignty considerations which are likely to linger for some time. Uncertainty will be the norm as the long-term impacts of Brexit unfold.

    At Third Avenue Management (Trades, Portfolio) we have steered through political and macroeconomic upheaval in our more than 30 years of investing. Events similar to “Brexit” in terms of shock value are simply facts of life for investors. As a result of these hard-earned experiences we have learned not to rely upon specific macroeconomic forecasts but instead strive to prepare for the unexpected. In this pursuit we favor companies with strong financial positions, modest valuations, and are mindful of fundamental risks such as currency mismatches. While these approaches do not fully minimize short-term stock price volatility, they do, in our view, reduce fundamental risks which could lead to permanent impairment of our capital. We also strive to exercise prudence with regard to position sizing and geographic and industry exposures.  


  • Answers to the Hardest Question: When Do I Sell a Stock?

    The most common complaint I have heard from investors over my 40-plus years in the financial services industry is as follows: "Everyone wants to tell me what to buy and when, but no one ever tells me when to sell."


    Consequently, it seems to me that whether you are a novice investor or a grizzled old veteran, the decision as to when to sell a stock is the most difficult decision investors have to make.

      


  • Third Avenue Comments on Visteon Corp

    An example of one of our portfolio holdings which has had, and continues to have, opportunities for self-help is Visteon Corp. (NYSE:VC), a well-capitalized automotive electronics company. The stock was a top contributor to the Fund's performance during the quarter, with a total return of 19.1%.

    Visteon provides products to automotive OEMs (original equipment manufacturers) such as Ford, GM, Daimler, BMW, Nissan and Honda for their digital cockpits, i.e., the instrument cluster, information displays and infotainment - each of which has a presence in the connected car. Comparing today's cars to those just five years ago, the amount of additional functionality is amazing - from infotainment that connects to your smartphone to driver assistance safety features such as rear back-up cameras, collision detection, and blind spot and lane departure warnings. Integrated instrument clusters can be personalized if,for example, you'd rather see the weather than your tachometer. There are even over-the-air software upgrades where, instead of having to take your vehicle to the dealer for an update, the upgrade can happen seamlessly while you're asleep and your car is in your own driveway.

    The media is abuzz about self-driving cars and the car as an extension of people's mobile life. For the auto OEMs, having connectivity is a strategic differentiator and one that can be the deciding factor to a customer when choosing a particular car. Visteon is an enabler of connectivity with its cockpit electronics products - it enables the information to be gathered from various sources and displayed in the vehicle.

    Visteon's roots can be traced back to its role as an automotive supplier to Ford Motor, providing climate control systems, electronics and interiors. The company was spun off in 2000, but then fell upon difficult times during the financial crisis. It reorganized and emerged from Chapter 11 in 2010. Two years later, management embarked upon a path to shift to higher margin products, deciding to exit the commodity interiors business and ultimately deciding to sell its stake in its climate control business to focus solely on electronics. It is here that the Fund got involved with Visteon. Management sold its stake in the climate control business at an attractive 10x EBITDA valuation and committed to return a substantial portion of the proceeds to shareholders. It had also acquired the automotive electronics business from Johnson Controls to bolster its overall electronics business and was actively pursuing new business wins with OEMs as well as reaffirming its technological strength and longer-term roadmap to re-win existing platforms. Further, a new CEO, Sachin Lawande, was brought in. Sachin had previously been the president of the Infotainment division at peer company, Harman. Since his arrival at Visteon, he has brought in additional talent along with a greater focus on software development, a key driver for this business.

    Visteon continues on its path to building value. Even after a sizable capital return, the company maintains a net cash position. It remains focused on driving growth with its presence in the connected car. It has won business across various classes of vehicles from luxury to mid/entry level. It achieved its targeted cost synergies related to the acquisition of the JCI automotive electronics business ahead of plan, and has targeted reducing overhead costs further to improve margins. Adjusted EBITDA margins have improved from 7.2% in 2014 to 9.5% in 2015 and 11.9% in the first quarter of 2016.

    We remain excited about the prospects for growth at Visteon as it expands its presence in the connected car and believe the stock, at current levels, still represents significant upside to our estimated NAV.


    From Chip Rewey's second quarter 2016 Third Avenue Small-Cap Value Fund letter.

      


  • Third Avenue Comments on NetScout Systems Inc.

    NetScout Systems Inc. (NASDAQ:NTCT) Near-term concerns over a slowdown in carrier spending provided us an opportunity to acquire shares of NetScout common at a substantial discount to our estimate of NAV.

    NetScout is a well-financed provider of 24x7 network monitoring solutions to carriers and enterprises. Its offerings provide high-quality performance analytics that help its customers resolve technology issues that could negatively impact service quality and/or result in outages/downtime and compromised security. Last year, the company acquired certain communications assets from Danaher which doubled its addressable market by broadening its product offerings, providing an entrée into the cyber security space and increased its distribution. Cost synergies estimated at around $45-55 million are expected from the elimination of redundancies and economies of scale, with additional synergies generated over time as the company moves toward common infrastructure platforms, distribution and support programs.

    In the long term, demands for increasing amounts of data seem to continue unabated (not only Big Data but more and more use of streaming video!), requiring more monitoring and troubleshooting of network traffic which should benefit NetScout. For carriers, the cost of monitoring to keep existing customers happy with their service is a small price to pay compared to the cost to acquire new customers.


    From Chip Rewey's second quarter 2016 Third Avenue Small-Cap Value Fund letter.

      


  • Third Avenue Comments on Kennedy Wilson Holdings

    Kennedy Wilson Holdings, Inc. (NYSE:KW) During the quarter, the Fund was able to acquire shares of Kennedy Wilson Common at a substantial discount to our estimate of NAV, as the general market sell off, combined with unfounded fears of market liquidity for deals, pushed the stock down significantly.

    Kennedy Wilson Holdings (Kennedy Wilson) is a U.S.-based real estate operating company. The company is an integrated global real estate investment and services company with a $2 billion portfolio of investments in a diversified mix of commercial and residential assets. In addition, Kennedy Wilson has more than $18 billion of assets under management (AUM) on behalf of third parties.

    The management team owns 18% of the company's stock and has historically been a savvy capital allocator, having made substantial investments in Japan during the 1990s, in the U.S. following the financial crisis, and in Europe and the U.K. in more recent years. The template has been the same in all markets: invest capital in out-of-favor regions or property types at substantial discounts to underlying value, actively manage properties and add value during the holding period, realize profits over the long term, and recycle capital into new opportunistic investments. This model has produced a notable 10-year tangible book value growth CAGR of 13.5%. Our knowledge and due diligence of Kennedy Wilson was aided significantly in partnership with Third Avenue's Real Estate team, who have owned the stock since early in 2015.

    At our average cost of just over $17 per share, we not only have significant upside to our NAV estimate of $25, but also what we consider to be a "free option" on performance fees and monetization of low basis (and now entitled) land acquired in conjunction with income-producing properties. The company appears poised to generate sizable NAV growth as it expands third-party AUM and harvests profits (including promotes) from a series of the well-timed investments it made over the past several years.


    From Chip Rewey's second quarter 2016 Third Avenue Small-Cap Value Fund letter.

      


  • Third Avenue Comments on Interface Inc.

    Interface, Inc. (NASDAQ:TILE) Interface has been on our radar for some time and during the quarter its stock price reached a level we viewed as an attractive entry point, having declined more than 40% within the past few quarters due to investor concern around the company's level of growth. While we agree that growth in the short-term is likely to be muted, we believe the company's core product - modular carpet - is poised for long-term secular growth.

    Interface is the world's leading manufacturer of carpet tile. The strength of its brand and its reputation for service, quality, design and performance provide a competitive advantage. Interface's global manufacturing capabilities across four continents also provide an advantage in serving multinational corporate customers quickly and cost-effectively.

    Central to our thesis on Interface is the fact that carpet tile has reached the point where it is cost-competitive with traditional 'broadloom' carpet but offers numerous advantages, including efficiency in installation and replacement. In addition, the company is well-financed and well-managed, with a long-tenured management team.

    Having made our investment in the company at an undemanding valuation of 13-14x free cash flow and a substantial discount to our estimate of NAV,we believe the market is likely to assign Interface a higher valuation over time as commercial construction levels continue to improve and Interface continues its expansion overseas and into newer verticals such as education. Moreover, we would not be surprised to see Interface become an acquisition target itself if its current depressed valuation in the public markets persists.


    From Chip Rewey's second quarter 2016 Third Avenue Small-Cap Value Fund letter.

      


  • Third Avenue Comments on Carrizo Oil & Gas

    Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) Since our initial purchase in February, Carrizo Oil & Gas has been a strong performer. With a solid balance sheet and a significant drilling inventory,we see Carrizo as a multi-year compounder into recovering oil prices, however long that takes.

    Based in Houston, TX, Carrizo is an exploration and production company focused on oil and gas plays in the U.S. Its most important acreage is in the high quality core areas of the Eagle Ford shale in South Texas, the Delaware basin in the Permian in West Texas, and the Utica shale in Ohio. Carrizo's share price, like those of all oil and gas production companies, came under extreme price pressure in February, as the market sold off and investors feared sustained oil prices in the low-$20 per barrel range.

    Carrizo is unique from our perspective as a small cap company thanks to its high quality acreage (what we call good rocks) and a strong balance sheet. It fits our criteria for creditworthiness, with a disciplined hedging program to forward sell 50% of production, and a recently re-determined borrowing base on its $600 million revolving loan versus $50 million drawn.

    As for its acreage, Carrizo rocks aren't just good, their 88,000 acres in the Eagle Ford play in South Texas are great, with about 75% oil cuts and a PV103 break-even of $32.50 per barrel. Further, Carrizo has the ability to respond quickly to higher prices, with drilled but uncompleted inventory of 53 net Eagle Ford wells, which represents upwards of almost 12,000 barrels of oil equivalent production per day (B0Epd), or almost half of their current production run rate. With stronger prices, Carrizo has the balance sheet and the acreage to opportunistically increase production in 30 days through fracking and completing these wells. Moreover, it has a long horizon of drilling visibility with 53 planned Eagle Ford wells in 2016, vs. a base well inventory of 915 drilling locations and potentially an inventory of 2,100 locations with tighter spacing. Indeed, as good oil plays get better,

    Carrizo has the sweet spot acreage in one of the best.


    From Chip Rewey's second quarter 2016 Third Avenue Small-Cap Value Fund letter.

      


  • Third Avenue Comments on Cambrex Corp

    Cambrex Corp. (NYSE:CBM) We took advantage of the February sell off in the market to acquire shares of Cambrex at around $38 per share, an attractive discount to our estimate of NAV. We see the combination of a strong balance sheet and a healthy revenue outlook as supportive for book value growth to continue, given the dynamics of Cambrex's business.


    Cambrex is a well-financed specialty chemical company focused on life sciences; it develops and commercializes active pharmaceutical ingredients (APIs). Cambrex also produces Generic APIs, Controlled Substance APIs and is expanding into finished-dosage generic API manufacturing. Cambrex's API business is unique in that it manufactures the active ingredient in several leading pharmaceuticals and serves as a supplier to various drug companies. As such, it generates revenues from volumes sold and not price per finished pill. Cambrex's customers focus not only on product purity but also on quality, consistency and documentation of the manufacturing process ascompetitive attributes.


    Several long-term drivers support revenue growth for Cambrex.

      


  • Chip Rewey's Third Avenue Small-Cap Value Fund 2nd Quarter Commentary

    Dear Fellow Shareholders:


    We are pleased to provide you with the report of the Third Avenue Small-Cap Value Fund (the "Fund") for the quarter ended April 30, 2016.

      


  • Martin Whitman's Third Avenue Funds 2nd Quarter Shareholder Letter

    Dear Fellow Shareholders:


    One conservative, but highly productive, approach to long-term common stock investing is to acquire issues which have the following characteristics:

      


  • Third Avenue Management Q2 2016 Value Fund Letter

    During the fiscal second quarter, oil prices rallied, credit markets improved and stock prices rebounded as macro fears were replaced by optimism. That trend followed a period when oil prices fell, credit markets deteriorated and stock prices sagged. And that followed a period when…well, you get the idea. There’s been no shortage of market volatility.


    Some may delight in trying to ride this bucking bronco of a market. But we have never been momentum jockeys. We are value investors, which means we care deeply about company fundamentals. We look for companies with strong management that can deliver long-term shareholder value regardless of macro trends or market movements. We buy securities of quality companies at attractive prices. We hold onto them. For a long time. And we don’t pay much attention to what markets may do in the interim, as long as our investment thesis remains intact.

      


  • Marty Whitman's Third Avenue Buys Lennar, Fidelity, Howard Hughes

    Marty Whitman, veteran investor and founder of Third Avenue Management (Trades, Portfolio), said in his recent shareholder letter that his team was “taking the opportunity to deploy capital in some of what we believe are the most unduly punished names in the portfolio as well as in new investment opportunities.” In the first quarter, he acted on seven of those opportunities.


    Whitman’s philosophy is to buy stocks of companies based on their credit worthiness, ability to compound book value and share price below intrinsic value. His holding period is about three to five years.

      


  • Third Avenue Buys Ralph Lauren, Boosts Baxalta

    Martin Whitman (Trades, Portfolio) is founder and former portfolio manager of the Third Avenue Value Fund. Chip Rewey now manages the fund after Whitman stepped down from active management duties. During the first quarter of the year, the fund bought many stocks and the following are the most heavily weighted.


    Third Avenue acquired 229,973 shares in Harman International Industries Inc. (HAR) with an impact of 1.45% on the portfolio.

      


  • Martin Whitman Takes Stake in Harman International Industries

    Martin Whitman (TradesPortfolio) purchased 229,973 shares of Harman International Industries Inc. (NYSE:HAR) in the first quarter.


    Harman International Industries designs and engineers connected products and solutions for automakers, consumers and enterprises worldwide, including connected car systems, audio and visual products, enterprise automation solutions and connected services with leading brands including AKG, Harman Kardon, Infinity, JBL, Lexicon, Mark Levinson and Revel. More than 25 million automobiles on the road are equipped with Harman audio and connected car systems.

      


  • Third Avenue Value Sells NVIDIA, Cavco

    Martin Whitman (Trades, Portfolio) is the founder of the Third Avenue Value Fund (TAVFX), which is now managed by Chip Rewey. The fund sold many stocks during the first quarter including the following.


    The fund reduced its stake in Cavco Industries Inc. (CVCO) by 30.57% and the deal had an impact of -2.46% on the portfolio.

      


  • Third Avenue Value Buys 2 Stocks With Short-Term Struggles

    Third Avenue Management (Trades, Portfolio)’s flagship fund, the Third Avenue Value Fund, is led by Chip Rewey and remains dedicated to its principles in value investing after founder Martin Whitman (Trades, Portfolio) stepped down from portfolio management in 2012.


    Year to date, the fund is up 0.04% through March 29. During the first quarter of fiscal 2016 ended Jan. 31, the fund added two new holdings to the portfolio.

      


  • Third Avenue Management Comments on Insight Enterprises

    Insight Enterprises (NASDAQ:NSIT) is a value added reseller and servicer of hardware and software. The company assists large corporations, and state and federal governments on Information Technology issues such as designs and implementation of networking, data storage practices, disaster recovery, and hardware and software technologies. It distributes products from large vendors such as Cisco, Dell, Hewlett Packard, Apple and Microsoft, selling everything from tablets to network servers to software licensing.


    While distribution is a thin margin business, transactions are not based solely on price. The “value-added” characteristic requires the gaining of confidence from technology vendors to be an approved seller as well as from the IT professionals at the clients to be on the first-call basis. This relationship erects barriers to entry and creates recurring sales.

      


  • Third Avenue Management Comments on Multi-Color Corp

    During the quarter we increased our investment in Multi-Color Corporation (NASDAQ:LABL), a leading label company, after a significant decline in share prices following quarterly results short of Street estimates. While we are attracted to the unusual stability of Multi-Color's business, we were encouraged by management's proactive decision to exit a modest amount of low-margin business during the quarter and continue to view the company as a very high-quality compounder at an attractive valuation. With a very fragmented label industry around the world and Multi-Color's strong cash flows and stellar management team, the company remains very well-positioned to continue growing organically and inorganically across the globe.

      


  • Third Avenue Management Comments on Visteon

    During the quarter, as part of its capital return program related to the sale of its stake in its climate control business last year, Visteon (NYSE:VC) made a $1.75 billion special cash distribution to shareholders ($43.40 per share). The Board also authorized a $500 million share repurchase program, which is in addition to the $500 million repurchased last year. Post these actions, the company is still well-financed, with net cash on its balance sheet. We used some of the proceeds we received from the distribution to increase our position in Visteon common as the shares continued to trade at a material discount to our estimated NAV. Since focusing on being a standalone automotive electronics company, centered on cockpit electronics, Visteon has been successful in re-winning and winning new business, reducing costs and showing margin improvement. We believe Visteon is well-positioned to participate in the growing connected car market.

      


  • Third Avenue Management Comments on SemGroup Corp

    Shares of SemGroup Corp. (NYSE:SEMG) declined as investors sold down the Master Limited Partner (MLP) group aggressively. SemGroup is a midstream transportation company that owns the General Partner stake in MLP Rose Rock Partners. Specific worries regarding SemGroup stem from its midstream exposure to independent E&P companies who may cut production or seek pipeline rate reductions. Also, investors worried about the potential competition for SemGroup’s White Cliffs pipeline serving the Denver-Julesburg basin. While there is potential for production softness and rate pressure if oil prices remain at current low levels, we feel the market is overlooking the power of SemGroup’s in place assets.


    The midstream fractionation assets will be required for any E&P production and thus will have solid negotiating power, and similarly, the White Cliffs pipeline has excess capacity that can be marketed to be competitive with new entrants and thus serve as a deterrent to irresponsible capital expansion by peers.

      


  • Third Avenue Management Comments on Anixter

    Anixter (NYSE:AXE) is a value-added distributor of data cables, security products, as well as low-voltage and high voltage electrical wires. It sells some 500,000 different SKUs sourced from thousands of manufacturers. Manufacturers rely on Anixter to reach target customers and the customers depend on Anixter to evaluate and test appropriate products for their particular needs. In a very general sense, Anixter’s business model is similar to that of a broker, earning a relatively stable gross margin, without assuming inventory or obsolescence risks. Since most product costs are passed through, gross profit serves as a revenue base to cover the operational expenses such as the company’s 230 warehouses and some 3,000 person salesforce.


    Over the last few months, investors sold off AXE shares due to weaker economic conditions. Spending on nonresidential construction, oil and gas, and general capital expenditures all have slowed down. The stronger US dollar also weakens foreign sales as well as causing negative financial translation. We see these pressures as transitory and likely abating over 2016. Moreover, we see a long-term visible path to cost reduction and deleveraging spurred by acquisition integration and internal cost controls, which should leverage the benefit of recovering revenue growth.

      


  • Third Avenue Management Comments on Interfor Corp

    Shares of Vancouver, Canada based Interfor Corporation (IFP), which harvests timber and markets lumber products for North American residential and commercial construction markets, was the top detractor of performance for the quarter. Despite its Canadian headquarters, over 64% of Interfor’s lumber board feet are sourced in the US. Moreover, a full two-thirds of this is from the US South, where Interfor has spent $400 million since 2013 to build a clustered presence.


    Shares sold off as log prices softened into 3Q15 earnings due to weaker than expected US housing starts and fears of weaker log exports to China, although these account for a small portion of Interfor sales. We believe the outlook for Interfor remains strong based on i) accelerating US housing starts, ii) stronger free cash flow in 2016 which will be applied to deleveraging now that the Castlegar new build facility is complete, and iii) a $50 million profit improvement target over 2015 and 2016 including $10 million in Castlegar income, $35 million in US South restructuring savings and $5 million corporate wide best practice savings.

      


  • Third Avenue Management Comments on CSGS

    CSGS (NASDAQ:CSGS) is a premier provider of customer support functions for the cable industry. It manages a full suite of customer service functions, starting from initial activation of accounts to service changes to bill presentment and collection, and receivables management. Through its platform, the company extends its capabilities to adjacent markets such as telecommunication and media and international. As entertainment and communication converge and distribution thus becomes more disintermediated due to digitalization, media distributors are outsourcing more of their customer management, billing and collection to specialists such as CSGS. Based on its existing large investment in software and personnel training, CSGS can process complex, high volume transactions and at the same time provide the human support that enhances customer experience that is so crucial in brand building. Its three largest customers, Comcast, DISH and Time Warner, account for 24%, 14% and 12%, respectively, of total revenue.

      


  • Third Avenue Management Comments on Vail

    Vail (NYSE:MTN) is the largest publically-traded ski resort company. It owns and operates some of the top ski resorts in the US, including Vail, Beaver Creek, Breckenridge, and Keystone. The company also manages a portfolio of luxury hotels as well as a real estate development company. Due to the world-class nature of its ski resorts, Vail counts 12% of all skiers in the US as customers, despite operating only 11 out of some 620 existing resorts in the country.


    As a ski resort company, of course snowfall drives traffic and season pass sales, but management has been every effective in leveraging its franchise to create comprehensive vacation destinations and develop customer loyalty. To diversify geographical coverage, extend its operational expertise and grow earnings power, the company buys and improves less well managed resorts. The most recent acquisitions were Park City in Utah, Perisher, the largest ski resort in Australia, and Wilmot Mountain near Chicago.

      


  • Third Avenue Management Comments on Alamo Group

    Alamo Group (NYSE:ALG)'s principal activity is to manufacture, distribute and service equipment for right-of-way maintenance and agriculture. Alamo Group was a strong relative performer for the Fund during the quarter after posting solid results for its third quarter against a backdrop of low investor expectations centered mostly on larger agriculture and mining markets where Alamo does not compete. Bucking the trend seen in other companies exposed to agricultural end markets, Alamo’s industrial mowing equipment business was resilient and the company reported organic growth and expanded margins, driving profits higher than last year. Alamo also reported a record backlog further reflecting the recovery in the budgets of its municipal customers and the less cyclical, more maintenance nature of much of its product line.


    From the Third Avenue Value Fund 1st quarter 2016 letter.

      


  • Third Avenue Management Comments on Harman International

    We initiated a position in Harman International (NYSE:HAR), a leading provider of in-car software solutions for infotainment, high-end audio and telematics with annual revenues of approximately $7 billion. Harman may be better known to many of you through their brand named audio divisions serving automotive, high end consumer and professional markets under the Harman/Kardon, JBL, Mark Levinson and Bang & Olufsen brands.

    We have known Harman for many years, and have taken advantage of market fears and misunderstanding about Harman as an automotive exposed stock to initiate a position. Harman has sold off from almost $150 per share in May 2015, to the current price in the mid-$70’s as the Street has grown concerned about the current auto cycle approaching ‘peak’ levels. Investors, based on a primacy of the income statement mentality, have sold the stock off to approximately 10x FY2017(June) EPS, in line with most auto suppliers. However, despite roughly 70% of Harman’s revenue coming from automobiles, we think Harman can continue to grow revenues and compound earnings at double digit rates for at least the next several years. This revenue growth, in our opinion, is more secular than cyclical, as automakers accelerate both the penetration and functionality of infotainment and telematics across their vehicle fleet. Harman has historically served the higher end luxury automakers—BMW, Mercedes and VW—who were early adopters due to the price point of more luxury vehicles. However, Harman has developed a scalable platform that will accelerate adoption through the mid and low range of vehicle fleets. Indeed, Harman has won significant business with GM, Fiat Chrysler, Subaru, Hyundai and even Geely in China. We further believe, as has been stated by

    Harman and demonstrated with win rates, that Harman’s systems will be an enabler of Apple, Google and Baidu automotive products and not a competitive offering, as Harman’s software will be the platform to access these offerings, while providing the safety and security features necessary in an automotive environment. Indeed, it is our speculation that at ‘only’ a $5 billion market cap, Harman would make a nice acquisition for any of these larger players.

    Beyond infotainment, Harman has increased its offerings in its home audio lineup, and is now entering high end earphone markets. Even more exciting is Harman’s new Connected Car division, which incorporates its recent Symphony Telca and Red Bend acquisitions, which enable ‘over-the-air’ software updates for any connected device, whether a car, or perhaps a turbine or a dishwasher, and thus is an emerging leader in the nascent ‘Internet-of-things’ space. This division now has over $735 million in revenues and 15% EBITDA margins, with mid-teens revenue growth and 20% EBITDA margin targets.

    We believe Harman is a compelling addition to the portfolio as it meets all three tenets of our investing philosophy. From a creditworthiness standpoint, Harman has a strong balance sheet with a 21.5% Debt to Capital Ratio, made up of approximately $1.0 billion in debt and $438 million in cash. Harman refinanced its senior debt in 2015 into two tranches, $390 million due in 2022 at a rate of 2% and $400 million due in 2025 at 4.15%, providing long -term maturities at low rates. Debt to expected FY16 EBITDA is .74. Harman is returning excess cash to shareholders with a dividend yield of about 2% and has $463 million remaining on its share repurchase authorization; it is looking to step up repurchases on current share price weakness.

    Harman has compounded book value growth over the trailing 5 years at 18.2%, when adding back dividends. More importantly, we see Harman well positioned to continue this growth as it has a $23 billion backlog, revenue growth estimated at 14% for 2016 and likely double digit over the next few years, and continued margin expansion driven by price mix and sales leverage. At our average purchase cost of $77, Harman offers over 30% upside to our mid-case NAV of $100, and as such we look to continue to build the position size opportunistically on market weakness.


    From the Third Avenue Value Fund 1st quarter 2016 letter.

      


  • Third Avenue Management Comments on Ralph Lauren

    Ralph Lauren (NYSE:RL) is one of the crown jewels in retail. It is well capitalized with a net cash balance sheet and has historically earned a premium valuation. Given its compounding history, the premium valuation is justified. Due to short-term factors, the stock price has dropped over 40% from recent highs and now trades at absolute valuation levels last seen shortly after the financial crisis. It is a rare opportunity to buy a well-managed, well capitalized, owner-operator at an attractive price.

    Although retail has historically been an area that Third Avenue Management (Trades, Portfolio) (TAM) shies away from, RL is an exception. It meets our three pillar criteria as it is a credit worthy compounder trading at a discount to NAV. Over the past five and ten year periods, RL has grown book value (including dividends) 11% and 13%, respectively. It is a blue-chip asset with a more stable operating history than most players in the space. For example, sales only declined marginally in 2009, following the financial crisis. Although it could be categorized as a retail company, considering that roughly half of RL’s sales are wholesale/licensing and its brand strength, it’s more comparable to Nike than a typical retailer.

    Besides macro concerns about an economic slowdown, company specific issues have soured RL’s near-term outlook. We have assessed these risks and feel it is a classic case of investor short-termism. First, the strong USD has impacted sales. One-third of RL’s sales are from outside the US, so currency translation has pinched sales and margins. Also, 20% of RL’s sales come from foreign tourists shopping in the US. Those sales have been pinched as tourists are choosing to stay home as the costs of traveling to the US have risen with the stronger USD. RL continues to experience double digit same-store sales growth in flagship stores overseas, so it does not appear to be a brand problem.

    Another major factor impacting RL is the implementation of its Global Reorganization Plan (GRP). Management is investing for growth by creating a brand based operating structure, implementing a global SAP system (US completed and Europe in-process) and expanding its global footprint and internet presence. All initiatives make sense in the long-run, but have been costly in the short-run. The slower than expected sales and additional costs have pressured margins, creating investor angst. Management projects cost savings of $100 million per year once the initiatives are completed later this year. Investors are struggling to see through the near-term noise which has created a worst-case scenario valuation.

    A final catalyst is the hiring of CEO Stephan Larsson. Larsson is a young, ambitious retail executive who had highly successful stints at H&M and Old Navy. With Ralph Lauren now 75 years old, Larsson’s hiring makes strategic sense. Lauren will remain a creative force at the company, but Larsson’s expertise in understanding the fast fashion landscape (H&M) and turnarounds (Old Navy) might be the shot in the arm RL needs.

    In summary, we feel that the favorable long-term prospects heavily outweigh the near-term concerns embedded in RL’s current valuation. Higher sales, a weaker USD and lower GRP costs can all contribute to a brighter outlook for RL’s operations. With the additional benefit of a highly motivated new CEO, the pace of change has probably been accelerated.


    From the Third Avenue Value Fund 1st quarter 2016 letter.

      


  • Third Avenue Management Comments on Baxalta

    We initiated a position in Baxalta, a biopharmaceutical company, in the prior quarter. The company was the target of a takeover bid from Shire during this most recent quarter. Under the agreement, Baxalta (NYSE:BXLT) shareholders will receive $18.00 in cash and 0.1482 Shire ADS for each Baxalta share. Based on Shire’s closing price, this represented a value of $45.57 per Baxalta share, resulting in an unrealized IRR of 26.0%. We are pleased that another party found Baxalta’s assets as interesting as we did. The Fund has owned NVIDIA shares since 2012. The company has done a good job building value over the years. Demand for its graphics processing units (GPUs) has grown, driven by growth in gaming along with more computer-intensive applications such as professional graphics, automotive and artificial intelligence. We exited the position during the quarter for valuation reasons, realizing an IRR of 35.4%, and redeployed the proceeds into other investments.


    From the Third Avenue Value Fund 1st quarter 2016 letter.

      


  • Martin Whitman's 1st Quarter 2016 Third Avenue Funds Chairman Letter

     Chairman of the Board


    Dear Fellow Shareholders:

      


  • Martin Whitman Invests in Ralph Lauren

    Legendary guru Martin Whitman purchased 114,465 shares of Ralph Lauren Corp. (NYSE:RL) in the first quarter.


    Ralph Lauren was incorporated on March 20, 1997, under the laws of Delaware. The company produces premium lifestyle products, including men's, women's and children's apparel, accessories, fragrances and home furnishings. It operates in three segments: wholesale, retail and licensing. The wholesale segment consists of women’s, men's and children's apparel, accessories and related products which are sold in department stores, specialty stores, in the U.S. and overseas.

      


  • Popular Guru Stocks With High, Growing Yield

    The following are companies with high and growing dividend yields that gurus are buying according to GuruFocus' All-in-One Screener.


    KeyCorp (KEY) has a trailing dividend yield of 2.6% with a three-year growth rate of 35.70% and a five-year growth rate of 35.30%. The stock is now trading with a trailing 12-month P/E multiple of 10.43 and an estimated forward P/E multiple of 8.01. During the last 12 months, the stock price has dropped by 17%.

      


  • Third Avenue Value Fund Trims Stake in NVIDIA

    Legendary guru Martin Whitman has more than 67 years of experience in the investment industry. A Bronx native, Whitman began his career shortly after graduating from Syracuse University with a degree in business administration in 1949. Whitman seized an opportunity to begin his career working as a security analyst for Shearson Hammill. After gaining valuable experience, Whitman took advantage of another opportunity and began working as an investment banker for the owners of the Sears Roebuck fortune, the Rosenwald family who actively managed Sears' department stores in the early 1900s.


    In 1990, he founded Third Avenue Management, whose portfolio owns about 130 stocks.

      


  • Western Union, Wells Fargo Among Popular High Yield Guru Stocks

    The following are companies with high and growing dividend yields that gurus are buying according to GuruFocus' All-in-One Screener.


    Western Union Co. (WU) has a trailing dividend yield of 3.6% with a three-year growth rate of 17.30% and a five-year growth rate of 45%. The stock is now trading with a trailing 12-month P/E multiple of 10.70 and an estimated forward P/E multiple of 9.34. During the last 12 months, the stock price has dropped by 2%.

      


  • Third Avenue Value Fund Sells Nearly Half of Stake in POSCO

    Although Martin Whitman (Trades, Portfolio) has a reputation for being a “buy and hold” investor, many of Third Avenue Value Fund's largest transactions in the fourth quarter, which ended Oct. 31, 2015, were reductions.


    The fund’s most significant fourth-quarter transaction was the reduction, by more than 48%, of the stake in POSCO (NYSE:PKX), a Pohang, South Korea-based steelmaking company. Third Avenue sold 572,600 shares for an average price of $39.14 per share. The deal had a -1.41% impact on the portfolio.

      


  • Third Avenue Management's Annual Report

    Dear Fellow Shareholders:


    At Third Avenue Management (Trades, Portfolio), companies, the securities they issue, and their managements and/or control groups are appraised from three different angles:

      


  • Third Avenue Funds Sends Letter Addressing Liquidation of Credit Fund

    Dear Fellow Shareholders,

      


  • Third Avenue Management Profits From Encore Wire But Logs Loss From EP Energy

    In third quarter trading, Third Avenue Management recorded both big profits and big losses.


    Third Avenue Management (Trades, Portfolio) was founded by legendary value investor Martin Whitman (Trades, Portfolio), and the firm manages mutual funds, separate accounts and hedge funds. The mutual funds include Third Avenue Value Fund, managed by Whitman, Third Avenue Small-Cap Value Fund, managed by Curtis Jensen, Third Avenue Real Estate Value Fund, managed by Michael Winer, and Third Avenue International Value Fund, managed by Amit Wadhwaney.

      


  • Oil Stocks the Most Gurus Are Buying

    As crude oil prices continue their descent to almost their lowest point since 2009, many value investors have contemplated whether oil stocks offer a compelling value.


    In November, North Sea Brent Crude averaged $44 per barrel, falling $4 per barrel from October, due to an increase of 1.3 million barrels per day in inventory. Protracted low oil prices have resulted from global petroleum production outpacing consumption, creating surplus inventory. That inventory build may finally be beginning to slow, according to the U.S. Energy Information Administration’s December 2015 Short Term Energy Outlook. The EIA estimates that global oil inventory builds averaged 1.8 million barrels per day in the third quarter, down from 2 million b/d in the second quarter, which saw the highest level of surplus inventory since 2008.

      


  • Third Avenue CEO David Barse Leaves Company After Bond Fund Closing

    NEW YORK, December 14, 2015 – Third Avenue Management (Trades, Portfolio) LLC (“Third Avenue”), an investment advisor to private and institutional clients, today announced a change in management, pursuant to which the firm’s Management Committee will lead the firm going forward. Third Avenue’s Management Committee includes David L. Resnick, President and Chief Investment Officer, Vincent Dugan, Chief Financial Officer and Chief Operating Officer, W. James Hall, General Counsel and Secretary, and Matthew Fine and Jason Wolf, Portfolio Managers. As part of the change, Third Avenue and David M. Barse, Chief Executive Officer, have mutually agreed to separate, effective December 14, 2015.  


  • Third Avenue Management Comments on DSW Inc.

    DSW Inc. (NYSE:DSW), which stands for Designer Shoe Warehouse, is one of the largest discount shoe retailers in the US. The company operates 430 stores in 42 states and also sells its merchandise online. Its strategy is to offer a large assortment of some 24,000 pairs of shoes of various styles for both men and women through its warehouse style showrooms. Customers freely browse the store to try on different styles from the shoes displayed without needing to request salespeople to fetch proper sizes. Its business model is to leverage its large purchasing power and pass through the 20-30% savings to consumers. Despite the highly competitive nature of the retailing industry, the company’s value and convenient offerings provide a unique market position that allows it to defend against the onslaught of newly formed ecommerce companies, as indicated by its stable market share. DSW shoppers value the ability to see, touch and try on shoes as part of their shopping experience.


    Similar to clothing, shoes are a seasonal business. The recent extreme weather, a very seasonally warm Fall, has impacted sales much more than management’s efforts to weatherproof the operations. We see this weather issue as temporary, but it did significantly contribute to the almost 50% decline in share price since April, and provide an opportunity to invest in DSW. In any typical year the business is very profitable and generates high level of free cash flow.

      


  • Third Avenue Management Comments on Southside Bancshares

    Southside Bancshares (NASDAQ:SBSI) (Southside) is a retail and commercial bank in Texas. While off the radar of many investors, Southside has been in business more than fifty years and today is one of the ten largest banks based in Texas with nearly $5 billion of assets and a remarkable track record. Within the last year Southside acquired and has been integrating another bank in Texas named OmniAmerican (Omni) which we believe will be transformative for the company.


    We believe the acquisition will significantly increase Southside’s growth profile. Since its founding in 1960, Southside has been predominantly focused on East Texas and has grown to command a dominant position within the market. Based in Fort Worth, Omni now gives Southside a platform with which to expand within the fast-growing Dallas-Fort Worth metroplex. Moreover, Southside has been able to dramatically reduce expenses at Omni and sees significant opportunities for adding offerings to the bank outside of lending. Simultaneously, Southside has begun an aggressive organic expansion into the Austin market which has become the fastest-growing city in the country. With Southside’s over-capitalized balance sheet, particularly after the Omni acquisition, it has more than sufficient capital with which to expand in these new markets.

      


  • Third Avenue Management Comments on Kirby Corp

    Kirby Corp. (NYSE:KEX) is the largest chemical tank barge operator in the United States. While many shipping companies tend to be commodity businesses with low margins and volatile earnings, Kirby is different. Margins on its inland and coastal barge businesses are near 25%, a profile you would expect in a consumer staple company rather than a chemical barge operator. Kirby’s margin profile results from two sources: industry structure and dominant positioning. Kirby operates in a Jones Act market. The Jones Act is a protectionist policy implemented by the United States government in the 1920s, which requires that all goods transported between US ports be carried on domestically constructed, US-flagged ships that are owned and crewed by US citizens. This structural barrier-to-entry lowers competition and creates high margins for the entire industry. In its markets, Kirby controls close to 30% of industry barges, well beyond its closest competition. Kirby therefore is able to lead on pricing in the market and on average has been able to raise prices above inflation.


    Kirby’s management maintains an unlevered capital structure with significant liquidity, positioning itself to make acquisitions during times of industry distress when it can pick up quality assets at large discounts. However, like all managements, Kirby is not flawless. Indeed, it is the negative impact of the 2011 acquisition of United Engineers, a manufacturer and servicer of fracking equipment that contributed significantly to the decline in Kirby’s shares from a year ago ($125 to $61), which gave us the opportunity to initiate this position. While clearly the earnings and revenue from this acquisition have disappointed, we believe the selloff is overdone. United Engineers only accounts for 10% of Kirby’s operating income, and even with our valuation ascribing no value for this segment, we still see significant upside from today’s stock price. Kirby’s core barge operations are healthy, with spot rates close to current contract rates and it is still operating at 90%-95% utilization. More importantly, the chemical industry has committed to over $100 billion of capital expenditures through 2020 to build new chemical plants, setting up the industry for an increase in demand outpacing the current excess supply. At our purchase cost, we see almost 50% upside to our $90 mid case NAV.

      


  • Third Avenue Management Comments on SPX Flow

    SPX Flow (NASDAQ:FLOW) is a global supplier of flow control equipment including pumps, valves, mixers, filters, air dryers, separators and heat exchangers serving the food and beverage, power and energy and industrial markets. The company was spun out of SPX Corporation in September. The original SPX Corporation management team moved over to SPX Flow where they are continuing to execute on their multi-year restructuring efforts.


    Post spin, management has already increased its segment operating margin targets, and announced plans to expand low cost manufacturing in Poland while shifting production from two higher cost European manufacturing facilities. Management is also focused on improving their material sourcing, streamlining the back office operations and reducing expenses.

      


  • Third Avenue Management Comments on DST Systems Inc.

    DST Systems Inc. (NYSE:DST)


    DST is the largest information processor for mutual funds in the US, and also offers software, securities processing and other services to financial services companies, insurance companies and third party administrators. DST’s offerings are high margin and high barrier to entry services that lower cost and increase service quality to its customers. DST has grown its book value at a 5-yearCAGR of over 14% and we think this growth will continue as DST continues to penetrate the “in-house” serviced mutual funds, still about 50% of the industry, and also as it grows into health care and insurance claims processing.

      


  • Third Avenue Management Comments on Baxalta

    Over the past quarter, we acquired one new position, Baxalta (NYSE:BXLT).


    Baxalta is the biopharmaceuticals business recently spun off from Baxter International Inc. We have followed Baxter for years, as it is a company that we have long admired. Spin-offs have always been an interesting source of ideas for Third Avenue, as they are often under-followed, yet historically tend to benefit from greater management focus and better capital allocation decisions as a stand-alone company. Recent volatility in the general market and healthcare stocks in particular, provided us the opportunity to initiate a position in Baxalta at an attractive valuation.

      


  • Third Avenue Management Comments on CBS

    CBS (NYSE:CBS) is a media company that creates and distributes industry-leading content across a variety of platforms to audiences around the world. CBS owns the most-watched television network in the US and one of the world’s largest libraries of entertainment content. Under the leadership of CEO Les Moonves, our “internal activist”, CBS has succeeded in its goal of being a true content company and monetizing this content value across any distribution channels.


    CBS has reduced its cyclical advertising revenue through the spin-off of its outdoor billboard division and the growth of retransmission and reverse compensation fees, and is ahead of its targets to grow fee based retransmission and reverse compensation revenues to $1 billion by 2016 and $2 billion by 2020. With a more stable fee income revenue stream, a strong cash flow and the ability to potentially monetize more non-core assets, CBS is aggressively returning capital to shareholders, and is over half-way through its $6 billion share repurchase program. In fact, there is only $2.5 billion, or just over 10% of the equity market value for the company, left in the share repurchase program. We believe this powerful combination of content monetization, fee revenues growth and capital return should drive share value to our NAV target of $67.

      


  • Third Avenue Management Comments on Brookdale Senior Living

    Brookdale Senior Living (NYSE:BKD) is the largest and best in class owner-operator of senior housing in the US.3 Brookdale also owns 399 high quality senior housing properties. We believe that these properties represent approximately 50% of the company’s asset value that the market is not currently recognizing. In addition to being a best-in-class operator with valuable hard assets, Brookdale has attractive long-term tailwinds from an ageing Baby Boomer population. Finally, Brookdale is well-financed. It has approximately $6.8 billion of mortgage debt and capital leases on an estimated asset value of more than $20 billion, making it very well-capitalized.


    Brookdale ran into two short term problems that have resulted in negative earnings revisions and a share price decline over the past six months. Brookdale merged with competitor Emeritus last year and integration issues have led to lower-than-expected occupancy, and high level executive turnover created uncertainty regarding the company’s ability to execute.

      


  • Third Avenue Management Comments on Covanta

    Covanta (NYSE:CVA) is a leader in providing waste to energy services. Covanta processes approximately 5% of the solid waste generation in the US annually and uses this waste to generate 10 million megawatt hours (MWh) of baseload electricity annually through 41 Energy from Waste (EfW) facilities in North America. The company also recycles 500,000 tons of ferrous and non-ferrous metals annually.


    Covanta shares weakened in 2015 due to the delayed start-up of the new Durham York EfW facility in Canada, as well as lower metals and electricity prices. Here too, these impacts caused short term earnings estimates to be revised modestly lower. We believe that these issues are short term in nature as the Durham York facility is set to begin operations in early 2016. Although metals and electricity prices are near cyclical lows and are likely to remain depressed in the near-term, two-thirds of Covanta’s revenue is derived from waste processing services where volume and pricing continues to grow and nearly half of Covanta’s electricity generation is contracted at above market rates through 2016, which provides significant earnings stability.

      


  • Third Avenue Management Comments on Comerica

    Comerica (NYSE:CMA) is the largest bank headquartered in Texas; it has a meaningful footprint in California and Michigan. Among the root causes of stock price dislocation was its exposure to Energy and low interest rates, which caused minor earnings per share estimate cuts for 2015. We believe those risks are mis-understood and overstated. While only 7% of CMA’s loan portfolio is linked to energy or “energy related” companies, it has been a source of investor scrutiny and confusion. Investors keep expecting net charge offs to rise, but they have remained marginal. Why? Comerica has an impressive underwriting history and we remain confident history will repeat itself. 95% of its energy loans outstanding are secured. Also, all underwriting decisions were based on “proved reserves” which should mitigate charge-off risk. Charge-offs will rise if the brutal decline in energy prices continues for extended periods of time, but we expect the risks to be manageable and much better than what is priced into the current stock price.


    Few banks would benefit more from a rise in interest rates than CMA as 85% of its loan book is floating rate. The Federal Reserve’s reluctance to raise rates has been frustrating, but it will come. When it does, it will have a material impact on CMA’s earnings power.

      


  • Third Avenue Management Comments on Weyerhaeuser

    Weyerhaeuser (NYSE:WY) is a well-capitalized US-based forest products company with high quality assets in the form of 7 million acres of timberland that form one of the most valuable privately owned timber portfolios. It also has a wood products business used in homebuilding and a cellulose fibers business with product used for absorbency in items such as paper towels.


    A number of macro headwinds negatively impacted Weyerhaeuser’s common stock price for the quarter: a decline in demand from China which led to pricing declines for Pacific NW logs, continued weak US housing markets which negatively impacted the wood products business, and port strikes and maintenance outages which disrupted the cellulose fibers business. These shorter term concerns did lead to earnings per share cuts for 2015. Despite these near-term macro headwinds, Weyerhaeuser is, in our opinion, well-positioned to compound NAV at a double-digit rate over the longer-term. First, Weyerhaeuser’s timberlands inventory, i.e., trees, are hard assets that can continue to grow; those that aren’t used this year continue to grow and become more valuable the following year. Second, we expect Weyerhaeuser’s cash flow and earnings to materially improve as US home starts recover from the cyclical downturn to more normalized levels. Further, the company has enhanced its timberlands portfolio and divested non-core businesses, cut costs and repurchased shares. While the ultimate timing of a housing recovery is unclear, we believe Weyerhaeuser will benefit when it does. In the meantime, given a 4% dividend yield, we added to our position on weakness in the quarter.

      


  • Third Avenue Value Fund 4th Quarter Portfolio Manager Commentary

    Dear Fellow Shareholders,

      


  • Marty Whitman's 4th Quarter Chairman Letter

    Dear Fellow Shareholders:


    At Third Avenue Management (Trades, Portfolio) (TAM), companies, the securities they issue, and their managements and/or control groups are appraised from three different angles:

      


  • Third Avenue's David Barse Discusses REITS and Interest Rates, Global Real Estate

    David Barse, CEO of Martin Whitman (Trades, Portfolio)'s Third Avenue Management (Trades, Portfolio), discusses with Bloomberg how an interest rate increase may affect real estate investment trusts. Barse also comments on portfolio holding Weyerhauser (NYSE:WY), a forest products company. Third Avenue had 12.1% of its equity portfolio invested in real estate at the end of the third quarter, with the largest trading in Hong Kong and Canada: CK Hutchison Holdings Ltd. (HKSE:00001), Brookefield Asset Management Inc. (TSX:BAM.A), Cheung Kong Property Holdings Ltd. (HKSE:01113) and Wheelock and Co. Ltd. (HKSE:00020).
      


  • The Best-Performing Stocks in Martin Whitman's Portfolio

    Martin Whitman (Trades, Portfolio) is founder and portfolio manager of the Third Avenue Value Fund (TAVFX). He manages a portfolio composed of 37 stocks in which two of them are new. The portfolio has a total value of $1,689 million.


    Third Avenue Value holds 2,082,168 shares of NVIDIA Corp. (NVDA), which has returned 58.5% since the beginning of the year. The stake represents 0.39% of outstanding shares of the company and 2.46% of the fund's total assets.

      


  • Martin Whitman's Presentation at Boston College

    The founder of value investing asset management company Third Avenue Management, Martin Whitman (Trades, Portfolio), gave a presentation at Boston College. Whitman is a legendary value investor who made a fortune investing in distressed debt situations.


      


  • Third Avenue Management Comments on Visteon

    Many people may remember Visteon (NYSE:VC) as the automotive parts company spun off from Ford that fell on hard times during the financial crisis. Today it is a much different company than the Visteon of yore. Given its “special situation” status, having over $60 per share in net cash and a stock price of roughly $100, the stock screened poorly on a statistical basis, enabling the Fund to acquire shares during the quarter at an attractive valuation of around 6.4 times pro forma adjusted EBITDA as the company continued on its transformational path. With its large net cash position, Visteon certainly meets our hurdle of a solid balance sheet. More excitingly, we think the transformation of the company has set it up to accelerate its book value compounding.

      


  • Third Avenue Management Comments on 1‐800‐Flowers.com

    Another company we purchased during the quarter is 1‐800‐Flowers.com (800‐Flowers) (NASDAQ:FLWS). We can’t think of many better examples of a management team’s patience around investing than their recent acquisition of the iconic company Harry & David. Management studied the business for more than a decade and had multiple opportunities to purchase the asset at much higher prices. We see a fortunate parallel with our own approach to the company, having first met with the management when it was trading at significantly higher prices but patiently waiting for the right opportunity to invest. The opportunity came during the quarter when shares declined by nearly thirty percent, allowing us to invest at an undemanding valuation less than eight times EBITDA, with between 35%‐50% up to our valuation estimates.

      


  • Third Avenue Management Comments on EP Energy Corp

    As the energy markets churned weaker over the quarter, we continued to look for attractive investment opportunities, as it was our sense that many investors were shooting first and asking questions later on their sales. We continue to believe that the current price weakness is a supply driven shock, and not what we believe would be a more worrisome lack of demand driven sell off.


    The one‐two punch of higher Saudi Arabian production and potential future Iranian production have pushed oil down to the low $40 per barrel range, well below what we believe is a realistic industry wide break‐even level in the mid‐$60’s or higher, even with the benefit of recent service cost reductions that are likely not sustainable over time. In the near term we have seen a strong demand response in higher oil use and over the medium term we would expect a drop in production of higher cost barrels, which would reduce supply and lead to higher oil prices.

      


  • Marty Whitman's Third Avenue Buys 2 New Stocks, Adds to 6 in Q3

    Third Avenue Management (Trades, Portfolio)’s Third Avenue Value Fund purchased two new stocks in its third quarter ended July 31 and added to six existing holdings, managers disclosed Friday.


    The value fund is led by Chip Rewey, a speaker at the 2016 GuruFocus Value Conference, and is part of the group of funds composing the financial management company founded by investor Marty Whitman. The fund’s management has apportioned 26% of the portfolio to Financial Services, 15.5% to Consumer Cyclical and 14% to Basic Materials as its largest sector weightings. At third quarter-end, the portfolio contained 37 stocks with a value of $1.69 billion.

      


  • Top 5 Holdings of Third Avenue's Flagship Fund Manager Chip Rewey

    Chip Rewey, a GuruFocus Value Conference 2016 speaker, joined Third Avenue Management (Trades, Portfolio) in 2014 as lead portfolio manager for the value and small-cap funds and upholds many of the firm’s investing tenets as developed by founder Marty Whitman – centered on long-term factors including book value, creditworthiness and net asset value (NAV).


    “Our investment process is geared to identify good businesses that are led by strong management teams who are good capital allocators, along with a significant discount to a fair value in the market,” Rewey said in his third quarter letter. “Creditworthiness is the starting point for us when assessing any investment. Investing in well capitalized companies allows us to wait out earnings swings because we are confident our management teams will not be forced to do things that would hurt shareholder value to meet short-term financial considerations.”

      


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