Martin Whitman

Martin Whitman

Last Update: 09-27-2016
Related: Third Avenue Management

Number of Stocks: 36
Number of New Stocks: 3

Total Value: $1,127 Mil
Q/Q Turnover: 6%

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

Martin Whitman Watch

  • 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.

      


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