The recent market correction and volatility certainly created opportunities for Tweedy Browne managers. They have initiated positions in a few large companies, as they discussed in their Q2 shareholder letter.
Tweedy Browne was from one of the oldest value shop. Ben Graham’s investment firm Graham-Newman was one of Tweedy Browne’s clients. As of June 30, the firm managed more than $10.1 billion. The firm manages four mutual funds, two of them are global value oriented.
Tweedy Browne managers are good at evaluating the stock market risks. In 2007, they warned investors about the market risk, saying “this market is fearless”. They were proved to be right, as the market lost 37% in 2008. Their Value Fund lost 24% in 2008, 13% better than the market. In 2009, they outperformed the market again. Over the past 10 years, the fund gained 47.7 cumulatively, while the market lost 8.1%.
They wrote in the Q2 shareholder letter: “As volatility ratcheted up during the quarter, we were presented with pricing opportunities in several new companies.” We would like to highlight some of those here:
Tweedy Browne wrote: “We also began to build a position in Baxter International, the U.S.-based medical products business as growth concerns in the plasma derivative market brought its stock down to attractive levels. Baxter is active in bioscience, producing drugs for hemophilia and immune deficiency disorders, and has the largest share in these markets. Baxter also produces medical delivery products such as intravenous solutions, premixed drugs and infusion pumps, as well as renal products for kidney failure. At initial purchase, the company’s shares were trading at roughly a third discount from a conservative estimate of intrinsic value (11 x earnings before interest, taxes, and intangible asset amortization).”
Baxter International Inc. has a market cap of $26.81 billion; its shares were traded at around $44.72 with a P/E ratio of 11.6 and P/S ratio of 2.1. The dividend yield of Baxter International Inc. stocks is 2.6%. Baxter International Inc. had an annual average earning growth of 7.1% over the past 10 years. GuruFocus rated Baxter International Inc. the business predictability rank of 3.5-star.
BAX is also a recent purchase of John Rogers of Ariel Fund. He wrote: “While Baxter International is a premier franchise company within the healthcare sector, it has been a recent market laggard. Since early last year, investors have raised concerns regarding short-term issues within the BioScience division (namely pricing pressures and supply/demand stability). Although the demand for Intravenous Immune Globulin (IVIG), which treats immune deficiency and neurological conditions, has weakened over the past few quarters, the market is growing longer-term and pricing among manufacturers remains rational. We believe demand will increase as the patient population expands, new chronic indications are approved, and the global reach grows. Secondly, although significant progress has been made in reforming healthcare within the United States, the final details remain unknown.
Wall Street fears uncertainty. We do not believe we have a crystal ball into how the final combined House and Senate bill will look, but we do believe more patient lives will be covered within the United States and know the global population is aging. There will probably be pricing concessions by many healthcare providers and manufacturers, but we strongly believe any volumes will offset any discounting. As of December 31, 2009, shares traded at $58.68, a 22% discount to our private market value of $75.59.”
Tweedy Browne wrote: “Automatic Data Processing, one of the leading providers of business outsourcing solutions, which at purchase was trading at roughly a 17% to 18% discount from our estimate of intrinsic value, with a dividend yield of approximately 3.7%, and has increased its dividend for 34 consecutive years.”
Tweedy Browne wrote: “British American Tobacco, the third largest tobacco company in the world, which at purchase was trading at approximately 75% of estimated intrinsic value with a dividend yield over 5%, and has increased this dividend every year since 1999.”
Tweedy Browne wrote: “Kimberly Clark, the third largest household products company in the world, which at purchase was trading at 80% of estimated intrinsic value with a dividend yield of approximately 4.3%, and has a record of increasing its dividend in each of the last 38 years.”
Tweedy Browne was from one of the oldest value shop. Ben Graham’s investment firm Graham-Newman was one of Tweedy Browne’s clients. As of June 30, the firm managed more than $10.1 billion. The firm manages four mutual funds, two of them are global value oriented.
Tweedy Browne managers are good at evaluating the stock market risks. In 2007, they warned investors about the market risk, saying “this market is fearless”. They were proved to be right, as the market lost 37% in 2008. Their Value Fund lost 24% in 2008, 13% better than the market. In 2009, they outperformed the market again. Over the past 10 years, the fund gained 47.7 cumulatively, while the market lost 8.1%.
They wrote in the Q2 shareholder letter: “As volatility ratcheted up during the quarter, we were presented with pricing opportunities in several new companies.” We would like to highlight some of those here:
Baxter International (BAX, Financial)
Tweedy Browne wrote: “We also began to build a position in Baxter International, the U.S.-based medical products business as growth concerns in the plasma derivative market brought its stock down to attractive levels. Baxter is active in bioscience, producing drugs for hemophilia and immune deficiency disorders, and has the largest share in these markets. Baxter also produces medical delivery products such as intravenous solutions, premixed drugs and infusion pumps, as well as renal products for kidney failure. At initial purchase, the company’s shares were trading at roughly a third discount from a conservative estimate of intrinsic value (11 x earnings before interest, taxes, and intangible asset amortization).”
Baxter International Inc. has a market cap of $26.81 billion; its shares were traded at around $44.72 with a P/E ratio of 11.6 and P/S ratio of 2.1. The dividend yield of Baxter International Inc. stocks is 2.6%. Baxter International Inc. had an annual average earning growth of 7.1% over the past 10 years. GuruFocus rated Baxter International Inc. the business predictability rank of 3.5-star.
BAX is also a recent purchase of John Rogers of Ariel Fund. He wrote: “While Baxter International is a premier franchise company within the healthcare sector, it has been a recent market laggard. Since early last year, investors have raised concerns regarding short-term issues within the BioScience division (namely pricing pressures and supply/demand stability). Although the demand for Intravenous Immune Globulin (IVIG), which treats immune deficiency and neurological conditions, has weakened over the past few quarters, the market is growing longer-term and pricing among manufacturers remains rational. We believe demand will increase as the patient population expands, new chronic indications are approved, and the global reach grows. Secondly, although significant progress has been made in reforming healthcare within the United States, the final details remain unknown.
Wall Street fears uncertainty. We do not believe we have a crystal ball into how the final combined House and Senate bill will look, but we do believe more patient lives will be covered within the United States and know the global population is aging. There will probably be pricing concessions by many healthcare providers and manufacturers, but we strongly believe any volumes will offset any discounting. As of December 31, 2009, shares traded at $58.68, a 22% discount to our private market value of $75.59.”
New Position: Automatic Data Processing (ADP, Financial)
Tweedy Browne wrote: “Automatic Data Processing, one of the leading providers of business outsourcing solutions, which at purchase was trading at roughly a 17% to 18% discount from our estimate of intrinsic value, with a dividend yield of approximately 3.7%, and has increased its dividend for 34 consecutive years.”
New Position: British American Tobacco (BTI, Financial)
Tweedy Browne wrote: “British American Tobacco, the third largest tobacco company in the world, which at purchase was trading at approximately 75% of estimated intrinsic value with a dividend yield over 5%, and has increased this dividend every year since 1999.”
New Position: Kimberly Clark (KMB, Financial)
Tweedy Browne wrote: “Kimberly Clark, the third largest household products company in the world, which at purchase was trading at 80% of estimated intrinsic value with a dividend yield of approximately 4.3%, and has a record of increasing its dividend in each of the last 38 years.”
