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Conversations with Tom Russo; Buys Lamar Advertising, Nextera Energy, Berkshire Hathaway, Wells Fargo

gurufocus

gurufocus

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It is always a pleasure to talk to Tom Russo, General Partner at Gardner Russo & Gardner, and the manager of Semper Vic Partners. These are some notes from a conversation with him and his Q3 portfolio updates.

Mr. Russo manages separate accounts for private clients as well, it was his primary business. Tom Russo likes invest in the same stocks he bought for his clients. But before he started Semper Vic Partners, he couldn’t do so. He couldn’t buy stocks for himself before he finished buying for all of his clients in the separate accounts, and he couldn’t sell stocks for himself before he finishes selling for all of his clients. He started Semper Vic Partners to eat his own cooking.

Semper Vic Partners is a long only fund. Mr. Russo is the largest partner in the $3+ fund. The fund has extremely concentrated portfolio. Mr. Russo has achieved about 8% a year over the pass decade, while the market is in negative territory.

GuruFocus recently had the opportunity to talk with Mr. Russo. These are the notes from the conversations.

GuruFocus: Why do you run a long only fund? Don’t you think it is a valuable option to be able to short stocks?

Tom Russo: I think it is a valuable option. But I want to spend all my time in finding high quality companies that I can own for a long time. I talk to their managers, try to understand the long term perspective of the business. Once I found this kind of companies, I will be very patient and stay in for a long time.

With shorting stocks, you have to find horrible businesses that are in bad shape, and you need to be right with timing too. Because market can stay overvalued for a long time, you have the risk of margin calls even if you are right about the business and valuations. Additionally, you cannot be very concentrated with your portfolio when you are shorting. I prefer to invest in a company for the long haul, to grow with the business. With shorting you just do not have that luxury.

Shorting is also not tax efficient.

GuruFocus: We heard that a lot of managers do not talk to CEOs, thinking CEOs are just sales people. You like to talk to the CEOs, why?

Tom Russo: We talk to the CEOs all the time. We can learn a lot from talking to CEOs. By talking to CEOs we can learn what they are willing to do and whether they are willing to invest forcefully into the companies’ future.

By investing heavily in the future a company can build the dominance in their industry. This dominance helps the company to gain competitive advantages. If a company does not invest into the future, it will have problems with competitions down the line. Of course investing in the future may compromise the company’s short term profit. But in the long term, if the company makes right investment decisions, it will have much higher earnings.

For example, a few years back, when we visited Starbucks CEO Howard Schultz with investors, some people keep asking when Starbucks will be profitable in China. Howard answered: “Do you want us to be profitable right now on a smaller scale or do you want us to invest heavily, achieve name recognition and dominance and make much more money in the future?”

By talking to CEOs you can really learn whether they are long term oriented or they just focus on the earnings of the next quarter.

GuruFocus: You have a lot of investment in foreign companies, why is that?

Tom Russo: We have more than 70% of the fund in foreign companies. The reason is because we are long term investors, and we feel that foreign companies are usually family run, and they are long term minded. These companies usually have huge name recognition. They have the brands that have hundreds of years of history. This gives them huge competitive advantages. Their consumers are loyal to these brands.

Also due to the recent economic worries of the PIGS, these companies are more undervalued. They are more shareholder friendly, do not pay that much to the managers, and they have good dividends.

GuruFocus: It seems that these are all European companies?

Tom Russo: These are European companies, but many of them have more than 50% of revenue from Asia.

Tom Russo just released his Q3 portfolio. These are the buys and sells. It is not surprising to see that he adds to Berkshire, Inbev, Philip Morris International etc.

Tom Russo buys Lamar Advertising Company, Nextera Energy Inc, sells The Pnc Financial Services Group Inc., Unum Group, Alliance One International Inc. during the 3-months ended 09/30/2010, according to the most recent filings of his investment company, Gardner Russo & Gardner. Tom Russo owns 84 stocks with a total value of $2.4 billion. These are the details of the buys and sells.

For the details of Tom Russo's stock buys and sells, go to http://www.gurufocus.com/StockBuy.php?GuruName=Tom+Russo

This is the sector weightings of his portfolio:

Consumer Goods 44.7%
Financials 35.2%
Consumer Services 11.8%
Industrials 5.4%
Oil & Gas 1.1%
Health Care 1%
Technology 0.5%
Basic Materials 0.2%


These are the top 5 holdings of Tom Russo

  1. Berkshire Hathaway Inc. (BRK.A) - 3,392 shares, 17.74% of the total portfolio. Shares added by 0.89%
  2. PHILIP MORRIS INTERNATIONAL INC (PM) - 7,523,040 shares, 17.71% of the total portfolio. Shares added by 1.32%
  3. Unilever N.V. New York Registry (UN) - 5,315,736 shares, 6.67% of the total portfolio. Shares added by 4.96%
  4. Altria Group Inc. (MO) - 6,564,151 shares, 6.62% of the total portfolio. Shares added by 1.22%
  5. Wells Fargo & Company (WFC) - 6,193,137 shares, 6.54% of the total portfolio. Shares added by 13.63%


Added: Anheuserbusch Inbev (BUD)

Tom Russo added to his holdings in Anheuserbusch Inbev by 129.7%. His purchase prices were between $48.86 and $59.48, with an estimated average price of $53.89. The impact to his portfolio due to this purchase was 2%. His holdings were 1,437,917 shares as of 09/30/2010.

Anheuser-Busch Companies is the holding company parent of Anheuser-BuschIncorporated and to a number of subsidiaries that conduct variousother business operations. Anheuserbusch Inbev has a market cap of $100.45 billion; its shares were traded at around $62.72 with a P/E ratio of 22.9 and P/S ratio of 2.7. The dividend yield of Anheuserbusch Inbev stocks is 0.6%.

Added: Mastercard Inc. (MA)

Tom Russo added to his holdings in Mastercard Inc. by 56.46%. His purchase prices were between $191.98 and $223, with an estimated average price of $208.23. The impact to his portfolio due to this purchase was 1.72%. His holdings were 506,827 shares as of 09/30/2010.

MASTERCARD INCORPORATED advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. Mastercard Inc. has a market cap of $31.54 billion; its shares were traded at around $243.52 with a P/E ratio of 18.7 and P/S ratio of 6.2. The dividend yield of Mastercard Inc. stocks is 0.3%.

Added: Wells Fargo & Company (WFC)

Tom Russo added to his holdings in Wells Fargo & Company by 13.63%. His purchase prices were between $23.25 and $28.57, with an estimated average price of $26.11. The impact to his portfolio due to this purchase was 0.78%. His holdings were 6,193,137 shares as of 09/30/2010.

Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services through stores, its Internet site and other distribution channels across North America as well as internationally. Wells Fargo & Company has a market cap of $137.65 billion; its shares were traded at around $25.91 with a P/E ratio of 15.2 and P/S ratio of 1.4. The dividend yield of Wells Fargo & Company stocks is 0.8%. Wells Fargo & Company had an annual average earning growth of 5.1% over the past 10 years.

Added: Unilever N.v. New York Registry (UN)

Tom Russo added to his holdings in Unilever N.v. New York Registry by 4.96%. His purchase prices were between $26.56 and $31.03, with an estimated average price of $28.52. The impact to his portfolio due to this purchase was 0.32%. His holdings were 5,315,736 shares as of 09/30/2010.

Unilever is one of the world's largest consumer products companies. Unilever N.v. New York Registry has a market cap of $83.29 billion; its shares were traded at around $29.75 with a P/E ratio of 14 and P/S ratio of 1.5. The dividend yield of Unilever N.v. New York Registry stocks is 3.5%.

Added: Philip Morris International Inc (PM)

Tom Russo added to his holdings in Philip Morris International Inc by 1.32%. His purchase prices were between $46.45 and $56.32, with an estimated average price of $52.16. The impact to his portfolio due to this purchase was 0.23%. His holdings were 7,523,040 shares as of 09/30/2010.

Philip Morris International is the international tobacco company, with products sold in over 160 countries. Philip Morris International Inc has a market cap of $106.6 billion; its shares were traded at around $59.5 with a P/E ratio of 15.7 and P/S ratio of 1.7. The dividend yield of Philip Morris International Inc stocks is 4.4%.

Added: Berkshire Hathaway Inc. (BRK.A)

Tom Russo added to his holdings in Berkshire Hathaway Inc. by 0.89%. His purchase prices were between $114433 and $125300, with an estimated average price of $119679. The impact to his portfolio due to this purchase was 0.16%. His holdings were 3,392 shares as of 09/30/2010.

Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. Berkshire Hathaway Inc. has a market cap of $203.33 billion; its shares were traded at around $123455 with a P/E ratio of 23.2 and P/S ratio of 2.3. Berkshire Hathaway Inc. had an annual average earning growth of 3.7% over the past 10 years.

Added: Goldman Sachs Group Inc. The (GS)

Tom Russo added to his holdings in Goldman Sachs Group Inc. The by 50.35%. His purchase prices were between $131.08 and $156.41, with an estimated average price of $146.49. The impact to his portfolio due to this purchase was 0.11%. His holdings were 53,600 shares as of 09/30/2010.

Goldman Sachs is a global investment banking and securities firm, providing a full range of investing, advisory and financing services worldwide to a substantial and diversified client base, which includes corporations, financial institutions, governments, and high net worth individuals. Goldman Sachs Group Inc. The has a market cap of $81.81 billion; its shares were traded at around $158.29 with a P/E ratio of 8.1 and P/S ratio of 1.6. The dividend yield of Goldman Sachs Group Inc. The stocks is 0.9%. Goldman Sachs Group Inc. The had an annual average earning growth of 12.7% over the past 10 years.

New Purchase: Nextera Energy Inc (NEE)

Tom Russo initiated holdings in Nextera Energy Inc. His purchase prices were between $48.96 and $55.45, with an estimated average price of $53.25. The impact to his portfolio due to this purchase was 0.01%. His holdings were 3,700 shares as of 09/30/2010.

NextEra Energy, Inc., formerly known as FPL Group, Inc. Nextera Energy Inc has a market cap of $23.22 billion; its shares were traded at around $55.24 with a P/E ratio of 13.2 and P/S ratio of 1.5. The dividend yield of Nextera Energy Inc stocks is 3.6%. Nextera Energy Inc had an annual average earning growth of 5.8% over the past 10 years. GuruFocus rated Nextera Energy Inc the business predictability rank of 3.5-star.

New Purchase: Lamar Advertising Company (LAMR)

Tom Russo initiated holdings in Lamar Advertising Company. His purchase prices were between $24.29 and $32.14, with an estimated average price of $28.33. The impact to his portfolio due to this purchase was 0.01%. His holdings were 6,625 shares as of 09/30/2010.

Lamar Advertising Company is one of the largest and most experienced owners and operators of outdoor advertising structures in the United States. Lamar Advertising Company has a market cap of $3.23 billion; its shares were traded at around $35.35 with and P/S ratio of 3.1. Lamar Advertising Company had an annual average earning growth of 6.3% over the past 10 years. GuruFocus rated Lamar Advertising Company the business predictability rank of 4.5-star.

Reduced: 3m Company (MMM)

Tom Russo reduced to his holdings in 3m Company by 28.43%. His sale prices were between $77.67 and $88.03, with an estimated average price of $83.84. The impact to his portfolio due to this sale was -0.01%. Tom Russo still held 5,475 shares as of 09/30/2010.

3M Company is a diversified technology company with positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security and protection services; transportation and other businesses. 3m Company has a market cap of $64.19 billion; its shares were traded at around $90.47 with a P/E ratio of 16 and P/S ratio of 2.8. The dividend yield of 3m Company stocks is 2.3%. 3m Company had an annual average earning growth of 10.3% over the past 10 years. GuruFocus rated 3m Company the business predictability rank of 3.5-star.

Reduced: Schlumberger Ltd. (SLB)

Tom Russo reduced to his holdings in Schlumberger Ltd. by 34.25%. His sale prices were between $53.33 and $63.26, with an estimated average price of $58.7. The impact to his portfolio due to this sale was -0.01%. Tom Russo still held 6,575 shares as of 09/30/2010.

Schlumberger Limited is a global technology services company consisting of two business segments, Schlumberger Oilfield Services and SchlumbergerSema. Schlumberger Ltd. has a market cap of $93.58 billion; its shares were traded at around $69.11 with a P/E ratio of 25.6 and P/S ratio of 4.1. The dividend yield of Schlumberger Ltd. stocks is 1.2%. Schlumberger Ltd. had an annual average earning growth of 23.4% over the past 5 years.

Reduced: Kraft Foods Inc. (KFT)

Tom Russo reduced to his holdings in Kraft Foods Inc. by 31.3%. His sale prices were between $27.82 and $31.95, with an estimated average price of $29.94. The impact to his portfolio due to this sale was -0.01%. Tom Russo still held 12,340 shares as of 09/30/2010.

Kraft Foods, Inc. is the largest branded food and beverage company headquartered in the U. Kraft Foods Inc. has a market cap of $55.4 billion; its shares were traded at around $32.33 with a P/E ratio of 15.1 and P/S ratio of 1.4. The dividend yield of Kraft Foods Inc. stocks is 3.7%. Kraft Foods Inc. had an annual average earning growth of 1.7% over the past 5 years.

Reduced: Vulcan Materials Company (VMC)

Tom Russo reduced to his holdings in Vulcan Materials Company by 22.79%. His sale prices were between $35.7 and $47.38, with an estimated average price of $40.61. The impact to his portfolio due to this sale was -0.01%. Tom Russo still held 25,150 shares as of 09/30/2010.

Vulcan Materials Company is the nation's foremost producer of constructionaggregates, a major producer of other construction materials and a leadingchemicals manufacturer, supplying chloralkali and other industrial andspecialty chemicals. Vulcan Materials Company has a market cap of $4.68 billion; its shares were traded at around $36.75 with a P/E ratio of 521.6 and P/S ratio of 1.7. The dividend yield of Vulcan Materials Company stocks is 2.7%.

Sold Out: The Pnc Financial Services Group Inc. (PNC)

Tom Russo sold out his holdings in The Pnc Financial Services Group Inc.. His sale prices were between $50.36 and $62.74, with an estimated average price of $56.28.

The PNC Financial Services Group, Inc. is one of the nation's largest diversified financial services organizations, providing regional banking, corporate banking, real estate finance, asset-based lending, wealth management, asset management and global fund services. The Pnc Financial Services Group Inc. has a market cap of $28.75 billion; its shares were traded at around $54 with a P/E ratio of 11.7 and P/S ratio of 1.7. The dividend yield of The Pnc Financial Services Group Inc. stocks is 0.7%. The Pnc Financial Services Group Inc. had an annual average earning growth of 3.8% over the past 10 years.

Sold Out: Unum Group (UNM)

Tom Russo sold out his holdings in Unum Group. His sale prices were between $19.45 and $23.24, with an estimated average price of $21.72.

UnumProvident is the industry leader in disability income protection and one of the top providers of supplemental benefits in the nation. Unum Group has a market cap of $7.35 billion; its shares were traded at around $22.42 with a P/E ratio of 8.5 and P/S ratio of 0.7. The dividend yield of Unum Group stocks is 1.6%. Unum Group had an annual average earning growth of 16.1% over the past 5 years.

Sold Out: Alliance One International Inc. (AOI)

Tom Russo sold out his holdings in Alliance One International Inc.. His sale prices were between $3.21 and $3.96, with an estimated average price of $3.69.

Alliance One International, Inc. is a independent leaf tobacco merchant. Alliance One International Inc. has a market cap of $392.3 million; its shares were traded at around $4.49 with a P/E ratio of 6.1 and P/S ratio of 0.2. Alliance One International Inc. had an annual average earning growth of 21.4% over the past 5 years.



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gurufocus
GuruFocus - Stock Picks and Market Insight of Gurus

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