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Stocks Mason Hawkins of Longleaf Partners Keeps Buying

May 19, 2011 | About:
Holly LaFon

Holly LaFon

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Mason Hawkins is the Chairman and CEO of Southeastern Asset Management and manages Longleaf Partner Funds along with his partners. Hawkins is a value investor who looks for “good business, good people, and a good price.” He buys companies that are trading at 60% or less of their intrinsic value based on their assets and liabilities as well as present and future cash flows.

In his first-quarter investor letter he shared with his clients that, “The companies that most impacted the positive returns had topline and/or margin growth that drove earnings and free cash flow above expectations and created optimism going forward.”

He also said that many of the company he invested in created more value for their companies through shareholder repurchases. These are the companies that he keeps buying more of.

Dell Inc. (DELL)

Mason Hawkins owns 146,418,491 shares of Dell, valued as $2.125 million as of Mar. 31, 2011, which accounts for 8.28% of his equity portfolio. Mason Hawkins added to his positions in the Dec. 31, 2010 quarter by 2.45% and again in the Mar. 31, 2011 quarter by 0.87%.

Dell Inc. is a premier provider of products and services required for customers worldwide to build their information-technology and Internet infrastructures. Dell Inc. has a market cap of $31.21 billion; its shares were traded at around $16.37 with a P/E ratio of 10.23 and P/S ratio of 0.51. Dell Inc. had an annual average earnings growth of 4.2% over the past 10 years.

Mason Hawkins noted in his first-quarter investor letter that the stocks that had the highest returns in his portfolio had “topline and/or margin growth that drove earnings and free cash flow above expectations and created optimism going forward.” Dell is one of those stocks.

Many investors were wary of Dell, believing that the decline of the personal computer would hurt the business. First-quarter results increased confidence and sent the stock soaring almost 12% on the news. Dell reported record earnings per share in the fiscal fourth quarter, the largest revenue increase in company history (up $8.6 billion). Dell also had a 27% increase in enterprise solutions and services revenue. In a March 15 interview with GuruFocus, Hawkins said he liked Dell and stock and believed a majority of its value lay in storage, servers, services and software.

The company generated free cash flow for their fiscal year 2011 of $3.54 billion, compared to 2010’s result of $3.56 billion. Gross profit margin increased from 17.5% in 2010 to 18.5% in 2011.

Loews Corp. (L)

Mason Hawkins owns 27,615,544 shares of Loews Corp., valued at $1.19 billion as of March 31, 2011, which accounts for 4.64% of his equity portfolio. Mason Hawkins added his positions in the Dec. 31, 2010 quarter by 10.01%, and again in the Mar. 31, 2011 quarter by 15.76%.

Loews Corporation is a holding company. Its subsidiaries are engaged in the following lines of business: property, casualty and life insurance; the production and sale of cigarettes; the operation of hotels; the operation of offshore oil and gas drilling rigs; and the distribution and sale of watches and clocks. Loews Corp. has a market cap of $17.16 billion; its shares were traded at around $41.65 with a P/E ratio of 13.98 and P/S ratio of 1.17. The dividend yield of Loews Corp. stocks is 0.6%. Loews Corp. had an annual average earnings growth of 22.8% over the past 5 years.

Loews had net income of $565 million in the first quarter of 2011, down from $623 million the same period a year ago. The company generated negative free cash flow of $159 million in 2009 and in the previous year generated $2.2 billion in free cash flow.

The Travelers Companies Inc. (TRV)

Mason Hawkins owns 12,970,600 shares of The Travelers Companies, valued at $771 million as of March 31, 2011, which accounts for 3.01% of his equity portfolio. Mason Hawkins added his positions in the Dec. 31, 2010 quarter by 1.66%, and again in the Mar. 31, 2011 quarter by 14.03%.

St. Paul Travelers is a provider of commercial property-liability insurance and asset management services. The Travelers Companies Inc. has a market cap of $26.87 billion; its shares were traded at around $62.33 with a P/E ratio of 8.93 and P/S ratio of 1.07. The dividend yield of The Travelers Companies Inc. stocks is 2.31%. The Travelers Companies Inc. had an annual average earnings growth of 8.4% over the past 5 years.

The Travelers Companies had net income of $3.2 billion in 2010, declined from $3.6 billion the previous year. First-quarter 2011 net income fell to $839 million from $894 million in the fourth quarter 2010, and increased from $647 million in the same period last year. The company also reported free cash flow of $3 billion in 2010, down from $4.2 billion the previous year. It had net income of $839 million in the first quarter of 2011, a 30% increase from the same period in 2010. The company attributed the increase primarily to lower catastrophe losses, the favorable resolution of tax matters from 2010, and a repurchase of 18.9 million common shares for $1.1 billion.

The Travelers Companies stock increased 25% over the last year and 41% over the last five years.

TW Telecom Inc. (TWTC)

Mason Hawkins owns 29,941,111 shares of TW Telecom, valued at $575 million as of March 31, 2011, which accounts for 2.24% of his equity portfolio. Mason Hawkins added his positions in the Dec. 31, 2010 quarter by 1.26%, and again in the March 31, 2011 quarter by 8.73%.

TW Telecom Inc., headquartered in Littleton, Colo., provides managed network services, specializing in Ethernet and transport data networking, Internet access, local and long distance voice, VoIP, VPN and security, to enterprise organizations and communications services companies throughout the U. TW Telecom Inc. has a market cap of $3.36 billion; its shares were traded at around $22.32 with a P/E ratio of 55.8 and P/S ratio of 2.64. Tw Telecom Inc. had an annual average earnings growth of 6.4% over the past 10 years. GuruFocus rated Tw Telecom Inc. the business predictability rank of 3.5-star.

Last year, TW Telecom earned almost $60 million in free cash flow, its second highest in 10 years. The last consecutive four years showed positive free cash flow, and the six previous years showed losses. Net income in 2010 was $271 million, its highest in ten years and one of only three years that have shown positive net income. The company reported net income of $12.6 million for the first quarter 2011, compared to $17.5 million in the fourth quarter of 2010. It declined mainly due to an increase in income tax expense because of a higher effective tax rate. Revenue for 2010 grew 6.9% year over year, which the company attributes to strategic investments in products, systems, capabilities and network reach.

The company expects business fluctuations to affect revenue, margins and cash flow in upcoming quarters due to the “seasonal nature of sales and installations, usage, disputes, repricing for contract renewals and fluctuations in revenue churn, expenses and capital expenditures.” In the first quarter of 2011, TW Telecom bought back $8.9 million of its own shares. Year to date, the stock has risen 32%, and 26% over the last year.

Service Corp. International (SCI)

Mason Hawkins owns 32,924,007 shares of SCI, valued at $364 million as of March 31, 2011, which accounts for 1.42% of his equity portfolio. Mason Hawkins added his positions in the Dec. 31, 2010 quarter by 6.22%, and again in the March 31, 2011 quarter by 3.44%.

Service Corp. is the largest provider of funeral and cemetery services in the world. Service Corp Intl. has a market cap of $2.79 billion; its shares were traded at around $11.6 with a P/E ratio of 18.41 and P/S ratio of 1.27. The dividend yield of Service Corp Intl. stocks is 1.72%. Service Corp Intl. had an annual average earnings growth of 7% over the past 10 years.

In 2010 Service Corp. earned $256 million in free cash flow, down slightly from $288 million the previous year. Net income for 2010 increased to $126 million from $123 million the previous year. In the first quarter of 2011, free cash flow increased to $82.85 million from $57.81 million the previous quarter but was down from $90.6 million in the same period of 2010. Service Corp. has almost $300 million in cash on its balance sheet and about $7.4 billion in debt and long-term liabilities. The comparable average revenue per funeral service grew 1.9% over the same quarter of 2010.

The company’s stock has risen almost 40% in the last year, and over 40% year to date.

For Mason Hawkins’ complete portfolio, click here.


Rating: 3.3/5 (13 votes)

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