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Top Third-Quarter Mutual Fund Manager Chuck Akre's Top Holdings

October 04, 2011 | About:
Holly LaFon

Holly LaFon

276 followers
Chuck Akre’s top holdings held up relatively well amidst market turmoil. The founder of Akre Capital Management was the top mutual fund manager of GuruFocus’ list of Top Portfolio Performance of the Third Quarter. His portfolio value declined 8.1%, more only than Warren Buffett overall, who lost 7.65%. Akre keeps a concentrated portfolio with top holdings making up a large portion of assets, and turnover is quite low. More about Akre’s approach to and thoughts about investing can be read in GuruFocus’ June interview with him.

His top holdings in the third quarter are: American Tower Corp. Cl A (AMT), MasterCard Cl A (MA) and Ross Stores Inc. (ROST).

American Tower Corp. Cl A (AMT)

American Tower Corporation is a wireless communications and broadcast infrastructure company with three operating segments. American Tower Corp. Cl A has a market cap of $20.92 billion; its shares were traded at around $52.86 with a P/E ratio of 55.1 and P/S ratio of 10.5. American Tower Corp. Cl A had an annual average earnings growth of 9.1% over the past 10 years.

The company’s stock price went up 2.8% over the third quarter and is up 2.96% year to date. Akre’s holding of the stock predates 2006, and he owns 1,330,520 shares at June 30, 2011.

American tower has a strong balance sheet reflecting a growing company. Its revenue has increased each year since 2004, and was just under $2 billion in 2010. Free cash flow grew each year from $530 million in 2008 to $674 million in 2010. For the quarter ended June 30, 2011, revenue increased 25.5% to $1.2 million, adjusted EBITDA increased 21.2% to $389.1 million, and net income increased 15.6% to $115.2 million.

Domestic rental and management revenue increased 13.4%, and international rental and management revenue increased 94.2%. The dramatic international growth is due to the company recently expanding into its first international markets in Mexico, Brazil and India. It also introduced the collocation business model into new countries in Latin America and Africa.

Akre shared some of the aspects that drew him to American Tower in his recent interview with GuruFocus:

The incremental returns on capital are off the charts at AMT. For example once beyond 2.1 tenants per tower, the returns on incremental capital are in the 90% range. Second, we have actually had a change in management at AMT, where the founder, Steve Dodge, and at least two CFOs have moved on to other opportunities. The business is so good that it has prospered under new leadership. The current chairman and CEO, Jim Taiclet, is world class. Third, their reinvestment has been a mix of adding new towers, both greenfield and by acquisition, and the balance has been used to strengthen their balance sheet, and then pursue share repurchases. The net result has been a growth in economic value per share which we calculate to be a mid- to upper-teens rate since 2002. The proof is in the growth in the business’ cash flow, tower count, etc. Its current valuation is at the top end of our appetite, and the company is in our mind one of the best business models extant today.


Comcast is planning to launch a tower company, CTI Tower Inc., that will compete with American Tower.

MasterCard Cl A (MA)

MasterCard Worldwide advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. MasterCard Worldwide has a market cap of $39.5 billion; its shares were traded at around $310.88 with a P/E ratio of 19.3 and P/S ratio of 7.1. The dividend yield of MasterCard Worldwide stocks is 0.2%.

MasterCard’s stock price went up 5.3% in the third quarter and advanced 37.3% year to date, to $307.66 on Tuesday. It is a relatively recent position for Akre. He has been purchasing the stock every quarter since the first quarter of 2010, when he paid an average price of $242.96, and owns 185,515 at June 30.

The company has seen ever-increasing revenue since at least 2006, and free cash flow went from $338 million in 2008 to $1.32 billion in 2009, to $1.64 billion in 2010. The company also raised its net margin to its highest level in five years at 33.3%, compared to 28.7% in 2009, and its operating margin to its highest level in five years to 52.4%, compared to 47.1% in 2009.

In 2010, the company made two business-expanding acquisitions, DataCash Group, which extends its e-commerce merchant and gateway capabilities to Asia, Australia, European countries and other worldwide markets. It also agreed to purchase the prepaid program management business of Travelex, which it believes will give it a larger role in prepaid. MasterCard has said that its biggest growth opportunity for the future lies in replacing cash and checks.

Akre said of MasterCard in his interview: “Examine the net margins of both V and MA and dream a little. So the key then is reinvestment. It will be very hard to find things to spend their money on that have the types of returns that they already developed internally!”

Ross Stores Inc. (ROST)

Ross Stores Inc. operates a chain of off-price retail apparel and home accessories stores, which target value conscious men and women between the ages of 25 and 54 in middle-to-upper middle income households. Ross Stores Inc. has a market cap of $8.94 billion; its shares were traded at around $76.41 with a P/E ratio of 14.8 and P/S ratio of 1.1. The dividend yield of Ross Stores Inc. stocks is 1.2%. Ross Stores Inc. had an annual average earnings growth of 15% over the past 10 years. GuruFocus rated Ross Stores Inc. the business predictability rank of 3-star.

Ross Stores’ stock price slipped 1.8% over the third quarter, and is up 22% year to date, to $77.14 a share. Akre has owned the stock since the first quarter of 2010, when he purchased 220,374 shares at an average price of $48.39. He continued adding to his holdings and owns 631,665 shares at June 30.

Ross operates more than 1,000 retail stores in 27 states and Guam. The stores sell brand-name clothing and merchandise at steep discounts – a particularly attractive offering in the down economic and employment environment. The company increased revenue every year from $3 billion in fiscal 2002, to $7.9 billion in fiscal 2011. Its gross, operating and net margins have each trended upward over the last five years.

Kiplinger’s expects retail sales to grow 8% for 2011, and sales to grow by 5% in the holiday season, with consumers saving and spending for their items, rather than adding to credit card debt with large items. For the quarter ended July 30, Ross sales increased 9% compared to the same period last year, due to the opening of 55 net new stores and a 5% increase in comparable store sales from the prior year.

Although one quarter is not as important as the long-term for a value investor, Akre has done exceptionally well in the span of time, particularly consider the volatility of the market. Nevertheless, he was humble about his accomplishment, telling GuruFocus it was, “Just a circumstance of the calendar.”


Rating: 2.9/5 (11 votes)

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