Chuck Akre is one of the best performing gurus this year. He has a very good handle with risks and he focuses his portfolio on high quality companies. He achieved returns in the range of 20%, 30% and 40% on a regular basis, and even as high as 52.5% in 1995. He beat over 99% of his peers for a decade.
He is rather classic when it comes to selecting companies. He likes to buy companies with strong business model demonstrating consistent earnings growth, high return on equity or high compound growth rate in book value per share. He also looks at the quality of the management.
Ackre likes companies with a return on equity above 15%, shareholder friendly management, and a price to free cash flow ration below 15.
His portfolio is also concentrated, with about 40 stocks, and his top four holdings typically make up over 40% of assets
Some of his top picks include:
MasterCard Incorporated (MA): MasterCard manages a group of global payment card brands, including MasterCard, Maestro, and Cirrus, which it licenses to financial institutions that issue cards to their customers. The firm acts as the payment processor by facilitating the authorization, clearing, and settlement of transactions on its proprietary networks.
With the shift to electronic forms of payment, MasterCard is well-positioned. In addition, over the past year, shares of MasterCard have risen by over 42%.
MasterCard's global brand strength is a strong competitive advantage when entering new or developing markets. MasterCard's processing network has plenty of room to grow before additional capacity is needed. Currently, the network runs at only about 70% capacity on a peak day.
Dollar Tree Stores Inc. (DLTR) Dollar Tree Stores is the largest single-price-point retailer in the United States. The company's stores offer a variety of consumable merchandise, including candy and food, general merchandise such as toys and gifts, and seasonal goods--all for $1. Lately its suburban locations exposed the company to more middle-income consumers.
Furthermore, the acceptance of debit and credit cards has expanded the firm's customer reach and significantly boosted its average ticket size.
Dollar Tree is in solid financial condition. The firm has been generating economic value for shareholders for the past few years. The firm's return on invested capital is expected to expand to 45.5% from 41.8% during the next two years.
Dollar Tree has an excellent combination of strong free cash flow generation and low financial leverage. The firm's free cash flow margin is expected to average about 6.8% in coming years. Total debt-to-EBITDA was 0.3 last year, while debt-to-book capitalization stood at 15.4%.
CarMax Inc. (KMX) CarMax sells, finances, and services used and new cars through a chain of about 110 retail stores. It was formed in 1993 as a unit of Circuit City and became an independent company in late 2002. Used-car sales account for about 80% of revenue, new cars about 2%, and the remaining portion is composed of wholesale, financing, and repair. In fiscal 2011, the company retailed and wholesaled 396,181 and 263,061 used vehicles, respectively.
No competitors have successfully duplicated CarMax's business model, providing the company with a considerable head start on would-be imitators.
Liquidity has been strong since the spin-off, and the company is expected to have the liquidity to fund store expansion. The retailer plans to open 8-10 stores in fiscal 2013 after 5 in 2012.
It is a solid company, with a proven business model and a lot of growth ahead.
TJX Companies (TJX): TJX Companies is the nation's largest off-price retailer of brand-name apparel and home fashions. TJX offers family apparel through its T.J. Maxx, Marshalls, Winners, and T.K. Maxx chains and home fashions through its HomeGoods and HomeSense stores. TJX operates in the United States, Canada, United Kingdom, Germany, and Ireland.
TJX is in excellent financial health with a debt/capital ratio of 0.20 and adjusted debt/EBITDAR of 2.5. It has ample liquidity, including a $1 billion revolver. The company is able to turn roughly 5% of revenue into free cash flow, suggesting it can comfortably support its debt burden while paying a dividend and buying back shares.
With the recent consolidation in the department store sector, apparel manufacturers may look for other channels to distribute their merchandise, which could be an advantage for TJX.
Berkshire Hathaway (BRK.A)(BRK.B) is a holding company with a wide collection of subsidiaries engaged in a number of diverse business activities. The firm's core business is insurance, run primarily through GEICO (auto insurance), General Re (reinsurance), Berkshire Hathaway Reinsurance, and Berkshire Hathaway Primary Group. The company's other businesses are made up of a collection of finance, manufacturing, and retailing operations, along with railroads, utilities, and energy distributors.
Berkshire remains one of the most financially sound companies with the firm managing its risk through diversification and a conservative capital position. In 15 years, Berkshire has exhibited an increasing trend.
Berkshire Hathaway's book value per share increased at a compound annual growth rate of 20.2% from 1965 to 2010. At the end of June 2011, Berkshire had $71 billion in float from its insurance operations.
Berkshire's strong balance sheet allowed it to take full advantage of opportunities in the months leading up to and following the collapse of the credit and equity markets in 2008, making lucrative investments in Goldman Sachs, General Electric, Swiss Re, and Wrigley.