Marty Whitman, chairman of Third Avenue Management, is a bottom-up, value-oriented investor. He seeks companies with strong finances, competent management, and easily understandable businesses. He is also a long-term, buy-and-hold investor who buys companies selling at a discount to inherent value. He has a 91.5 10-year cumulative return, versus 16.4% for the S&P.
Hutchison Whampoa Ltd. (HUWHY.PK)
Whitman owns 16,819,000 shares of Hutchison Whampoa Ltd., and it comprises 4.72% of his portfolio. Hutchison Whampoa is an investment holding company with interests in ports, real estate projects, retail, consumer electronics, electrical appliances, airport retailing, energy and infrastructure and mobile telecommunications and data services. Its stock dipped 16.7% over the last year and trades for about $67 on Thursday.
Hutchison Whampoa’s revenue grew 8% in 2010 to HK$326 billion from HK$301 billion in 2009. The company has also increased its earnings per share for the last three years and in 2010, increased its dividend 11% to HK$1.92 per share, from HK1.73 per share.
Chairman Li Ka-Shing stated that though the economy of 2008 created sever economic challenges, the economy of Hong Kong “continues to benefit from the Mainland’s rapid development.” It has completed a major investment that will soon begin generating revenue rather than draining it, and an IPO of its HPO Trust raised HK45,000 million strengthened its balance sheet significantly. It continues to increase its investments around the world.
Tellabs Inc. (TLAB)
Tellabs helps the world's communications service providers build tomorrow's converged networks of voice, data and video. Tellabs Inc. has a market cap of $1.41 billion; its shares were traded at around $3.87 with and P/S ratio of 0.9. The dividend yield of Tellabs Inc. stocks is 2.1%.
Tellabs’ stock collapsed 43% over the past year and sells for just $3.90 on Thursday. The stock dropped almost $2 in January when it reported fourth-quarter results, including a net loss of $11 million for the fourth quarter of 2010, compared to net earnings of $62 million in the fourth quarter of 2009. Its gross profit margin also decreased to 38% in the fourth quarter of 2010 from 45.3% the fourth quarter of 2009. The company’s revenue grew 8% in 2010 from 2009, however.
Tellabs’ free cash flow has been increasing for the last four years, reaching $233 million in 2010. It also has $1.2 billion on its balance sheet and little debt, at $73.7 million in long-term liabilities. It began paying a dividend of 8 cents per share in 2010.
Applied Materials Inc. (AMAT)
Whitman sold out his position in Applied Materials in the fourth quarter of 2008, and reinitiated with 1 million shares in the fourth quarter of 2010 at about $12.70 per share. In the quarter ended Oct. 31, 2011, he doubled his holding to 2 million shares.
Applied Materials develops, manufactures, markets and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. Applied Materials Inc. has a market cap of $14.18 billion; its shares were traded at around $10.76 with a P/E ratio of 8.2 and P/S ratio of 1.3. The dividend yield of Applied Materials Inc. stocks is 3%.
Applied Materials is another stock Whitman bought that has seen a decline in stock price. Applied Materials fell 21% over the last year, though it has a strong balance sheet. Its revenue has increased each year from 2009 to 2011, reaching a record $10.5 billion in 2011. Free cash flow also reached a peak of $2.2 billion in 2011 after growing for three years. Its cash holdings recently ballooned. It went from having about $2.6 billion in 2010, to $6.2 billion in 2011.
Whitman’s stock has a 3% dividend yield, which it increased to 30 cents per share in 2011, and with all of the cash it has accumulated, the dividend is likely safe.
In November 2011, the company received approval from the Chinese Ministry of Commerce to acquire Varian Semiconductor Associates Inc., a leading supplier of ion implantation equipment used to create semiconductor chips. It began the acquisition process in May 2011. The combination of the companies created the industry’s leading supplier of equipment and services for transistor technology. The new market exposure has the potential to garner the company close to an additional $1.5 billion annually.
See Marty Whitman’s complete investment portfolio here.