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Wallace Weitz's Top Buys

Mara Kohn

Mara Kohn

4 followers
Wallace Weitz is a CFA chartholder who founded and since then presides Wallace R. Weitz & Company. He also serves as manager of the Partners III Opportunity Fund and co-manages Value Fund, Partners Value Fund and Hickory Fund.

Weitz earned a BA in economics at Carleton College in 1970 but long before that he started investing in entrepreneurial ventures. After graduating he started doing security analysis. In 1973 he he joined Chiles, Heider & Co. Inc where he served as an analyst and portfolio manager. Ten years later he started his own company and now he heads a group of eight investment professionals.

Weitz's investment strategy is based on Graham's price sensitivity and insistence on a "margin of safety" together with a conviction that qualitative factors enabling companies to have some control own their future can be more important than statistical measurements, such as historical book value or reported earnings.

Apart from this job, Weitz is also engaged in charitable and educational activities. Indeed he is a member of the the board of trustees for Carleton College and serves on the executive committee of Building Bright Futures in Omaha.

Now, let's take a look at some of his top buys:

Valeant Pharmaceuticals (VRX): VRX is a pharmaceutical firm engaged in dermatology and neurology in the U.S., Canada and New Zealand. The firm also operates in Latin America and Central and Eastern Europe with branded generics.

This company is a newly set-up firm that resulted from the merger of Biovail and Valeant Pharmaceuticals in 2010.

Valeant is expecting to continue growing into other regions through the acquisition of iNova and the access to new therapeutic areas. Of course, these two events will certainly bring risks, but management is confident of its work. Most importantly, management thinks that if a new market is too risky or prices are really high, it will put a stop to its growth strategy.

The acquisition of iNova will bring access to South Africa and Southeast Asia. Most importantly, as iNova's presence therein is small, VRX will have the chance to thoroughly study the situation and build up strong relationships with customers and regulators before making a huge investment in the region.

Financially speaking, Valeant took on a considerable amount of debt for these acquisitions but it will be able to manage it. In terms of quarter results, the firm had $4.7 billion of long-term debt, 3.6 times our 2011 EBITDA estimate. Last but not least, it has a market cap of $13.4B and a P/E ratio of 213.62.

Berkshire Hathaway (BRK.B): BRK.B is a holding company made up of several subsidiaries engaged in different business activities. Berkshire is primarily engaged with insurance through GEICO, General Re, Berkshire Hathaway Reinsurance, and Berkshire Hathaway Primary Group. Other businesses include finance, manufacturing, and retailing operations, along with railroads, utilities and energy distributors.

As regards performance, IBM ranks first, followed by Kraft and Wal-Mart. Wells Fargo is the third-largest holding but in 2011 suffered a drop. The average full performance of the ten largest holdings involved a gain of 7.18% with a 2.6% average yield.

The advantage of Berkshire's holdings is that they tend to grow their dividends. Furthermore, they are generally familiar for most investors. This means that it is easier to understand their businesses and their information is readily available.

In 2009 Berkshire lost its AAA credit rating due to the collapse in the equity and credit markets. Nevertheless, the company is still one of the most financially sound firms with a management team that can offset risks.

Hewlett Packard (HPQ): HPQ is a diversified company that comprises seven business segments: The Personal Systems Group, Services, the Imaging and Printing Group, Enterprise Servers, Storage and Networking, HP Software, HP Financial Services and Corporate Investments.

Notebooks, desktop and printing supplies each represented more than 10% of the company's net revenue. In 2010 and 2011, infrastructure technology outsourcing services accounted for the same percentage jointly with industry standard servers.

In terms of quarter results, HPQ is trading at the bottom vis-à-vis prior years. The current P/S ratio is 0.4, its current P/E ratio is 7.6 and its current P/B ratio is 1.3. Fortunately, the company has a strong cash flow so it is considered that it will be able to recover despite these low figures. Indeed in the last three year period, its cash flow has averaged $9.2 billion.

Most importantly, HPQ is shareholder friendly. In the last years it has repurchased shares and for such purpose it has spent more than $26 billion.

Disney (DIS): this famous company does not only owns the famous characters widely known across the world, such as Mickey Mouse and Winnie the Pooh, but it also owns the theme parks and live-action and animated films under several labels and owns ABC, Disney Channel, and ESPN. Disney also owns a 42.5% stake in A&E, The History Channel, and Lifetime Networks.

It is clear that Disney owns a variety of assets. However, its media networks account for more than 50% of its operating profit. ESPN accounts for 75% of cable network sales and leads the sports television with ESPN, ESPN2 and other networks.

Disney Channel is also representative. Its programming includes hits such as Hannah Montana and several films and animated characters.

Financially speaking, Disney has not been doing great but it has a strong footing and it has been increasing its revenue. Indeed, ESPN has reported the following figures: ESPN. P/E: 15.20; Div Yield: 1.6%; Mar Cap: $68.82 billion.

Texas Instruments (TXN): TXN is the world's largest maker of analog chips, which are used to process real-world signals, such as sound and power. Revenue is largely represented by semiconductors and its well-known calculators. In addition it has a growing mobile processor business line that is used to run software and applications in many popular smartphones and tablets.

TXN is focused on expanding its analog chip business through the purchase of cutting-edge manufacturing equipment at very low prices. This expansion should enable the company to increase orders. TI's acquisition of National Semiconductor has expanded the firm's analog chip portfolio and given the company even more production capacity.

Recently, due to the downturn in the chip industry, TXN reduced its revenue. Furthermore it took on $3,4 billion of debt. Nevertheless, the company continues generating strong cash flows and offers a 2% dividend yield. Most importantly, it has announced a stock-buyback plan.

Rating: 3.8/5 (5 votes)

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