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Buffett’s New Portfolio Managers’ Stock Winners

Holly LaFon

Holly LaFon

262 followers
Berkshire Hathaway (BRK.A)(BRK.B) hired two new portfolio managers to build its eventual team of three which will complete its succession plan for when founder Warren Buffett eventually retires (at an unknown date). Todd Combs, a hedge fund manager, got the job in 2010 by applying for it for it and being selected for an interview out of hundreds who responded to a “help wanted” ad Buffett placed in 2007. Ted Weschler, who met Buffett by winning an auction to have lunch with him and formerly ran hedge fund Peninsula Capital Advisors, was hired in September 2011.

Buffett said in his shareholder letter: “When our quarterly filings report relatively small holdings, these are not likely to be buys I made but rather holdings denoting purchases by Todd or Ted.”

The two managers have not had much time to prove themselves in their new roles, but their recent stock picks’ performance has boded well for the future of Berkshire Hathaway. The top winners of the new managers are: MasterCard (MA), Visa (V) and CVS (CVS).

MasterCard (MA)

Berkshire bought 216,000 shares of MasterCard at an average price of $243 in the first quarter of 2011 and 189,000 shares at an average price of $274 in the second quarter of 2011. The best-performing of the new managers’ picks, MasterCard has gained 84% from the average purchase price, and 27% year to date.

MasterCard Inc. advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. MasterCard Inc. has a market cap of $56.34 billion; its shares were traded at around $473.7 with a P/E ratio of 21.8 and P/S ratio of 8.4. The dividend yield of MasterCard Inc. stocks is 0.3%.

MA’s third-quarter net revenue increased 9% and net income increased 17% year over year, as worldwide purchase volume during the quarter increased 13% to $661 billion.

We are executing on strategic partnerships as demonstrated by our recent announcement with Deutsche Telekom and the completion of AliPay's integration with the DataCash payment platform, which will expand AliPay's reach to online retailers outside of China. We also continue to work with government entities around the world, like the South African Social Security Agency, to help them implement more efficient and secure ways to deliver social benefits and to increase transparency and financial inclusion,” said Ajay Banga, MasterCard president and CEO in a statement.

U.S. consumer spending climbed to close to a four-year high in August, according to a Gallup poll, part of a generally improved economic picture that month. Gallup’s Job Creation Index rose to 19 in August from 17in July, and jobs gains in July beat analysts’ expectations, according to Automatic Data Processing, though other factors have an effect, such as back-to-school spending, according to Gallup.

August consumer confidence, though tied to a 2012 low and declining since May, was significantly higher than a year ago, Gallup says.

MA on Thursday lowered the low end of its revenue guidance for the second half of the year, due to uncertain global spending, according to Fox Business.

Visa (V)

Berkshire acquired 2,291,708 shares of Visa at an average price of $87 in the third quarter of 2011, and increased the stake by 573,300 shares in the fourth quarter of 2011 at an average price of $94. In the second quarter of 2012, they sold 785,349 shares as the price rose to an average of $119. Visa performed second-best of the new managers’ buys, increasing 82% from the average price paid, and 38% year to date. It trades on Friday for a historical high $140.26 per share.

Visa operates the world's largest retail electronic payments network and is one of the most recognized global financial services brands. Visa has a market cap of $108.92 billion; its shares were traded at around $140.15 with a P/E ratio of 22.7 and P/S ratio of 11.9. The dividend yield of Visa stocks is 0.7%.

Visa had a third quarter net loss of $1.8 billion, due to $4.1 billion spent on litigation. Without the litigation provision and related tax benefit, the adjusted net income was $1.1 billion, a 25% increase year over year. Payments volume grew 6% to $979 billion.

"Visa once again reported solid global growth in payments volume, cross border transactions and processed transactions outside the U.S., executing on our strategy of growing the electronification of payments worldwide. We are pleased that we were able to come to a resolution in the merchant litigation which was acceptable to most parties while ensuring the long-term health of the U.S. payments industry," said Joseph Saunders, chairman and chief executive officer of Visa Inc. "As we look forward, we remain focused on launching new payment solutions and products for our financial and merchant partners and consumers, while supporting the Visa brand and the advancement of electronic payments."

The company also during the quarter repurchased 4 million shares at a cost of $461 million, and authorized a new $1 billion repurchase program.

CVS (CVS)

Berkshire in the third quarter of 2011 purchased 5,661,000 shares of CVS at an average price of $36, and in the fourth quarter added 1,445,500 shares at an average price of $37. In the second quarter of 2012 it sold 1,804,584 shares at an average price of $45. The total position size at the end of the second quarter was 5,301,916. CVS’s share price has increased 48% higher than the average price paid, and 20% year to date.

CVS/Caremark is the nation's premier integrated pharmacy services provider, combining one of the nation's pharmaceutical services companies with the country's largest pharmacy chain.

CVS Caremark Corporation has a market cap of $61.61 billion; its shares were traded at around $48.86 with a P/E ratio of 15.9 and P/S ratio of 0.6. The dividend yield of CVS Caremark Corporation stocks is 1.3%. CVS Caremark Corporation had an annual average earnings growth of 15.7% over the past 10 years. GuruFocus rated CVS Caremark Corporation the business predictability rank of 4-star.

CVS’s third quarter net revenues increased 16.3% to a record $30.7 billion, with pharmacy services up 28.2% and retail pharmacy up 6.9%. Pharmacy services sales were up primarily due to new clients starts associated with its successful 2012 selling season, drug cost inflation and new activity resulting from its April 2011 acquisition of the Medicare prescription drug plan of Universal American Corp.

Retail pharmacy segment sales increased benefited from Walgreens not being part of the Express Scripts pharmacy provider in the quarter, and pharmacy prescription volumes which rose 7.7%.

The company raised and narrowed its full-year 2012 guidance due to strong year-to-date performance and outlook, with an anticipated benefit of approximately $0.05 per share in its prescription business due to the contractual problems between Walgreens and Express Scripts. The new anticipated range is $3.09 to $3.15 per share, up from the previously expected $3.01 to $3.11.

Other of Weschler and Combs’ picks have done well. DirecTV (DTV) is up 16% from the average purchase price and 24% year to date; DaVita (DVA) is up 34% from the average purchase price and 16% year to date; and General Dynamics is up 5% from its average purchase price and 1.2% year to date.

See Berkshire Hathaway’s portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Warren Buffett.


Rating: 3.3/5 (18 votes)

Comments

vgm
Vgm - 1 year ago
It may not be an "eventual team of three". Buffett stated in an interview that he was very happy with Combs and Weschler and was not out looking for a third. He said that if someone exceptional came along he'd consider it. But it's not a sure thing.

Thanks for the article.

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