Witmer summed up her investment style in a June interview with Barron's as follows: “The things we look for are a really good management team and the way we describe that is they know how to allocate capital and they’ll get good returns on that capital because if the business is making money and they waste that money or fritter it away, it has less value. So that’s important. And then we look for good businesses a la say, Warren Buffett, with somewhat of a moat around them or something special around them. And then oftentimes we buy a company when there’s some fear there or people are down-and-out about it, and that’s where the opportunity lies.”
Witmer runs a relatively concentrated portfolio of 50 stocks, and bought two new companies in the first quarter. The total value of the portfolio amounts to $16.77 billion.
The manager’s new buys of the first quarter included Zoetis Inc. (NYSE:ZTS) and Constellation Brands Inc. (NYSE:STZ).
Zoetis Inc. (NYSE:ZTS)
Witmer bought just 70,000 shares of Zoetis at $33 per share on average in the first quarter, equivalent to 0.014% of her portfolio. The stock price has since decreased 5% from the average purchase price, trading for $31.56 per share Monday.
Zoetis, formerly the animal health business unit of Pfizer Inc. (PFE), completed its initial public offering on Feb. 6, 2013. The company did not receive proceeds from the offering. After the close of the offering, Pfizer owned 100% of its outstanding Class B common stock and retained approximately 80% ownership of Zoetis. On June 24, the company became fully independent after a Pfizer tender offer.
From 2011 to 2012, the company grew its return on equity from 6.6% to 10.8%, and likewise its return on assets from 4.3% to 7%.
Both its net earnings and revenue have increased annually from 2009 to 2012, as demonstrated below:
The company bears $1.45 billion as of the first quarter 2013, along with $4.15 billion in long-term liabilities and debt, increased from $1.16 billion the previous year.
Three of Zoetis’ valuation ratios currently stand near their one-year low: P/E at 32.47, P/B at 21.24 and P/S at 3.44.
Constellation Brands Inc. (NYSE:STZ)
Witmer made a more significant purchase of Constellation Brands, buying 6,893,277 shares at $40 per share on average, a 2% portion of her portfolio. The share price has since appreciated 30%, with shares at $52.26 on Monday – a near 10-year high.
Constellation Brands is a wine, beer and spirits company with a $9.63 billion market cap. Witmer likely purchased the company when its stock price pulled back more than 16% at the end of January. By mid-February, however, the priced surged again more than 37%.
At the time of the surge, on Feb. 14, Anheuser-Busch InBev (BUD) and Constellation Brands announced an agreement in which Constellation would purchase Busch’s remaining 50% stake in Crown through Grupo Modello. The move positions Crown Imports as the No. 3 producer and market of beer in the U.S. and gives Constellation 100% ownership and control of Crown.
Constellation plans to use the strong free cash flow from the combined companies to decrease its debt to comparable basis EBITDA lever to its targeted 3 to 4 times range, from its expected 5 to 5.5 times range following the transaction.
In fiscal year 2013, Constellation brands produced a 13.6% return on equity, a decrease from 16.6% in 2012 and its third year of decline. Its return on assets was 5.1%, also down from 6.3% the previous year and its third year of decline.
The company balance sheet contains about $1.06 billion in cash and $5.66 billion in long-term liabilities and debt.
With a price increase of almost 78% over the past year, Constellation Brands’ P/B ratio is close to a 10-year high at 3.25, and P/S ratio is likewise near a 10-year high at 3.44. It has a P/E of 25.4.
Witmer’s top holdings is Berkshire Hathaway (NYSE:BRK.B). She owns more than 10 million shares and has been adding to the stake quarterly since first quarter 2012. The holding comprises 6.8% of her portfolio. Witmer has an average 42% gain on the holding.
Her second largest is Oracle Corp. (NYSE:ORCL). She opened the position in the first quarter of 2013, buying almost 30 million shares of the company, making up 5.8% of her portfolio. She has lost an average of 9% on the holding.
Finally, she holds Aon PLC (NYSE:AON) as her third-largest position. Her stake contains more than 14 million shares, and she has added quarterly since beginning it in the first quarter of 2012. Witmer has a 39% average gain on the position.
See more of Meryl Witmer’s stocks in her portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Meryl Witmer.
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