In his third quarter 2013 letter to Longleaf shareholders, value investor Mason Hawkins offered a condensed summary on the quality of his selected companies: "The businesses we own should be able to deliver higher free cash flow over the next three years, thereby building intrinsic values. First, a number of our holdings that are headquartered in more developed markets such as Abbott, Cheung Kong, DirecTV, Lafarge, Mondelez, Philips, and Vodafone have large portions of their revenues in faster growing geographies. Second, the strength of our companies’ competitive positions and/or brands is enabling many to increase top line via pricing increases including Abbott, Cemex, DirecTV, Everest Re, FedEx, Ferrovial, Lafarge, Loews, Martin Marietta, Melco, Mondelez, News Corp, Scripps Networks, Texas Industries, Travelers, Washington Post, Vail, and Vulcan. Third, a number of our management teams are continuing to extract costs from their businesses to address slower growth and gain increased efficiencies. Material cost reductions are occurring at Abbott, Aon, Bank of New York Mellon, Cemex, Chesapeake, FedEx, Guinness Peat, Hochtief, Lafarge, Legg Mason, Level 3, Mondelez, Nitori, Philips, TNT Express, Washington Post, and Wendy’s. Fourth, in contrast to oft-stated concerns about peak margins, operating margins across our holdings are approximately one-third less than the overall market’s margins, with most of our companies operating closer to their 10-year average margins than their peaks."
GuruFocus research has also discovered these two high-conviction stocks in the Hawkins portfolio. Mason Hawkins holds a $977 million stake in Murphy Oil Corporation (MUR) and a $158 million stake in CNH Industrials (CNH), and he has continued to increase his positions over the last three quarters, adding many shares in both.
Murphy Oil Corporation (MUR)
Up 19% over 12 months, Murphy Oil Corporation has a market cap of $11.54 billion, and trades at a P/E of 10.30 and a P/B of 1.26. The dividend yield is 2.02%. The current MUR share price is $61.75.
Originally incorporated in1950, Murphy Oil Corporation is an oil and gas exploration and production company with refining and marketing operations in the US and the UK. Company operations are classified into two business activities: exploration and production, and refining and marketing. The company's exploration and production business explores for and produces crude oil, natural gas and natural gas liquids worldwide.
The company reported financial results for the second quarter of 2013, with a net income of $402.6 million, compared with $295.4 million in the same quarter of 2012. Earnings per diluted share of $2.12 were reported for the 2013 second quarter, up $1.52 in the same quarter a year ago.
Guru Action: As of June 30, 2013, Mason Hawkins holds 16,060,252 shares or 4.8% of shares outstanding. His holding is valued at $977 million.
In the second quarter of 2013, Hawkins increased his position by 53.23%, buying 5,578,849 shares at an average price of $54.07 per share, for a gain of 14.2%. In the prior two quarters, he also bought more than 4.3million shares in both. In the fourth quarter of 2012, he bought 5,574,085 shares at an average price of $50.62 per share, for a gain of 22%.
In the first quarter of 2013, Hawkins bought 4,365,676 shares at an average price of $52.84 per share, for a gain of 16.9%.
Over seven quarters of gains, Mason Hawkins has averaged a gain of 18% on 16,060,252 shares bought at an average price of $52.31 per share.
Mason Hawkins is one of 13 guru stakeholders as of June 30, 2013, and there is active insider trading.
Historical share pricing, revenue and net income:
CNH Industrial (CNH)
CNH Industrial (CNH) is operational since the mergers of Fiat Industrial SPA and CNH Global NV, completed on Sept. 29, 2013.
The current CNH share price is $49.96.
Up 12% over 12 months, CNH Industrial has a market cap of $12.11 billion, and trades at a P/E of 9.30 and a P/B of 1.30. The company does not pay a dividend.
CNH Industrial designs, produces and sells trucks, commercial vehicles, buses, special vehicles, agricultural and construction equipment, in addition to engines and transmissions for those vehicles and engines used in marine applications.
Prior to the merger, CNH Global NV reported results for the second quarter of 2013 with net sales at $5.5 billion, representing a 9% increase year-over-year. Net income for the quarter was up 33% year-over-year, at $473 million. The company reported a 31% increase in earnings per diluted share at $1.93, up from $1.47 in the same quarter of 2012.
In the first quarter of 2013, the company reported a net income of $326 million, up from $269 million in the same quarter of 2012. The company reported earnings per share of $1.33 in first quarter of 2013, up from $1.11 per share in the same quarter of 2012.
Guru Action: As of June 30, 2013, Mason Hawkins holds 3,815,399 shares or 1.57% of shares outstanding. His holding is valued at $158.9 million.
In the second quarter of 2013, he increased his position by 101.82%, buying 1,924,892 shares at an average price of $42.36 per share, for a gain of 17.9%.
Over a three-quarter history, Mason Hawkins has averaged a gain of 16% on 3,815,399 shares bought at an average price of $43.20 per share.
Mason Hawkins is one of six guru stakeholders, as of June 30, 2013. There is no insider trading to report.
Historical share pricing, revenue and net income:
Read more about second quarter sells by Mason Hawkins.
The third quarter portfolio of Mason Hawkins, chairman and CEO of Southeastern Asset Management, lists 36 stocks, one of them new, with a total value of $20.3 billion and a 3% quarter-over-quarter turnover.
A graphic summary of trading by Southeastern Asset Management:
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