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Buffett’s Former Stock Picker Lou Simpson’s Q3 Portfolio Increases

November 25, 2013 | About:

Holly LaFon

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Lou Simpson is an investor with an outstanding track record: He returned 24.7% on average annually in his 17 years at GEICO before it was purchased by Warren Buffett’s Berkshire Hathaway (BRK.A)(BRK.B). Simpson stayed on working for Buffett for another decade following the acquisition before retiring in 2011 and opening his own investment-advisory firm, SQ Advisors LLC.

Simpson’s firm began with approximately $1.3 billion in assets under management which had grown to approximately $1.64 billion at March 31, 2013.

As of the third quarter, Simpson’s portfolio contains 13 stocks, with an aggregate fair value of $1.87 billion. He bought no new stocks during the quarter, but made notable increases to a number of his holdings.

Simpson’s Top 3 Increases

U.S. Bancorp (USB)

Simpson increased his holding of U.S. Bancorp by 13,328% in the third quarter. This meant adding 1,865,955 shares at an average price of $37 per share to his existing holding of 14,000 shares purchased at an average of $25 per share in the fourth quarter of 2011, for a total of 1,879,955 shares at quarter-end. U.S. Bancorp shares now comprise 3.7% of his portfolio.

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U.S. Bancorp is the parent company of U.S. Bank, the fifth largest commercial bank in the U.S., with $321 million in assets. After climbing almost 45%, U.S. Bancorp shares are currently near a 10-year high at $39.22 each.

Financially, the bank has five-year per-share revenue growth rates of: 6.1% for revenue, 1.8% for EBITDA, 9.2% for free cash flow and 14.7% for book value. It also has reported annual return on equity and return on assets increases since 2009, reaching 14.8% and 1.6%, respectively, for the third quarter of 2013.

For the third quarter of 2013, U.S. Bancorp had $1.47 billion in net income, or $0.76 per diluted common share, an increase from $1.47 billion, or $0.74 per diluted common share for the third quarter of 2012. Net revenue declined 1.2% year over year to $4.89 billion.

In addition, U.S. Bancorp’s nonperforming assets declined 2.1% year over year, and average total loans grew 5.7% year over year.

The company has a P/E ratio of 13.2, P/B ratio of 2 and P/S ratio of 3.7, which is close to a five-year high.

Warren Buffett also holds U.S. Bancorp, in a position sized at 463,131,632 shares, equal to 8.72% of shares outstanding.

United Parcel Service Inc. (UPS)

Simpson increased his holding size in UPS by 52.8%, adding 759,941 shares purchased at an average price of $88 each, to his existing holding of 1,439,345 shares purchased in the second quarter of 2013 at an average price of $86. His largest holding, its total at quarter end was 2,199,286 shares of the company, comprising 10.7% of his portfolio.

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UPS is the world’s largest package delivery company by both revenue and volume, and supply chain solutions provider. Its shares have gained 42.5% over the decade to trade for $101.28 each on Monday, near a 10-year high.

UPS annual per-share growth rates for the past five-year period are 3.8% for revenue and 1.6% for free cash flow. EBITDA declined at a rate of 10.9%, while book value also declined at a rate of 11.1%, over the past period.

The company increased its return on equity to 120.4% for the third quarter from 17.3% for fiscal year 2012. It also increased return on assets to 11.6% from 2.1% in the same periods.

For the third quarter UPS grew revenue by 3.4% year over year to $13.5 billion, led by U.S. e-commerce shipments and strong European export growth. Diluted earnings per share grew by 9.4% to $1.16. UPS also generated $3.6 billion of free cash flow, repurchased 33 million shares for $2.9 billion and paid dividends of $1.7 billion.

UPS has a P/E ratio of 66.1 and PB ratio of 26, which is close to a 10-year high. Its P/S ratio at 1.77 is close to a five-year high.

Buffett holdings 59,400 shares of UPS, in a position sized at 0.01% of shares outstanding and which he reduced in the second and third quarters.

Wells Fargo (WFC)

Simpson in the third quarter increased his Wells Fargo position by 20.25%, adding 731,356 shares trading at an average price of $42 to his existing holding of 3,611,414 shares of a holding initiated in the fourth quarter of 2011. His total share count at quarter-end was 4,342,770, comprising 9.6% of his portfolio.

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Wells Fargo is a financial services company with more than 9,000 stores and 12,000 ATMs around the world, and $1.5 trillion in assets. With shares up 57.5% over the past decade, Wells Fargo is also trading near a 10-year high of $44.48 per share on Monday.

The bank had the following annual per-share growth rates over the past five years: 2.9% for revenue and 8.4% for book value. Its EBITDA per share declined at a rate of 0.6% over the same period. Its return on equity stands at 13.2% and return on assets at 1.6% as of the third quarter. Both have grown annually since 2010.

For the third quarter, Wells Fargo reported a 13% year over year jump in net income to $5.6 billion, and 13% increase in diluted earnings per share of $0.99, both of which were company records. Revenue declined to $20.5 billion from $21.2 billion the previous year. Its nonperforming assets declined by $4.6 billion to $20.7 billion, and total average core deposits grew by $44.9 billion to $940.3 billion.

The company has a P/E ratio of 11.8%, P/B ratio of 1.6 and P/S ratio of 2.8, which is close to a five-year high.

Buffett controls 8.7% of Wells Fargo shares outstanding, in a holding sized at 463,131,623 shares.

For more Lou Simpson trades, visit his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Lou Simpson.

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