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Three Billionaires Adjust Portfolio Holdings – Buffett, Watsa and Loeb

Holly LaFon

Holly LaFon

255 followers
The last week of February was rife with changes to some of the most interesting portfolio positions of prominent investors. Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (BRK.A)(BRK.B) built his stake in DaVita HealthCare Partners (DVA) even higher, Fairfax Financial (TSX:FFH)’s Prem Watsa (Trades, Portfolio) filed down his massive ownership in BlackBerry Ltd. (BBRY) and Third Point’s Daniel Loeb (Trades, Portfolio) continued his advance on Sothebys (BID).

DaVita (DVA)

Berkshire Hathaway portfolio manager Ted Weschler (and filing confirm it was his purchase) has been heavy into DaVita for some time. He began acquiring it for Berkshire in fourth quarter 2011, soon after joining the company.

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This week, he increased the position by 3.1% to hold 37,621,152 shares, equal to more than 17% of the company. The purchases prices for the buys, which took place from Feb. 24 through Feb. 26, ranged from $66.58 to $67.88 per share.

Already, the investment has proven notably valuable. Weschler’s average price for all of the shares he has purchased for Berkshire is $48. At Friday’s price of $69.92, he has a 45% gain.

The investment also reflects the growing confidence in the two managers by Buffett, and continued expansion of their responsibilities. When Weschler joined, Buffett gave him less than $2 billion of Berkshire’s massive $105 billion portfolio to manage. In 2012, Buffett increased the amount to $5 billion each. The DaVita stake is currently valued around $2.3 billion and, when Buffett’s annual letter is released tomorrow, should be the second by one of the managers to appear in the list of equity investments valued above $1 billion. (The first was DirecTV (DTV), of which Weschler and Combs held a combined amount valued at $1.15 billion in 2012.)

DaVita’s P/E ratio has climbed a great deal since it first appeared in Berkshire’s portfolio – from around 17 in late 2011 to around 25.3 TTM. This is higher than 55% of the 149 companies in the Global Medical Care industry and close to the high end of the company’s historic range.

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DaVita’s stock price is also at a 10-year high, though the company continues to see consistent per-share revenue and earnings growth, as well as expanding operating margins. The company has ROE of 19.2% and ROA of 4.8% as of the fourth quarter.

BlackBerry Ltd. (BBRY)

Prem Watsa (Trades, Portfolio) also reduced his stake in struggling Canadian smartphone maker BlackBerry by 5.1%. The sale shrank his ownership to 96,783,700 shares, or under 19% of the company.

Watsa rebalanced his portfolio position in BlackBerry in order to meet the terms of an agreement – dated Nov. 4, 2013 – in which Fairfax agreed not to own more than 19.9% or less than 9.9% of the company’s outstanding shares until Nov. 13, 2014.

“This previously announced Share sale is concluded and the current rebalancing is complete. In the future, Fairfax may determine it is necessary to continue with further rebalancing, subject to the above-noted restrictions,” the filing states.

BlackBerry’s share price has fallen 24% over the past 12 months, with a 34% surge year to date. It close Friday at $10 per share.

The company announced its fiscal third quarter resulted on Nov. 20. It had revenue of $1.2 billion, down by 24% from the previous quarter and by 56% from the same quarter of fiscal 2012, and sold 1.9 million smartphones, down from 3.7 million in the previous quarter. Its net loss was $4.4 billion, widened from a net loss of $965 million in the previous quarter and net earnings of $9 million in the same quarter of fiscal 2012.

Its total amount of cash and equivalents was $3.2 billion, increased from $2.6 billion in the previous quarter. Its long-term debt amount increased to $994 million from zero.

Sothebys (BID)

Daniel Loeb (Trades, Portfolio) increased his Sothebys stake by 3.15% to 6.55 million shares, giving him 9.53% ownership of the company. The buy occurred on Feb. 27, when the price was $50.37 per share. It has since declined by 6.67% to close at $47.01 on Friday.

Loeb has owned shares of Sothebys since first quarter 2013:

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The purchase also came along with news that Sothebys would appoint Loeb and to its board of directors after six meetings and “numerous” conference calls with Third Point over the past six months.

The company stated: “Sotheby’s is disappointed that Third Point has chosen this path. Sotheby’s had a solid 2013 and 2014 is off to a strong start, with record auction results in many categories, a $300 million special dividend payable to shareholders next month, and a commitment for disciplined investment and ongoing capital return.”

Loeb also stated in a filing: “Sotheby’s has made some improvements since our filing, most notably in certain capital allocation practices. The Company’s focus on returning capital to shareholders was long delayed, but welcome. Additionally, Sotheby’s effort to value its London and New York City headquarters for possible sale shows an overdue recognition of the importance of optimizing the Company’s balance sheet.”

But he went on to complain: “The Reporting Persons contend that the entrenched Board also lacks an expert in the type of fundamental corporate restructuring that Sotheby’s must undertake. The tasks ahead for this Board remain formidable – including critical cost-cutting treated only superficially to date and further leveraging the company’s brand and market knowledge to capture a greater share of the global art profit pool by refocusing online initiatives, increasing private sales, and taking a larger slice of the contemporary art market. It is a matter of concern to all shareholders that no Board member today possesses a demonstrated track record in this type of restructuring.”

At the start of the year, Sothebys’ share price was near a 10-year high, after gaining 226% over the decade. The company has grown revenue at a rate of 6.2%, EBITDA at a rate of 33.6% and book value at a rate of 16.6% over the past five years. It has $483.2 million in cash and $515.2 million long-term debt as of Sept. 30, 2013.

In its fourth quarter, Sothebys’ net income increased 37% year over year and sales increased 17% year over year to $6.3 billion. The improvement was mainly due to an uptick in auction sales to the global art market, with noted strength in Asian art in Hong Kong and Impressionist art in New York. Revenue improvements were partially offset by higher operating expenses due to strategic investments and inflation. After a cost structure review, the company announced it would cut $22 million in expenses in 2014.

The company also said it plans to repurchase $25 million of its shares in 2014, in addition to a return of $300 million to shareholders in a special dividend in March. Going forward it plans to return all unused capital to shareholders each year. Its share repurchase history has been minimal, as its shares outstanding have primarily been growing over the past five years:

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See Warren Buffett (Trades, Portfolio)’s portfolio here, Prem Watsa (Trades, Portfolio)’s here and Daniel Loeb (Trades, Portfolio)’s here. Not a Premium Member of GuruFocus? Try it free for 7 days here!


Rating: 3.9/5 (7 votes)

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