Executive Vice President and CIO of Markel Corp. (MKL, Financial)Â Tom Gayner (Trades, Portfolio) is known for his patience and common sense. Profiled by Jason Zweig in The Wall Street Journal in May, Zweig wrote that Gayner doesn’t hold analyst days or provide guidance on future earnings, which attracts investors who are in for the long term.
Over the past 15 years, Gayner has had an average annual return of 11.3%, compared to just 4.2% for the S&P 500. During the third quarter, Gayner purchased nine new holdings, of which the following are the five largest new buys. One commonality among several of the largest purchases are that the stocks are trading below the Peter Lynch earnings line, indicating the companies are undervalued.
Capital One Financial Corp. (COF, Financial)
Gayner’s largest purchase was 125,000 shares for an average of $80.32 per share. Gayner reinitiated the position after selling out a previous holding in Q2 2014.
Capital One’s stock has declined 3% over the past year and currently trades at $79.21, or 11x earnings. The company is undervalued according to the Peter Lynch earnings line, which prices the stock at $106.40 based on third-quarter earnings.
EPS has been steadily increasing since 2008, when the company posted losses per share of 21 cents. In 2014, Capital One earned $7.59 per share.
The company’s trailing dividend yield is 1.9% while the payout ratio is 20%.
Gayner purchased 65,000 shares of PACCAR, which traded for an average of $60.77 during the quarter. PACCAR manufactures light-, medium-, and heavy-duty trucks and related aftermarket parts.
The stock has dropped 23% over the past year and now trades at 11x earnings at $51.24. The Peter Lynch earnings line suggests the company is undervalued, with the line at $68.30.
PACCAR’s operating margin has followed the trend of the industry but has remained well above the industry median of 3%. In 2014, the operating margin was 11.24%.
The company pays a dividend yield of 1.77% while the payout ratio is a low 19%. The yield is also close to the three-year high.
Gayner also bought 25,000 shares of Cummins for an average price of $123.51 per share. The current price is $101.16, and the stock has declined by 31% over the past year.
Cummins manufactures diesel and natural gas engines as well as component parts such as fuel systems, control systems and turbochargers.
The company has had consistent growth over time, with revenue per share growing at an annual rate of 12.8% over the past five years, while EPS grew by 26.6% over the same time frame.
The trailing dividend yield is 3.29% — close to the 10-year high — while the payout ratio is 35%.
Gayner also purchased 15,000 shares of FedEx for an average price of $159.59 per share. Over the last year, the stock has declined marginally by 7%, and now trades at 41.25x earnings at $159.45.
The shipping company is priced relatively high compared to the industry, which has a median PE of 16.4. In addition, the Peter Lynch earnings line estimates the value of the stock at $57.50.
In FY 2015, FedEx’s EPS declined to $3.65, down from $7.48 the year before. Over the past five years, EPS has declined 2.91%.
The trailing dividend yield is 0.56% with a payout ratio of 22%.
Las Vegas Sands Corp. (LVS, Financial)
His fifth-largest new buy was 48,000 shares of Las Vegas Sands Corp., which traded for an average of $50.41 during the quarter.
Las Vegas Sands develops resorts and destination properties in Macao, Singapore and the U.S. The stock has declined 24% over the past year and now trades at $47.03, or 15.8x earnings.
The Peter Lynch earnings line estimates the stock is close to fairly priced, valuing Las Vegas Sands at $43.00 based on third-quarter earnings.
The dividend yield is close to the five-year high at 5.28% although the payout ratio is high at 88%.
View Tom Gayner (Trades, Portfolio)’s latest stock picks here. Not a Premium Member of GuruFocus? Try it free for 7 days.
