Chip Rewey, portfolio manager of Third Avenue's flagship Value Fund and Small-Cap Fund, laid out three stock ideas that he said Warren Buffett (Trades, Portfolio) should be interested in, while speaking at GuruFocus' Value Conference Friday.
The first is Comerica (CMA, Financial), a bank headquartered in Texas and currently trading at 18x earnings. Rewey said Comerica has strong credit worthiness, one of the most important attributes for any bank. Comerica had an outstanding underwriting record, even during the financial crisis of 2007 and 2008. Investor fears of the volatility of the energy book has pushed the price down, creating more opportunity to invest. The bank traded down slightly over the past year by 5%.
Rewey's second idea is a newer company called Visteon Corp. (VC, Financial), which supplies automotive systems to OEMs such as audio systems, climate control systems and door trim and floor consoles. Visteon has net cash of $356 million, even after a sizeable special dividend and share buybacks. Its strong financials have allowed it to weather cyclical downturns and pursue opportunistic growth. The stock has struggled in the industry, trading down by 22% over the past year.
Addressing the cyclicality of the auto industry, Rewey said it's beneficial to be involved with the suppliers.
His last stock idea is Kirby (KEX, Financial), a domestic tank barge operator that is held in the Small Cap portfolio. Kirby transports refined oil products. Net debt to EBITDA is 1.35x and EBITDA/interest is over 30x. Rewey said Kirby has grown through both acquisitions but also from a secular standpoint. The company recently reached a deal to aquire 28 barges and 14 tow boats from Seacor for $88 million. It has compounded revenue growth at 10% annually since 1995. Kirby is down 18% over the past year and trades at 15.5x earnings.
