Akre Capital Management, the investment firm of the legendary Chuck Akre (Trades, Portfolio), disclosed it established one new position and exited another when it released its first-quarter portfolio.
The value investing firm employs a “three-legged stool” approach to picking stocks, in which the portfolio managers look for companies that have a strong business model and good management teams that effectively reinvest free cash flow.
During the quarter, the firm established a position in KKR & Co. LP (KKR, Financial) and divested its holding of American Tower Corp. (AMTPB.PFD, Financial) preferred shares.
KKR
The firm invested in 4.8 million shares of KKR for an average price of $22.22 per share, giving the stake 1.28% portfolio space.
The New York-based asset management company has a market cap of $11.13 billion; its shares were trading around $22.39 on Friday with a price-earnings ratio of 12.89, a price-book ratio of 1.61 and a price-sales ratio of 2.68.
The Peter Lynch chart below shows the stock is trading slightly below its fair value, suggesting it is undervalued.
Since the company has issued approximately $12.5 billion in new long-term debt over the past several years, GuruFocus rated KKR’s financial strength 4 out of 10.
In addition, GuruFocus warns that the company’s revenue has been in decline over the past several years, falling from $9.6 billion in 2012 to $5.12 billion in 2017.
The company’s profitability and growth scored a 1 out of 10 rating.
With 10% of outstanding shares, Jeff Ubben (Trades, Portfolio) is the company’s largest guru shareholder. John Rogers (Trades, Portfolio), Chris Davis (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jim Simons (Trades, Portfolio), Private Captial, Tom Gayner (Trades, Portfolio) and several others also own the stock.
American Tower
The firm cashed in on its remaining 313,782 shares of American Tower preferred stock for an average price of $122.92 per share. The trade had an impact of -0.55% on the portfolio.
According to GuruFocus, the firm has made an estimated gain of 21% on the investment since the second quarter of 2015. The company announced in January it was adjusting the conversion rate for the 5.50% Mandatory Convertible Preferred Stock.
The real estate investment trust, which is headquartered in Boston, owns and operates wireless and broadcast communications infrastructure in several countries. The company has a market cap of $60.26 billion; its regular shares (AMT, Financial) were trading around $136.43 on Friday with a price-earnings ratio of 51.87, a price-book ratio of 9.51 and a price-sales ratio of 8.72.
According to the Peter Lynch chart below, the stock is significantly overpriced as it is trading much higher than its fair value.
American Tower’s financial strength was rated 4 out of 10 by GuruFocus. The company’s Altman Z-Score of 1.59 indicates it could face bankruptcy in the near future, which is supported by the fact it has issued approximately $3.3 billion in new long-term debt over the past several years. Its profitability and growth, however, fared much better with a 9 out of 10 rating. Although its operating margin is in decline, the company has a strong Piotroski F-Score of 7 and a perfect business predictability rating of five stars.
Howard Marks (Trades, Portfolio)’ Oaktree Capital also sold its holding of preferred shares.
Other trades
Akre Capital also added to its stake in American Tower’s common stock during the quarter. It now holds 1.6% of the company’s outstanding shares, which represents roughly 13% of the firm’s portfolio. It also added to its Alarm.com Holdings Inc. (ALRM, Financial), CarMax Inc. (KMX, Financial), TD Ameritrade Holding Corp. (AMTD, Financial) and Roper Technologies Inc. (ROP, Financial) positions. It reduced its holdings of Enstar Group Ltd. (ESGR, Financial), Dollar Tree Inc. (DLTR, Financial) and Markel Corp. (MKL), among others.
The firm’s $7.2 billion portfolio, which is composed of 22 holdings, is largely invested in the information technology and financial services sectors. According to its fact sheet, the Akre Focus Fund outperformed the S&P 500 Total Return Index in 2017 with a return of 30.49%. The index posted a 21.83% return.
Disclosure: No positions.
