Lou Simpson (Trades, Portfolio), an investor renowned for his work at Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), slashed his positions in Cable One Inc. (CABO, Financial) and Allison Transmission Holdings Inc. (ALSN, Financial), his portfolio’s largest stake, he disclosed Thursday.
Simpson won accolades from Warren Buffett (Trades, Portfolio) when he managed the $4 billion portfolio of Geico, a Berkshire subsidiary. After retiring from Geico in 2010, he founded SQ Advisors, a firm with around $3.1 billion in assets under management as of early 2018. In an interview with Kellogg School of Management at Northwestern University, he said he buys “good businesses” with a focus on return on capital, returns, management, long-term value creation and treatment of shareholders. As of Dec. 31, SQ Advisors had only 10 stocks in its portfolio.
Filings date both of Simpson’s recent sales to March 31. The investor reduced 54.3% of his holding of Allison Transmission, axing 4,503,293 shares. The move shrank its weighting in his portfolio to 6.23% from 13.9%.
Shares of the company, which creates transmissions for commercial and defense vehicles, closed at $47.34 Friday, up 6.47% year to date. Simpson started his position in the second quarter of 2016 when the price averaged around $28. GuruFocus estimates his total estimated gain on the investment stands near 37%.
Simpson is letting go of Allison Transmission shares soon after the company reported record results for full-year 2018. The company announced record net sales of $2.71 billion, reflecting 19.9% growth from the prior year. Net income increased 27% year-over-year to a record $639 million, or $4.81 per share. Allison Transmission issued lower full-year 2019 guidance of $2.58 billion to $2.68 billion for revenue and $535 million to $585 million for net income.
“Our 2019 net sales guidance reflects lower demand in the North America Off-Highway and Service Parts, Support Equipment & Other end markets principally driven by hydraulic fracturing applications partially offset by increased demand in the North America On-Highway end market, price increases on certain products and continued execution of our growth initiatives,” the company said in a statement.
Sales in the company’s North American Off-Highway segment, its worst performing, fell 39% in the fourth quarter, driven by weakness in hydraulic fracturing demand.
With Simpson’s reduction in Allison Transmission, Liberty Broadband Corp. (LBRDK, Financial) rose to his top holding.
Simpson also sold 55.01% of his stake in Cable One Inc., a telecommunications provider that inhabited the fifth-largest place in his portfolio. The investor unloaded 189,029 shares of the company, leaving him with 154,609 shares. Its portfolio weighting slimmed to 6.23% from 10.76%.
Shares of the company closed at $1,016.85 Friday after climbing 28% year to date. Simpson started the position in the third quarter of 2016 when the stock’s price averaged around $540. GuruFocus estimates his gain on the investment around 55.4% so far.
The Phoenix, Arizona-based company’s full-year 2018 financial results included an 11.7% year-over-year revenue increase to $1.1 billion. It credited the growth to strength in its residential data and business services. Net income declined to $164.8 million from $235.2 million in 2017.
The company ended the year with $264.1 million in cash, which increased from $161.8 million at year-end 2017. Its debt remained virtually unchanged at $1.2 billion at the end of both years.
Despite the strong balance sheet and profitability, Moody’s Investors Services in February highlighted one negative aspect of its business in a periodic review of the company’s credit rating.
“Constraining the rating is a weak position in video and voice services,” Moody’s analysts wrote. “Moody's expects continual decline in the company's video business with subscriber losses greater 10% annually, well above the average for the peer group. The company's weakening market position in video is reflected in below average performance, relative to its peers, with key performance indicators including the triple play equivalent ratio and Revenue per Homes Passed (RHP).”
See Lou Simpson (Trades, Portfolio)’s portfolio here.
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