Mason Hawkins

Mason Hawkins

Last Update: 11-16-2017

Number of Stocks: 28
Number of New Stocks: 2

Total Value: $8,317 Mil
Q/Q Turnover: 5%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

Mason Hawkins Watch

  • Longleaf Partners Comments on EXOR

    Other examples of multi-industry complexity and change in focus include EXOR2,4 and Graham Holdings3. Ten years ago, many viewed EXOR (MIL:XO) as a way to own Fiat, a car company with limited models and distribution. But Chairman and CEO John Elkann and Vice Chairman Sergio Marchionne successfully split Fiat into its better recognized parts of Ferrari, Fiat Chrysler Automobiles, and CNH Industrial. Last year, the purchase of PartnerRe made it the largest part of EXOR’s value, thereby requiring reinsurance industry knowledge to properly analyze the company. Our generalist team could quickly incorporate the value of this significant acquisition into our EXOR case given the analysts’ coverage of previous reinsurance investments such as Everest Re, Odyssey RE within Fairfax, and Berkshire Reinsurance within Berkshire Hathaway. To appraise Graham Holdings, formerly The Washington Post, knowledge of the newspaper and cable industries (the two largest parts that the company sold and spun out, respectively) is of limited help in determining the value for the remaining disparate businesses of television stations, for-profit education, industrial companies, and other ventures. Our history of analyzing each segment of the company as well as our experience as generalists covering multiple related businesses allowed us to quickly assess Graham’s worth as the company changed focus.


    From Longleaf Partners' 3rd quarter 2017 shareholder commentary.

      


  • Southeastern Asset Management Says Watsa's Fairfax Was 'Deeply Discounted' Earlier in Year

    Prem Watsa, Mason Hawkins - Southeastern Asset Management Says Watsa's Fairfax Was 'Deeply Discounted' Earlier In Year

    In a letter released Friday, Mason Hawkin’s Southeastern Asset Management said it believed Prem Watsa (Trades, Portfolio)’s Canadian insurer Fairfax Financial (TSX:FFH) was “deeply discounted” as the price tumbled earlier in the year.


    The Longleaf Fund, which is advised by Southeastern, discussed the company in context of investing in great managers.

      


  • Longleaf Partners 3rd Quarter Shareholder Letter

    Mason Hawkins - Longleaf Partners 3rd Quarter Shareholder Letter

    In the third quarter, we compounded our shareholders’ capital across all four Longleaf Partners Funds. Performance gains, however, were somewhat muted by the larger-than-normal cash held across the Funds. Markets outside of the U.S. led year-to-date returns throughout 2017, but U.S. small cap stocks beat both U.S. large cap and non-U.S. markets in the third quarter following the September small cap rally associated with prospective corporate tax cuts. Longleaf International Fund outperformed EAFE. In the Longleaf Partners, Longleaf Partners Small-Cap, and Longleaf Partners Global Funds, which underperformed their relevant indices, our largest holding, Level 3 Communications (NYSE:LVLT),1,2,3 was the primary source followed by the cash headwind. LVLT will become a more normal weight when CenturyLink (NYSE:CTL) closes its purchase of LVLT, paying cash for approximately half of the acquisition. In the quarter, LVLT’s price reflected concerns about final deal approvals and a potential CTL dividend cut post-deal. We anticipate that the deal will close, the prospective cash flow will easily cover the dividend, and the new CTL will be the preeminent global fiber network solutions company with an extraordinarily capable management team.


    With the ongoing multi-year bull market in the U.S. and the more recent rise in global markets, finding meaningfully discounted strong businesses led by good management partners has become more challenging. We have trimmed or sold numerous successful investments over the last year but found few qualifying replacements. Our cash levels, therefore, remain our largest positions across all four Funds as we adhere to our multi-decade discipline – when nothing meets our criteria, we patiently wait rather than putting capital at a higher risk of loss by compromising on the margin of safety.

      


  • Can Mason Hawkins Get Back to Beating the Benchmark?

    Mason Hawkins - Can Mason Hawkins Get Back To Beating The Benchmark?

    “The best thing we can report about Longleaf’s 2002 results, I guess, is the fact that they are over.”  Mason Hawkins

      


  • Longleaf Partners Comments on STADA Arzneimittel

    We exited STADA Arzneimittel (XTER:SAZ), the German maker of numerous over-the-counter medicine brands as well as generic drugs. Price reached our appraisal when the Board of Directors recommended a purchase offer from a private equity consortium. This investment is a good example of the difference that good partners make. For 20 years STADA was a serial underperformer with entrenched management poorly allocating capital and running the company as a personal fiefdom. We followed the company and liked its strong brands and discounted price but could not get comfortable with the people. In 2016, a German activist group got involved and changed management and most of the board. We started our position in November of 2016; private equity obviously was seeing the same opportunity. The company’s new board and executives oversaw a disciplined, rational process that resulted in a good sale price and a nearly 50% gain for the Fund in less than 6 months. We also sold our stake in Genting Singapore, the casino company with a duopoly in Singapore and controlled by Genting Berhad. The stock reached our appraisal as the company reported a strong quarter. Hold-adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose around 45% year-over-year (YOY), beating market expectations by a wide margin. The company gained mass market share. Write-downs on VIP receivables fell over 80% YOY, and management’s statements regarding the balance sheet implied a lower level of bad debt provisions going forward. The company also announced its intention to redeem S$2.3 billion of perpetual securities which would save almost S$120 million in interest costs. In our 19 month holding period, Genting Singapore generated a 52% return.


    From Longleaf Partners' second quarter 2017 International Fund shareholder commentary.

      


  • Longleaf Partners Comments on Fairfax Financial

    We bought one new company which is undisclosed as we hope to build a more meaningful stake. We increased the Fund’s position in Fairfax Financial (TSX:FFH), a Canadian based insurance and reinsurance operator that we began buying in the first quarter. The Fund previously owned the company for over a decade with a successful outcome. CEO and Founder Prem Watsa (Trades, Portfolio) has continued to increase Fairfax’s value since we sold the stock in 2012. Fairfax is underwriting more successfully than when we previously owned it, is about to complete a value-accretive merger with Allied World, and still has the investing prowess of Watsa and his team. Because the merger is on the come and Watsa is holding a large amount of cash that is not producing significant income, near-term reported earnings per share are well below the company’s long run earnings power. We are excited to partner with Watsa at Fairfax again.


    From Longleaf Partners' second quarter 2017 International Fund shareholder commentary.

      


  • Longleaf Partners Comments on OCI

    OCI (XAMS:OCI) (+14%; +0.83%), the global nitrogen fertilizer and methanol producer, contributed positively to results in the quarter. Improved prices and volumes for related commodities led to greatly increased cash flow year-over-year. The company’s Iowa fertilizer plant began operating in April, which showed the market that this formerly non-earning asset is now about to produce significant earnings. OCI also made progress bringing its new methanol plant (“Natgasoline”) closer to its fourth quarter completion date. Late in the quarter, OCI’s stock price responded positively to rumors of private equity interest in the company. We are confident that our proven, aligned partner, Chairman Nassef Sawiris, will navigate any strategic outcome in a way that maximizes shareholder value.


    From Longleaf Partners' second quarter 2017 International Fund shareholder commentary.

      


  • Longleaf Partners Comments on Cheung Kong Property

    Cheung Kong Property (HKSE:01113) (+19%, +0.87%), the Hong Kong and China real estate company, was another notable contributor. The company achieved strong volumes of residential property sales in both countries. In the first half of 2017, Cheung Kong Property was the largest seller of residential property in Hong Kong. Additionally, the value of Cheung Kong Property’s commercial Hong Kong properties was highlighted with the sale by the government of the comparable Murray Road property across from Cheung Kong Property’s Hutchison House. The transaction fetched a land premium that implied a price of HK$50k per square foot (psf) on a gross floor area (GFA) basis and a cap rate of less than 3%. Our appraisal of Hutchison House is around HK$16k psf, which reflects the 5% cap rate we use to appraise Cheung Kong Property’s office properties in Central, Hong Kong. Cheung Kong Property will begin redevelopment of Hutchison House which will allow the company to substantially increase the plot ratio from the current 22 story building to 38 floors. Managing Director Victor Li built value on two fronts by selling residential properties into a high price/high demand market and aggressively buying in Cheung Kong Property’s undervalued stock. YTD, Cheung Kong Property paid HK$6.9 billion to repurchase ~3.3% of outstanding shares at a substantial discount to our appraisal. In May the company closed its acquisition of Duet in Australia. In the same month, Cheung Kong Property took advantage of the low interest rate environment and issued US$1.5 billion 4.6% guaranteed senior perpetual capital securities, which are being used to repurchase additional shares.

      


  • Longleaf Partners Comments on Yum China

    Yum China (NYSE:YUMC) (+45%, +2.17%), the operator of KFC and Pizza Hut restaurants in China, also helped drive Fund performance. The company reported its first full quarter as a newly spun off independent company, and significantly exceeded expectations for operating margins. In addition to helping current results, this margin strength has ramifications for the future value of stores to be developed. Both the reported results and YUM China’s acquisition of online food delivery service Daojia, helped investors begin to realize that the enormous amount of meal delivery in China could end up being an additive weapon instead of a competitive threat for the company’s store base. With the stock’s significant gains, we reduced YUM China’s portfolio weight, but we believe management will continue to drive attractive value growth.

      


  • Longleaf Partners Comments on Melco International

    Melco International (HKSE:00200) (+52%; +2.83%), the Asian casino and resort holding company, was a primary contributor to performance as investors were encouraged by the accelerating recovery pace of industry gross gaming revenue (GGR) in Macau. GGR rose 17% in the first six months with May up 24% and June up 26%. Melco International’s substantial holding company discount to the market value of its 51% stake in Melco Resorts, which operates the casinos, shrank considerably this year, as Melco International consolidated its control over Melco Resorts. The consolidation is an example of the solid stewardship of our partner, CEO Lawrence Ho. Although the stock price remains discounted, we trimmed our stake to maintain a more normal portfolio weight.


    From Longleaf Partners' second quarter 2017 International Fund shareholder commentary.

      


  • Longleaf Partners' Q2 International Fund Commentary

    Mason Hawkins - Longleaf Partners' Q2 International Fund Commentary

    Longleaf Partners International Fund returned 8.42% for the quarter, outperforming the MSCI EAFE Index’s 6.12% gain and meaningfully exceeding our annualized absolute goal of inflation plus 10%. The Fund’s year-to-date (YTD) results were a substantial 17.96% versus 13.81% for the index. Continued strength in our Asian holdings drove much of the Fund’s outperformance, as did the fact that most of the stocks in the portfolio posted gains, and there were no material detractors. The Fund’s large absolute and relative results were driven by very different factors than the index and came in spite of higher-than-normal cash level — a reminder that successful stock selection in a concentrated portfolio with high Active Share can be a winning formula.


    Asian markets continued to make notable gains, heavily fueled by the pricey Information Technology sector (particularly in China) that propelled many markets worldwide. EAFE’s largest country contribution came from heavily weighted Japan. The International Fund outperformed with no Japanese investments and minimal exposure to technology. We own a handful of Asian companies whose business results began to confirm our longer term investment cases for Macau gaming, Hong Kong real estate, and the newly spun out Yum China. Asia remains the most discounted market around the world, but stocks are no longer broadly cheap, particularly compared to twelve months ago. We trimmed several core Asian holdings but had limited opportunities to reallocate to in the region.

      


  • Longleaf Partners Comments on SEACOR Holdings

    During the quarter, SEACOR Holdings (NYSE:CKH), the provider of marine transportation services, split into two companies – SEACOR Holdings and SEACOR Marine Holdings. We sold SEACOR Holdings, since it traded at our value post-spin. We still held SEACOR Marine Holdings at quarter end, since it traded at a large discount to our value. Our relatively short SEACOR history thus far illustrates the importance of the margin of safety. In spite of reducing our appraisal after being wrong on how much lower oil and agriculture prices would impact operations, we have avoided a loss because of the deep discount we initially paid. SEACOR also highlights another improvement in our process over the last five years — we now have much higher hurdles to clear before adding to a position if the value is declining, even if the discount looks compelling. SEACOR remained a small holding over the last year because we did not add to it as the case and our appraisal changed.


    From Longleaf Partners Small Cap second quarter 2017 shareholder letter.

      


  • Longleaf Partners Comments on CONSOL Energy

    CONSOL Energy (NYSE:CNX) (-11%; -0.55%), the Appalachian natural gas and coal company, was a detractor in the quarter. The operating items within the company’s control – production, costs, and smaller asset sales – were generally positive.


    However, weaker gas prices weighed on the stock and its peers. The uncertainty around the details of how the company’s announced plans to separate its gas and coal operations will play out likely also negatively impacted the stock. Two items highlighted the value in the company’s assets. First, CONSOL’s partner in the pipeline company Cone Midstream sold its interest at a price above where we carry CONSOL’s identical assets. This both demonstrates what this asset is worth and likely brings in a new partner that will be more willing to grow Cone’s value. Second, late in the quarter Rice Energy (an Appalachian gas company which is a good comparable for CONSOL’s assets) sold to EQT Corporation at a price that implied a significantly higher value for CONSOL’s gas operations than the current stock price. CEO Nick DeIuliis and Chairman Will Thorndike remain focused on delivering the unrecognized value within CONSOL, and 2017 likely will be a pivotal year for the company.

      


  • Longleaf Partners Comments on Level 3 Communications

    Level 3 Communications (NYSE:LVLT) (+14%, +0.29%), the multinational telecommunications and Internet service provider, did not have a significant impact on the Fund’s performance but made a major announcement during the quarter. CEO Jeff Storey was named the successor to CEO Glen Post at CenturyLink, whose acquisition of Level 3 should close in a few months. With this announcement, we are thrilled that Storey’s stellar team, who created 182% in shareholder return since he took over in 2013, will be running operations at the new CenturyLink - a powerful combination of Level 3 with CenturyLink’s fiber network, most of which came through its 2011 acquisition of Qwest. Level 3 is the Fund’s largest position but will become a normal weight after the merger because at the current CenturyLink price, around 45% of the deal will be paid in cash.


    From Longleaf Partners Small Cap second quarter 2017 shareholder letter.

      


  • Longleaf Partners Comments on OCI

    OCI (XAMS:OCI) (+14%; +0.75%), the global nitrogen fertilizer and methanol producer, contributed positively to results in the quarter. Improved prices and volumes for related commodities led to greatly increased cash flow year-over-year. The company’s Iowa fertilizer plant began operating in April, which showed the market that this formerly non-earning asset is now about to produce significant earnings. OCI also made progress bringing its new methanol plant (“Natgasoline”) closer to its fourth quarter completion date. Late in the quarter, OCI’s stock price responded positively to rumors of private equity interest in the company. We are confident that our proven, aligned partner, Chairman Nassef Sawiris, will navigate any strategic outcome in a way that maximizes shareholder value.


    From Longleaf Partners Small Cap second quarter 2017 shareholder letter.

      


  • Longleaf Partners Comments on Wynn Resorts

    Wynn Resorts (NASDAQ:WYNN) (+17%, +1.03%), the luxury gaming and hotel operator with prime properties in Las Vegas, Macau, and Boston, was the largest contributor this quarter, as it was in the first quarter. As Macau’s rebound accelerated, Wynn’s Palace property continued to ramp up strongly without cannibalizing the company’s legacy Peninsula property nearly as much as the market previously feared. Wynn reported a solid quarter in Las Vegas and announced that phase one of its golf course redevelopment will be a much more prudent project than some had anticipated, once again illustrating the great partner CEO Steve Wynn has been since we invested. Construction is on track for the Boston property to open in 2019. Our appraisal grew in the quarter, but we trimmed the stock to a more normal weight as the gap between price and value narrowed.


    From Longleaf Partners Small Cap second quarter 2017 shareholder letter.

      


  • Longleaf Partners' Small-Cap Fund Commentary for 2nd Quarter 2017

    Mason Hawkins - Longleaf Partners' Small-Cap Fund Commentary For 2nd Quarter 2017

    Longleaf Partners Small-Cap Fund gained 0.98% in the second quarter. While a positive return, it trailed both our absolute return goal of inflation plus 10% and the Russell 2000 Index’s 2.46%. These results caused the Fund’s year-to-date (YTD) performance to fall barely below the index at 4.95% versus 4.99%. Most holdings grew their value, some that the market realized and some it did not.


    Holding cash in a rising market held back the Fund’s relative returns, but we feel that this bottom-up decision and long-held discipline will benefit the portfolio as we find new qualifying investment opportunities, either through individual company mispricing or when broader sentiment turns. Our energy exposure was also a detractor. The main reason for the Fund’s relative underperformance, however, was errors of omission from areas that drove the index but we see as overvalued. Information Technology and Health Care were by far the largest contributors to the index performance both this quarter and YTD, comprising the majority of the benchmark’s return for the two periods and these sectors also accounted for the majority of the Fund’s relative underperformance. The excesses of the later stages of a bull market often can be seen most in the more speculative parts of the market, and we feel that the vast majority of small cap companies in these two sectors, which make up over 30% of the Russell 2000, are exhibiting dangerous signs of overvaluation. As evidence, the Information Technology sector of the Russell 2000 is trading at a Price/Earnings (PE) multiple of 22, and Health Care is trading at 25.

      


  • Longleaf Partners Comments on Chesapeake Energy

    Chesapeake Energy (NYSE:CHK) (-16%, -0.63%), one of the largest U.S. producers of natural gas, oil, and natural gas liquids, was a detractor. Weak commodity prices impacted the oil and gas group overall, but what was most striking about Chesapeake was the stock price’s extremely high correlation to oil prices instead of natural gas prices this quarter. Although Chesapeake’s production is primarily weighted to gas, a meaningful percentage of the company’s current earnings before interest, taxes, depreciation and amortization (EBITDA) comes from oil. Additionally, oil’s importance to Chesapeake going forward has increased with much of current drilling focused on oil, especially in the Powder River Basin and Eagle Ford Shale. CEO Doug Lawler and his team will make prudent asset sales when the price and time are right, as they have done in the past, but the lack of such reported sales this quarter also weighed on the stock price.


    From Longleaf Partners Fund second quarter 2017 shareholder letter.

      


  • Longleaf Partners Comments on CONSOL Energy

    CONSOL Energy (NYSE:CNX) (-11%, -0.64%), the Appalachian natural gas and coal company, was a detractor in the quarter. The operating items within the company’s control – production, costs, and smaller asset sales – were generally positive.


    However, weaker gas prices weighed on the stock and its peers. The uncertainty around the details of how the company’s announced plans to separate its gas and coal operations will play out likely also negatively impacted the stock. Two items highlighted the value in the company’s assets. First, CONSOL’s partner in the pipeline company Cone Midstream sold its interest at a price above where we carry CONSOL’s identical assets. This both demonstrates what this asset is worth and likely brings in a new partner that will be more willing to grow Cone’s value. Second, late in the quarter Rice Energy (an Appalachian gas company which is a good comparable for CONSOL’s assets) sold to EQT Corporation at a price that implied a significantly higher value for CONSOL’s gas operations than the current stock price. CEO Nick DeIuliis and Chairman Will Thorndike remain focused on delivering the unrecognized value within CONSOL, and 2017 likely will be a pivotal year for the company.

      


  • Longleaf Partners Comments on Level 3 Communications

    Level 3 Communications (NYSE:LVLT) (+4%, +0.37%), the multinational telecommunications and Internet service provider, did not have a significant impact on the Fund’s performance but made a major announcement during the quarter. CEO Jeff Storey was named the successor to CEO Glen Post at CenturyLink, whose acquisition of Level 3 should close in a few months. With this announcement, we are thrilled that Storey’s stellar team, who created 182% in shareholder return since he took over in 2013, will be running operations at the new CenturyLink — a powerful combination of Level 3 with CenturyLink’s fiber network, most of which came through its 2011 acquisition of Qwest. Level 3 is the Fund’s largest position but will become a normal weight after the merger because at the current CenturyLink price, around 45% of the deal will be paid in cash.


    From Longleaf Partners Fund second quarter 2017 shareholder letter.

      


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