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The Top 5 Buys of the Tweedy Browne Global Value Fund

Fund releases 1st-quarter portfolio

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Sydnee Gatewood
Apr 09, 2020
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The

Tweedy Browne (Trades, Portfolio) Global Value Fund disclosed earlier this week that it established 10 new holdings during the first quarter.

Part of New York-based Tweedy, Browne Co. LLC, the fund’s management team invests in a diverse number of undervalued companies from developed countries around the world in order to achieve long-term capital growth.

Based on these criteria, the fund’s top five new buys for the quarter were Basf SE (

XTER:BAS, Financial), Autoliv Inc. (OSTO:ALIV SDB), Yamaha Motor Co. Ltd. (TSE:7272, Financial), Astellas Pharma Inc. (TSE:4503, Financial) and Shanghai Mechanical & Electrical Industry Co. Ltd. (SHSE:600835) during the quarter.

Basf

The fund invested in 1.3 million shares of Basf, allocating 1.18% of the equity portfolio to the stake. The stock traded for an average price of 57.19 euros ($62.49) per share during the quarter.

The German chemical company has a market cap of 42.31 billion euros; its shares closed at 45.67 euros on Wednesday with a price-earnings ratio of 5.03, a price-book ratio of 1.03 and a price-sales ratio of 0.72.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 8 out of 10, however, leans more toward undervaluation since the share price and price ratios are near multiyear lows.

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GuruFocus rated Basf’s financial strength 5 out of 10. Although the company has issued approximately 2.9 billion euros in new long-term debt over the past three years, it is still at a manageable level as a result of sufficient interest coverage. The Altman Z-Score of 2.22, however, indicates the company is under some financial pressure since the forward price-earnings ratio implies its earnings are in decline.

Despite the operating margin being in decline, the company’s profitability scored a 7 out of 10 rating. Basf is being supported by strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6 that implies operations are stable. The business predictability rank of one out of five stars is on watch as a result of the company’s revenue declining over the last five years. According to GuruFocus, companies with this rank typically see their stocks return an average of 1.1% per annum over a 10-year period.

Of the gurus invested in Basf, the

Causeway International Value (Trades, Portfolio) Fund has the largest stake with 0.37% of outstanding shares. Bernard Horn (Trades, Portfolio) and the Signature Select Canadian Fund (Trades, Portfolio) also have positions in the stock.

Autoliv

The Global Value Fund picked up 661,300 shares of Autoliv, dedicating 0.59% of the equity portfolio to the holding. During the quarter, the stock traded for an average price of 669.61 Swedish krona ($67.18) per share.

The Swedish company, which is the world’s largest automotive safety supplier, has a market cap of 46.12 billion krona; its shares closed at 528.2 krona on Wednesday with a price-earnings ratio of 10.31, a price-book ratio of 2.25 and a price-sales ratio of 0.56.

According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rating of 5 out of 10, however, leans more toward overvaluation.

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Autoliv’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has a level of comfortable interest coverage, the Altman Z-Score of 2.8 suggests it is under some financial stress.

The company’s profitability fared a bit better, scoring a 7 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of industry peers and a moderate Piotroski F-score of 6. Autoliv’s one-star business predictability rank is on watch, however.

With 0.76% of its outstanding shares,

Tweedy Browne (Trades, Portfolio) is the company’s largest guru shareholder. The Oakmark Intl Small Cap (Trades, Portfolio) Fund is also invested in the stock.

Yamaha Motor

The fund opened a 2.39 million-share stake in Yamaha Motor, giving it 0.56% space in the equity portfolio. Shares traded for an average price of 1,833.29 yen ($16.88) each during the quarter.

The Japanese manufacturer of motorcycles and other off-road vehicles has a market cap of 452.03 billion yen; its shares closed at 1,294 yen on Wednesday with a price-earnings ratio of 5.97, a price-book ratio of 0.65 and a price-sales ratio of 0.26.

Based on the Peter Lynch chart, the stock appears to be undervalued. The GuruFocus valuation rank of 9 out of 10 also supports this assessment.

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GuruFocus rated Yamaha’s financial strength 6 out of 10. Although the company has issued 11.4 billion yen in new long-term debt over the past three years, it is at a manageable level due to a comfortable level of interest coverage. The Altman Z-Score of 2.57, however, suggests it is under some financial pressure.

The company’s profitability scored a 7 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 4. Yamaha also has a one-star business predictability rank, which is on watch as a result of a slowdown in revenue per share growth over the past 12 months.

The Global Value Fund is now Yamaha’s largest guru shareholder with 0.69% of its outstanding shares. The

Matthews Japan Fund (Trades, Portfolio) also owns the stock.

Astellas Pharma

Tweedy, Browne purchased 1.78 million shares of Astellas Pharma, expanding the equity portfolio by 0.53%. During the quarter, the stock traded for an average per-share price of 1,788.77 yen.

The Japanese pharmaceutical company has a market cap of 3.16 trillion yen; its shares closed at 1,699.5 yen on Wednesday with a price-earnings ratio of 14.49, a price-book ratio of 2.43 and a price-sales ratio of 2.5.

The Peter Lynch chart shows the stock is trading near its fair value. The GuruFocus valuation rank of 3 out of 10, however, indicates the company is overvalued.

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Boosted by no long-term debt and high interest coverage, Astellas’ financial strength was rated 9 out of 20 by GuruFocus. The Altman Z-Score of 4.86 also indicates the company is in good financial standing.

The company’s profitability scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 6. Despite having recorded a slowdown in revenue per share growth over the past year, Astellas also has a one-star business predictability rank.

With a 1.45% stake, the

Vanguard Health Care Fund (Trades, Portfolio) is the company’s largest guru shareholder. Charles de Vaulx (Trades, Portfolio) and the IVA International Fund (Trades, Portfolio) also have positions in the stock.

Shanghai Mechanical & Electrical Industry

The fund bought 7.8 million Class A shares of Shanghai Mechanical & Electrical. The trade had an impact of 0.29% on the equity portfolio. During the quarter, shares traded for an average price of 15.4 yuan ($2.19) each.

The Chinese company, which manufactures elevators, printing and packaging machinery, artificial boards and air conditioners, has a market cap of 12.96 billion yuan; its shares were trading around 14.02 yuan on Thursday with a price-earnings ratio of 13.02, a price-book ratio of 1.24 and a price-sales ratio of 0.64.

According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 6 out of 10 also supports this assessment since the price-book and price-sales ratios are near multiyear lows.

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GuruFocus rated Shanghai Mechanical & Electrical Industry’s profitability 8 out of 10 on the back of a high cash-debt ratio of 168.39. The Altman Z-Score of 1.79 warns the company is in financial distress and could be at risk of going bankrupt.

The company’s profitability scored an 8 out of 10 rating, driven by an expanding operating margin, returns that outperform at least half of its competitors and a moderate Piotroski F-Score of 5. Its one-star business predictability rank is also on watch.

The Global Value Fund holds 0.48% of the company’s outstanding shares.

Additional trades and portfolio performance

During the quarter, the portfolio managers also established positions in CK Hutchison Holdings Ltd. (HKSE:00001), Kuraray Co. Ltd. (TSE:3405), the Class B stock of Shanghai Mechanical & Electrical Industry (SHSE:900925), Dongsuh Companies Inc. (XKRX:026960) and Adeka Corp. (TSE:4401).

Nearly half of the Global Value Fund’s $5.15 billion equity portfolio, which is composed of 87 stocks, is invested in the consumer defensive and financial services sectors.

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According to Tweedy, Browne’s website, the fund returned 14.63% in 2019, underperforming the MSCI EAFE Index’s 22.01% return.

Disclosure: No positions.

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