Tom Gayner (Trades, Portfolio), co-CEO of Markel Corp. (MKL, Financial), disclosed this week that his five new buys for the first quarter were Guidewire Software Inc. (GWRE, Financial), American Airlines Group Inc. (AAL, Financial), Eastman Chemical Co. (EMN, Financial), Lamar Advertising Co. (LAMR, Financial) and Twitter Inc. (TWTR, Financial).
Managing a portfolio of 131 stocks, Gayner operates with a margin of safety in his company’s investment portfolio. The chief investment officer of the Richmond, Virginia-based insurance company detailed in his 2019 annual report a four-part discipline for investing in stock equities: a good rate of return with low leverage, solid management team with high talent and integrity, capability to grow organically or pay dividends and attractive valuations.
Markel’s investing discipline closely aligns with Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio)’s four-criterion approach: understandable business, favorable long-term prospects, operated by honest and competent management and available at attractive prices. Gayner mentioned in his annual report that Markel has “consistently followed” its investing discipline over the decades, resulting in strong returns, including a five-year average return of 11.7% and a 10-year average return of 15.2%.
As of quarter-end, Markel’s $5.31 billion equity portfolio has a 3% quarterly turnover ratio and a 36.47% weight in financial services, its largest sector in terms of portfolio weight. Other sectors with over 10% equity weight include consumer cyclical, industrials and communication services, with weights of 18.70%, 13.25%, and 10.25%.
Guidewire Software
Gayner purchased 13,000 shares of Guidewire Software, giving the position 0.02% equity portfolio weight. Shares averaged $104.94 during the first quarter.
The Foster City, California-based company provides property and casualty insurers with software solutions like its flagship product InsuranceSuite, policy management system PolicyCenter and billing management system BillingCenter. GuruFocus ranks Guidewire’s financial strength 6 out of 10: The company has a strong Altman Z-score of 7.82 and an equity-to-asset ratio that outperforms over 75% of global competitors despite a weak Piotroski F-score of 2 and debt ratios underperforming over 56% of global software companies.
American Airlines
Gayner purchased 55,000 shares of American Airlines, giving the holding 0.01% weight in the equity portfolio.
Although shares of American averaged $23.07 during the first quarter, shares of the Fort Worth, Texas-based airline closed on Monday at $9.82, a 7.71% nosedive from Friday's close of $10.64 and near a 52-week low of $9.09.
Buffett announced during his conglomerate’s annual shareholder meeting last Saturday that Berkshire sold its $4 billion stake in airlines, including American, United Airlines Holdings Inc. (UAL, Financial), Southwest Airlines Co. (LUV, Financial) and Delta Air Lines Inc. (DAL, Financial), citing that “the world has changed” for the airline industry as airlines saw demand evaporate as Covid-19 prompted governments worldwide to enforce “shelter-in-place” orders. The Berkshire CEO confirmed the transaction during the question-and-answer section of the meeting, adding that Berkshire seldom trims holdings and “takes half measures” when things change.
Eastman Chemical
Gayner purchased 6,000 shares of Eastman Chemical, with shares averaging $64.82 during the first quarter.
The Kingsport, Tennessee-based company produces specialty chemicals around the globe, with a strong presence in Asian markets. GuruFocus ranks Eastman’s profitability 8 out of 10 on several positive investing signs, which include a return on equity that outperforms over 74% of global competitors and an operating margin that has increased approximately 0.30% per year on average over the past five years and is outperforming over 78% of global chemical producers.
Lamar Advertising
Gayner purchased 8,500 shares of Lamar Advertising, with shares averaging $81.14 during the first quarter.
The Baton Rouge, Louisiana-based real estate investment trust leases advertising space on billboards, buses, benches, logo plates and in airport terminals. GuruFocus ranks the REIT’s profitability 8 out of 10 on the heels of operating margins that are increasing approximately 5% per year on average over the past five years despite underperforming over 74% of global competitors. Other positive investing signs include a solid business predictability rank of 3.5 stars and a return on assets that outperforms over 80% of global competitors.
Gayner purchased 8,500 shares of Twitter, with shares averaging $32.44 during the first quarter.
Twitter operates a social media platform for text, image and video content. According to GuruFocus, Twitter’s net margin and return on assets are outperforming 94.77% and 81.69% of global competitors.
Disclosure: Author is long American and Southwest.
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