In its portfolio for the first quarter, which was released earlier this week, Tweedy Browne (Trades, Portfolio) disclosed three new holdings.
The New York-based firm, which has been operating for a century, is an investment partnership that is owned and operated by its four managing directors, William H. Browne, John D. Spears, Thomas H. Shrager and Robert Q. Wyckoff Jr. Deriving its investment approach from the work of Benjamin Graham, the firm oversees around $4.5 billion in assets through four unique mutual funds. Each of the portfolios is managed according to the same value principles with an emphasis on seeking undervalued stocks.
In their first-quarter letter to shareholders, the directors said that while chaotic market conditions took a toll on their portfolio, it also presented attractive pricing opportunities that they took advantage of, which, in their view, is “the essence of successful long-term investing.” While being “thoughtful, deliberate and somewhat incremental,” the firm established positions in Autoliv Inc. (ALV, Financial), Delta Air Lines Inc. (DAL, Financial) and Applied Industrial Technologies Inc. (AIT, Financial) during the quarter.
Autoliv
In its largest trade of the quarter, Tweedy Browne invested in 1.15 million shares of Autoliv, allocating 2.45% of the equity portfolio to the stake. The stock traded for an average price of $69.23 per share during the three-month period ended March 31.
The Swedish supplier of automotive safety products like airbags and seatbelts has a $4.85 billion market cap; its shares were trading around $53.37 on Thursday with a price-earnings ratio of 11.42, a price-book ratio of 2.39 and a price-sales ratio of 0.59.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The GuruFocus valuation rank of 4 out of 10, however, leans more toward overvaluation.
GuruFocus rated Autoliv’s financial strength 5 out of 10 on the back of adequate interest coverage. The Altman Z-Score of 2.74, however, indicates it is under some pressure since its revenue per share has declined over the past 12 months.
The company’s profitability scored a 7 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of its competitors and a high Piotroski F-Score of 7, which implies business conditions are healthy. Autoliv also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks return an average of 1.1% per annum over a 10-year period.
With its purchase of a 1.31% stake, Tweedy Browne is now Autoliv’s largest guru shareholder. Pioneer Investments (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) also have positions in the stock.
Delta Air Lines
The firm picked up 927,620 shares of Delta Air Lines, dedicating 1.23% of the equity portfolio to the position. Shares traded for an average price of $50.04 each during the quarter.
The airline, which is headquartered in Atlanta, has a market cap of $12.38 billion; its shares were trading around $18.56 on Thursday with a price-earnings ratio of 3.6, a price-book ratio of 0.87 and a price-sales ratio of 0.28.
According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 10 out of 10 supports this assessment as the price multiples are all near five- to 10-year lows.
Delta’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has sufficient interest coverage, the Altman Z-Score of 1.1 warns it is in distress and could be in danger of going bankrupt.
The company’s profitability fared better with a 7 out of 10 rating. In addition to an expanding operating margin, Delta is being supported by strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 5, which indicates conditions are stable. The one-star business predictability rank is on watch, though, as the Covid-19 pandemic has hampered its operations.
Of the many gurus invested in Delta, PRIMECAP Management (Trades, Portfolio) has the largest stake with 4.48% of outstanding shares. Other top guru shareholders include Pioneer, NWQ Managers (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Tom Gayner (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Ronald Muhlenkamp (Trades, Portfolio) and Dalio.
Applied Industrial Technologies
The investment firm entered a 56,686-share holding of Applied Industrial Technologies, giving it 0.12% space in the equity portfolio. During the quarter, the stock traded for an average per-share price of $59.55.
The Cleveland-based distributor of bearings, power transmission products, engineered fluid power, specialty flow control solutions and other industrial supplies has a $1.81 billion market cap; its shares were trading around $46.95 on Thursday with a price-earnings ratio of 55.02, a price-book ratio of 2.18 and a price-sales ratio of 0.54.
Based on the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 5 out of 10 is also inclined toward overvaluation.
GuruFocus rated Applied Industrial Technologies’ financial strength 5 out of 10. Along with sufficient interest coverage, the Altman Z-Score of 3.54 suggests the company is in good standing even though its assets are building up at a faster rate than revenue is growing, which is indicative of it becoming less efficient. Additionally, the return on invested capital is less than the weighted average cost of capital, which suggests a lack of profitability.
Regardless, the company’s profitability scored an 8 out of 10 rating as it has an expanding operating margin. Its returns, however, underperform over half of its competitors. Applied Industrial Technologies also has a moderate Piotroski F-Score of 5 and a three-star business predictability rank that is on watch as a result of slowing revenue growth over the past year. GuruFocus says companies with this rank typically return 8.2% per year on average.
Chuck Royce (Trades, Portfolio) is the company’s largest guru shareholder with 0.53% of outstanding shares. Other gurus invested in the stock are Pioneer, Simons’ firm, Barrow, Hanley, Mewhinney & Strauss, Greenblatt and Jeremy Grantham (Trades, Portfolio).
Additional trades and portfolio performance
During the quarter, the firm also expanded its holdings of Coca-Cola Femsa SAB de CV (KOF, Financial), Fox Corp. (FOX, Financial), Berkshire Hathaway Inc. (BRK.B, Financial), 3M Co. (MMM, Financial), U.S. Bancorp (USB, Financial), CNH Industrial NV (CNHI, Financial) and American Express Co. (AXP, Financial), among others.
Over half of Tweedy Browne’s $2.16 billion equity portfolio, which is composed of 46 stocks, is invested in the financial services and communication services sectors.
According to GuruFocus data, the Value Fund returned 16.05% in 2019, underperforming the 31.48% return of the S&P 500.
Disclosure: No positions.
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