Looking to support growth in the company’s insurance operations, Markel Corp. (MKL, Financial) co-CEO Tom Gayner (Trades, Portfolio) said in a July 29 earnings call that he significantly reduced the Virginia-based insurance company’s exposure to publicly-traded securities during the strong market rally of the second quarter. Among Gayner’s double-digit sale transactions, the top five divestments in terms of portfolio weight were CarMax Inc. (KMX, Financial), Marriott International Inc. (MAR, Financial), Walgreens Boots Alliance Inc. (WBA, Financial), Automatic Data Processing Inc. (ADP, Financial) and Anthem Inc. (ANTM, Financial).
Guru cuts back on equity exposure following strong market rally
Gayner said during the earnings call that Markel’s individual equity purchase and sale decisions stem from a four-step process that mirrors that of Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio): “good returns on capital with not too much debt, run by managers with equal measures of talent and integrity, with reinvestment opportunities and capital discipline at fair prices.” Equity positions in Markel’s investment portfolio gained 18% during the second quarter as the U.S. market rallied during May and June on the economy reopening across the nation. The second-quarter gains offset the first-quarter decline of 22%; equity losses now stand at approximately 8.40% year to date.
Gayner then discussed that given the growth in opportunities to increase insurance premiums and the “tough combination” of first-quarter equity losses and effects on tangible capital, he decided to “reduce [the company’s] exposure” to publicly-traded equities during the second-quarter market rally, selling out of over 15 positions total.
CarMax
Gayner sold 4,913,070 shares of CarMax, knocking 4.98% off the equity portfolio. Shares averaged $77.86 and gained approximately 70% during the second quarter.
The Richmond, Virginia-based company sells, finances and services used and new cars through a network of over 200 retail stores. GuruFocus ranks the company’s profitability 7 out of 10: Even though operating margins have declined and are underperforming over 59% of global competitors, CarMax has consistent revenue growth, as evidenced by its four-star business predictability rank.
Gurus with large holdings in CarMax include PRIMECAP Management (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio) and Chuck Akre (Trades, Portfolio)’s Akre Capital Management.
Marriott
Gayner sold 1,592,769 shares of Marriott, trimming the equity portfolio 2.24%. Shares averaged $86.65 and gained approximately 25.26% during the second quarter.
The Bethesda, Maryland-based company operates a wide range of hotel brands, including Marriott, Courtyard and Sheraton. GuruFocus ranks the company’s profitability 7 out of 10 on the back of expanding operating margins and a return on assets that outperforms over 70% of global competitors.
Walgreens
Gayner sold 1,782,500 shares of Walgreens, trimming the equity portfolio 1.53%. Shares averaged around $42.49 and took a 3.93% loss during the second quarter.
GuruFocus ranks the Deerfield, Illinois-based health care provider’s profitability 8 out of 10 on the back of a four-star business predictability rank and a three-year revenue growth rate that outperforms over 63% of global competitors. Despite this, operating margins have declined and are underperforming over 64% of global health care peers.
Automatic Data Processing
Gayner sold 530,700 shares of Automatic Data Processing, trimming the equity portfolio 1.37%. Shares averaged $142.98 and gained 15.65% during the second quarter.
GuruFocus ranks the Roseland, New Jersey-based payroll processor’s profitability 8 out of 10 on several positive investing signs, which include consistent revenue growth and an operating margin that has increased approximately 3.4% per year on average over the past five years and is outperforming over 89% of global competitors.
Anthem
Gayner sold 174,000 shares of Anthem, trimming the equity portfolio 0.74%. Shares averaged $265.97 and gained 25.82% during the second quarter.
GuruFocus gives the Indianapolis-based health care company a four-star predictability rank on the heels of strong and consistent revenue and earnings growth over the past 10 years.
Disclosure: No positions.
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