A Look at Glenn Greenberg's Favorite Quality Value Stocks

The value investor likes to buy high-quality cash flows at a low price

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Aug 20, 2020
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Glenn Greenberg (Trades, Portfolio) manages the portfolio at his investment firm, Brave Warrior Advisors. I started following Greenberg years ago as his approach to investing made much sense to me.

Greenberg's strategy is based on the traditional value investing style but focused on cash flows rather than asset values. This style of investing is widely known and understood today, but when the value investor set up his first firm in 1984 with John Shapiro, it was still a bit of a niche strategy (the firm was renamed Brave Warrior in 2010 when the partners split up).

Greenberg predicts a company's intrinsic value using a discount cash flow analysis. Typically, he uses a double-digit discount rate to provide a conservative estimate of intrinsic value.

Brave Warrior's latest 13F filing shows the stocks the fund has been buying recently. It's likely Greenberg bought these positions based at least in part on the method detailed above. This suggests that he thought they were undervalued based on their future cash flows.

As such, the report could be a great starting point for further research for investors who're looking for undervalued cash-generative assets to buy.

The largest holding in the portfolio at the end of the second quarter, according to the 13F filing, was Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial). Greenberg added to this holding during the three months to the end of June. He increased the holding by nearly 20%, taking it up to 18.3% of the overall portfolio. He started buying B shares of the company in the second quarter of 2019, paying an estimated price of somewhere between $178.51 to $213 by my calculations.

The second and third most significant holdings in the portfolio at the end of the second quarter were Google's parent company Alphabet Inc. (GOOGL, Financial) and healthcare business Anthem Inc. (ANTM, Financial), respectively. Although Brave Warrior reduced its positions in these two stocks during the second quarter, they still make up 11.6% and 10% of the portfolio.

The two other top-five holdings at the end of June were JPMorgan (JPM, Financial) and Primerica (PRI, Financial).

These top five holdings in the portfolio provide a good example of the kind of investment strategy Greenberg has employed throughout his career. These are all good quality companies, as determined by profit margins and return on invested capital, which he has acquired at attractive prices.

There was only one new edition to the Brave Warrior portfolio in the second quarter. Greenberg and his team added the low-cost airline group Ryanair Holdings PLC (RYAAY, Financial), buying nearly 250,000 shares and giving the holding a 0.8% portfolio weight.

Ryanair has some of the hallmarks of a traditional Greenberg stock. The airline group is one of the most successful in Europe and has been able to grab market share by offering customers flights at some of the lowest costs around. It is also extraordinarily well-run and does not spend money on anything it does not need to. This has created some friction with customers, but for the most part, they accept these issues, favoring the low cost over high-quality service.

Like every other airline in the world, Ryanair has been hit by the Covid-19 crisis, but it is better positioned than most to stage recovery, especially if there is a recession or depression in the years ahead. It has a strong balance sheet, strong brand and a low-cost base. These qualities are few and far between amongst other European (and worldwide) carries. The company has also returned large amounts of cash to investors in the past with special dividends. This cash generation likely attracted Greenberg to the stock.

Disclosure: The author owns shares in Berkshire Hathaway.

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