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Rupert Hargreaves
Rupert Hargreaves
Articles (1365)  | Author's Website |

Glenn Greenberg Buys Large Holding of Aon in 3rd Quarter

A look at the value investor's biggest 3rd-quarter trades

Glenn Greenberg (Trades, Portfolio) is one of my favorite investors. His style of investing is based around the traditional value style, i.e., buying stocks at a discount to intrinsic value. However, rather than focus on book value, for decades Greenberg has focused on a company's cash flows to calculate intrinsic value.

This style of investing is widely known and understood today. Still, when the value investor set up his first firm in 1984 with John Shapiro, it was still a bit of a niche strategy. So, while many other investors pursue a similar style today, I think Greenberg stands out for his experience and track record. There are only a handful of other fund managers that have such an outstanding four-decade track record.

Greenberg's favorite stocks

According to the latest 13F filing of Greenberg's firm, Brave Warrior, the value-focused manager has been busy this year. The firm increased its holdings of several fundamental positions and added some new stocks to the portfolio during the three months to the end of September.

The biggest change in the portfolio was the acquisition of Aon Corp. (NYSE:AON). Brave Warrior acquired a total of 1.3 million shares in this business during the quarter. There was no holding before these acquisitions. It is now the second-largest holding in the portfolio with a 12.2% portfolio weight, second only to Berkshire Hathaway B Class shares (NYSE:BRK.B), which has a 14% portfolio weight.

It is not immediately clear to me why the investor decided to bulk up on Aon in the quarter. However, as I noted above, Greenberg likes to invest in companies with robust cash flows. While the professional services firm is likely to see a significant decline in earnings and cash flow this year thanks to the pandemic, last year, the group generated $1.8 billion of cash from operations and spent just $225 million on capital projects. The rest was returned to investors with dividends and share buybacks. I do not think it is unreasonable to suggest that Greenberg was investing in these cash flows at what he believed to be an attractive valuation at the time.

Aon wasn't the only position added to the portfolio in the three months. Just under 142,000 shares in Credit Acceptance Corp. (NASDAQ:CACC) were also added. This gave the position a 2.1% portfolio weight.

Credit Acceptance provides auto finance services to clients with credit history that other lenders would likely reject. Rising default rates in this sector have scared off investors. The stock dropped 50% in the second quarter before rising to a new all-time high. It then fell back from $500 to around $300. The group is expected to report a significant decline in profits this year.

Nevertheless, in the past, Credit Acceptance has always exhibited conservative underwriting standards thanks to its close relationships and profit share agreements with auto dealers. Strong cash generation has provided the group capital to reinvest, and over the past six years, book value has grown at a compound annual rate of 27%. Greenberg may be betting that the concerns about this business are overblown, and now is an excellent time to buy the stock ahead of further growth.

Finally, Greenberg also added Amazon Corp (NASDAQ:AMZN) and CDK Global (NASDAQ:CDK) to Brave Warrior's portfolio during the third quarter.

Amazon was a tiny position of just 69 shares. This implies that the firm was in the process of building the position at the end of September. 13Fs only provide a snapshot of a portfolio at any one point in time, so I think it's likely the report only captured part of the trade. The position was worth just $217,000 at the end of the quarter compared to an overall $2.2 billion portfolio value.

The CDK holding now has a 0.02% portfolio weight, making up $342,000 of the overall portfolio.

Disclosure: The author owns shares in Berkshire Hathaway.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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