Mason Hawkins' Southeastern Trims 2 Holdings

Longleaf manager reduces positions in Lazard, Liberty Formula One

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Dec 17, 2020
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Southeastern Asset Management, the investment firm founded by

Mason Hawkins (Trades, Portfolio) in 1975, disclosed it curbed its holdings in two companies last week.

To achieve long-term capital growth, the Memphis, Tennessee-based firm, which manages the Longleaf Partners Funds, invests in a concentrated number of undervalued companies that have strong balance sheets and good management teams.

According to GuruFocus Real-Time Picks, a Premium feature, the firm trimmed its Lazard Ltd. (

LAZ, Financial) stake by 22.49% and reduced its position in Liberty Formula One Group (FWONA, Financial) by 52.36% on Dec. 10.

Lazard

With an impact of -1.67% on the equity portfolio, Hawkins' firm sold 1.58 million shares of Lazard. The stock traded for an average price of $40.96 per share on the day of the transaction.

Southeastern now holds 5.45 million shares total, which represent 5.86% of the equity portfolio. GuruFocus estimates the firm has gained 2.47% on the investment since the third quarter of 2018.

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The financial advisory and asset management company, which has principle executive offices in New York and London but is headquartered in Bermuda for tax purposes, has a $4.33 billion market cap; its shares were trading around $41.26 on Thursday with a price-earnings ratio of 16.31, a price-book ratio of 6.29 and a price-sales ratio of 1.88.

The Peter Lynch chart shows the stock is trading slightly above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 8 out of 10, however, leans more toward undervaluation even though the share price and price-sales ratio are approaching two-year highs.

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GuruFocus rated Lazard's financial strength 3 out of 10. In addition to a cash-to-debt ratio that is underperforming versus its history as well as its industry, the Altman Z-Score of 1.92 indicates the company is under some pressure since the revenue per share has declined over the past 12 months.

The company's profitability fared better, scoring an 8 out of 10 rating on the back of margins and returns that are outperforming over half of its competitors. Lazard also has a moderate Piotroski F-Score of 6, which indicates operations are stable, as well as a predictability score of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Lazard,

John Rogers (Trades, Portfolio) has the largest stake with 5.24% of outstanding shares. Hawkins' firm is second with 5.2%. Ken Fisher (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Hotchkis & Wiley also have positions in the stock.

Liberty Formula One

Impacting the equity portfolio by -0.74%, the firm sold 731,873 shares of Liberty Formula One. Shares traded for an average price of $39.23 each during the quarter.

Southeastern now holds 665,859 shares total, accounting for 0.68% of the equity portfolio. GuruFocus data shows the stock has gained 25.15% on the investment since the second quarter of 2016.

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The Englewood, Colorado-based company, which promotes the FIA Formula One World Championship and exercises the sport's commercial rights, has a market cap of $9.46 billion; its shares were trading around $37.63 on Thursday with a forward price-earnings ratio of 1,220.16, a price-book ratio of 1.35 and a price-sales ratio of 7.48.

According to the price chart, the stock is overvalued since it is trading above both its median price-sales value as well as its median price-book ratio.

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Liberty Formula One's financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $146 million in new long-term debt over the past three years, the company has poor interest coverage. The low Altman Z-Score of 1.3 also warns the company could be at risk of going bankrupt if it does not improve its liquidity position.

Weighted down by negative margins and returns that underperform a majority of industry peers, the company's profitability scored a 2 out of 10 rating. While the moderate Piotroski F-Score of 4 indicates operations are stable, Liberty Formula One has recorded declines in revenue per share over the past year and losses in operating income over the past three years.

With 0.29% of outstanding shares, Hawkins' firm is the company's largest guru shareholder. Other gurus who own the stock are

Jim Simons (Trades, Portfolio)' Renaissance Technologies, Ruane Cunniff (Trades, Portfolio), Ron Baron (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).

Portfolio composition and performance

Southeastern's $3.88 billion equity portfolio, which was composed of 29 stocks as of Sept. 30, is largely invested in the communication services and consumer cyclical sectors.

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As of the end of the third quarter, the firm's largest holdings were Lumen Technologies Inc. (

LUMN, Financial), CNX Resources Corp. (CNX, Financial), Mattel Inc. (MAT, Financial), FedEx Corp. (FDX, Financial) and General Electric Co. (GE, Financial).

According to its website, the Longleaf Partners Fund returned 14.81% in 2019, underperforming the S&P 500's 31.48% return.

Disclosure: No positions.

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