Wallace is the founder and president of Wallace R. Weitz & Company, a CFA charters that holds, manages Hickory Fund, Partners III Opportunity Fund, co-manages Value Fund, and Partners Value Fund.
Weitz’s investment career began in 1961, at age 12, when he invested the profits from various entrepreneurial ventures. After going through a charting phase in high school, Weitz discovered Benjamin Graham's "Security Analysis" and was converted to value investing. After earning a B.A. in economics at Carleton College in 1970, Weitz spent three years in New York doing security analysis, primarily on the small companies in which G.A. Saxton made over-the-counter markets. In 1973 he joined Chiles, Heider & Co., a regional brokerage firm in Omaha, where he spent ten years as an analyst and portfolio manager. In 1983 he started Wallace R. Weitz & Company with about $10 million under management, and now heads a group of eight investment professionals that manages approximately $4 billion.
Weitz’s approach to value investing has evolved over the years. It combines Graham's price sensitivity and insistence on a "margin of safety" with a conviction that qualitative factors that allow companies to have some control over their own destinies can be more important than statistical measurements, such as historical book value or reported earnings. Weitz's personal twist on the classic value strategy is he likes firms that offer services rather than those that make a tangible product. He feels that service firms are less vulnerable to pricing pressure and are therefore in firmer control of their own destinies. He also likes companies that generate plenty of free cash flow. When he can't find stocks that meet his exacting value criteria, Weitz simply increases his cash holdings and waits until something comes along that he thinks is worth buying. Currently about 30% of the Value fund is in cash.
According to Wallace R. Weitz & Company, they seek understandable, well-managed, cash-generating businesses, and try to understand what a rational, informed buyer would pay for the whole business and to buy shares at a significant discount to that business value. Also, they are interested in the present value of the future free cash that the business will generate. They look at companies of all sizes, and since we focus on economic (cash) earnings, some of our stocks may not appear “statistically cheap” based on GAAP accounting. Portfolio managers and analysts do primary “bottom-up” research on individual companies. The research process combines reading of company filings and industry publications with regular personal and telephone contacts with company managements supplemented with Wall Street research. The focus is on business valuation, management competence, and long-term prospects, with virtually no attention to technical analysis, “earnings momentum,” or short-term trading.
The no-load Weitz Value fund (WVALX) had average returns of 20.9% between 1990 and 2000, outperforming the benchmark Standard & Poor's 500. Even the tech wreck that humbled so many managers last year left Weitz unruffled--his fund returned 19.6% in 2000, while the S&P 500 declined 9.1%. Weitz's firm offers three stock funds, a bond fund and a government money-market fund. Weitz himself manages the Value fund and the similar Partners Value fund (WPVLX), both of which have five-star ratings from Morningstar. The Value fund is listed in the mid-cap category, although Weitz does leaven the mix with an occasional large cap. "If they're cheap, we're happy to own them," he says.
No one who owns telecoms can be accused of hiding his head in the sand during the great Internet revolution of the '90s. But Weitz is no starry-eyed visionary either. In 1999, when the Internet frenzy was pushing telecom valuations into the stratosphere, he had the discipline to lighten up on that sector before it peaked. Later that year he began rotating into attractively priced financials such as Washington Mutual, which has more than doubled since early 2000. Both moves were beautifully timed--"a happy coincidence," Weitz modestly avers--and Weitz Value fund continued its winning ways in 2000 while many other funds rode its plunging telecom holdings into negative territory.
Aon Corp. has a market cap of $14.24 billion; its shares were traded at around $43.59 with a P/E ratio of 14.1 and P/S ratio of 1.7. The dividend yield of Aon Corp. stocks is 1.4%. MRQ total debt to assets is at 0.15. TTM gross margin is at 21.14% vs. industry gross margin is at 16.73%. TTM operating margin is at 16.47% vs. industry operating margin is at 13.42%. TTM pretax margin is at 12.41% vs. industry pretax margin is at 11.98%. MRQ net profit margin has increased to 9.18% from 8.06% one year ago, MRQ Sales/Assets has increased to 0.09 from 0.08, and MRQ Assets/Equity has decreased to 3.63 from 4.41. The stock has gained 24.2% over the last year. Aon Corp. had an annual average earnings growth of 3.2% over the past 10 years. But, the stock has performed poorly over the last month, losing 10.52%.
Thirty-five funds had Aon in their portfolios last quarter. It seems to be a pretty popular pick among the funds, considering hedge funds own more than 20% of all outstanding shares. Aon is sitting on the fence in terms of returns; it has so far lost 1% this year.
Operating expenses for the quarter were $2.4 billion, an increase of 46% or $747 million over the prior year. Operating expenses for the first six months of 2011 were $4.7 billion, a 45% or $1.5 billion increase over 2010. The increase in both periods is primarily a result of the inclusion of operating expenses from the acquisition of Hewitt and other smaller companies, an unfavorable impact from foreign exchange rates, and a $62 million increase in intangible asset amortization expense, partially offset by benefits related to the restructuring initiatives and a decrease in restructuring related expenses.
In addition, the prior year included a $49 million non-cash U.S defined benefit pension plan expense, arising from an adjustment to the market-related value of plan assets. Operating margin from continuing operations increased to 15.4% in the second quarter 2011 from 14.1% in the second quarter 2010. The six month operating margin was 14.9% as compared to 14.2% in 2010. Net income from continuing operations attributable to Aon stockholders for the second quarter 2011 increased $77 million, or 43%, from the second quarter 2010 to $256 million. Year to date, Net income from continuing operations attributable to Aon stockholders increased $143 million, or 40%, compared to the first six months 2010 to $500 million.
Current stock market instability and falling bond yields underscore the risk defined benefit pension plan sponsors are assuming if they don't have measures in place to minimize that risk, according to Aon Hewitt, the global human resources consulting and outsourcing solutions business of Aon Corporation. The "perfect storm" of declining equity markets combined with diminishing bond yields increases plans' funding deficits, which may well require additional sponsor contributions to these plans.
Wallace Weitz owns 2,383,886 shares of AON, valued as $122 million as of June 30, 2011, which accounts for 5.4138% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011, quarter by 1.34%, again in the June 30, 2011, quarter by 1.96%. He started to buy this stock in mid-2010 with 1.3 million shares and has increased to 2.3 million now, and the stock price has risen from the low during Weitz’s position of $37.5 to the current $51.8. The rate of increase is slowing down as well as the rate of buying more shares.
This is a European provider of video, internet and telephone services. The K shares have no voting power. This has returned more than 8% so far this year, and that's good news to the 23 hedge funds that had in their portfolios in the second quarter.
Wallace Weitz owns 2,286,517 shares of LBTYK, valued as $98 million as of June 30, 2011, which accounts for 4.3222% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 1.62%, again in the June 30, 2011 quarter by 1.14%.
He started to buy this stock early 2006 with a massive and an all-time high of 10.4 million shares. Since then Weitz has been selling LBTYK constantly with a few quarters of buying insignificant amount of shares as to his holdings. Weitz sold half of his initial holdings before the massive price decline in 2007. The stock price went through two major upswings and is currently still on the second substantial growth since early 2009 at $13.7 to the current $41.9. The stock price has been on the uptrend for years now, and Weitz has his lowest position in this stock ever excluding him buying 26,000 shares last quarter. It all depends on how Weitz feels the prosperity will continue for LBTYK.
Amazon's Google Android-powered Kindle Tablet, which is set to be released in November, will try to compete in a market dominated by the Apple iPad. With the purchase of Motorola Mobility, Google is soon to bundle together its software with Motorola Mobility’s hardware, as Apple has been doing with its iPhone. We could see more Google products that rival Apple’s. Google Inc.'s purchase of restaurant review company Zagat Survey LLC will cost $125 million. Zagat, based in New York, publishes a popular, pocket-sized book that reviews restaurants and other attractions with the help of 350,000 contributors. Although it has a small presence on the Internet, Google's purchase is part of a strategy to get local businesses to advertise more on the Internet such as Google Maps and establish its travel-search business.
Google’s revenue comes mostly from sales of advertisement space, which are discretionary in company budgets. This means that a weak economy or an outright recession will make a big dent in Google’s revenue.
The current Google is not yet a manufacturing company. Developing search engines and advertising and operating platform systems requires a more liberal and entrepreneurial organization that allows employees to experiment with new things with little supervision. Manufacturing mobile devices, on the other side, requires a less liberal organization that defines the different tasks employees must perform under extensive supervision, which includes close monitoring and control. Google has always been an innovative company, but unfortunately the area Google has been venturing into doesn't create much revenue. Out of its services Gmail, Google Docs, Google Groups, Google Scholar, Google Finance, and Google Maps, Google has really only made money off of Gmail's ad revenue. Google believes that it can monetize these services other than using ad revenue. Google's business model revolves primarily around ad revenue. The recent market conditions have caused a decrease in spending in marketing by many large corporations. Even Google's Android O/S only generated $1 billion in sales. $1 billion may sound like a lot of money, but only accounts for 3% of the company's total revenue
Another constant issue with Google is its presence globally. After settling regulation issues in the U.S., Google continues to face issues in Europe and Asia, especially Korea and China.
Wallace Weitz owns 140,465 shares of GOOG, valued as $71 million as of June 30, 2011, which accounts for 3.1488% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 3.1%, again in the June 30, 2011 quarter by 36.45%. He started to buy this stock early 2008 with an insignificant 2000 shares. Weitz has been increasing his holdings ever since especially in early 2010 when he went 28,000 shares to 99,000 shares. The stock price increased mostly in 2008 and 2009, but in recent years it went through a bubble going from $480 to $600 then back down again to the current $527.3.
Tyco International Ltd. has a market cap of $18.43 billion; its shares were traded at around $39.68 with a P/E ratio of 13 and P/S ratio of 1.1. The dividend yield of Tyco International Ltd. stocks is 2.4%. Price to earnings ratio is 12.05, gross margin is 37.9%, and Tyco’s operating margin is 11.48%. They have traded in a 52-week range of $36.28 to $53.38. Volume today was 4,371,357 shares, against a 3-month average volume of 4,223,790 shares.
With the security segment the biggest earnings driver, Tyco is on track to post solid growth for fiscal 2011. The company’s Flow Control and Fire Protection divisions offer lucrative cross selling opportunities in the industries it serves, especially the energy industry. This bodes well for top- and bottom-line growth going forward.
Wallace Weitz owns 1,308,530 shares of TYC, valued as $65 million as of June 30, 2011, which accounts for 2.8634% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 4.06%, again in the June 30, 2011 quarter by 2.21%. He started to buy this stock in early 2009 with 1.5 million shares, and kept it fairly constant since then. The only interesting point was in mid-2010 when Weitz suddenly increase his position to 1.6 million shares for just one quarter and when back down to 1.23 million shares afterwards. As of late 2010, both Weitz’s position and the stock price are in a gradual rising pace.
Target Corp reported strong second-quarter results that showed accelerating same-store sales growth (its best showing in four years), but modest operating-income and net-earnings expansion that still beat expectations. Total sales increased about 5% thanks to a 3.9% jump in comps, while segment EBIT expanded 4.6% from the same period a year ago. Target Corp. had an annual average earnings growth of 9.2% over the past 10 years. GuruFocus rated Target Corp. the business predictability rank of 5-star.
The firm’s earnings per share leapt 11.5% during the quarter (mostly driven by share buybacks), and the company issued full-year 2011 diluted EPS in the range of $4.15 to $4.30, a range we think is achievable. The firm’s average transaction amount increased 3.5% from the same period a year ago, thanks to a 1.8% jump in units per transaction and a 1.7% increase in the average selling price per unit. Management also indicated that every region across the country experienced a healthy increase in comparable store sales, broad-based strength.
According to Valuentum Securities Inc., their model on Target project bullish future. They discounted cash flow model indicates that Target's shares are worth between $51-77 each. The margin of safety around our fair value estimate is driven by the firm's LOW ValueRisk rating, which is derived from the historical volatility of key valuation drivers.
The estimated fair value of $64 per share represents a P/E ratio of about 16 times last year's earnings and an implied EV/EBITDA multiple of about 8.2 times last year's EBITDA. The model reflects a compound annual revenue growth rate of 3.2% during the next five years, a pace that is higher than the firm's three-year historical compound annual growth rate of 2.1%. The model reflects a five-year projected average operating margin of 7.3%, which is above Target’s trailing 3-year average. Beyond year five, our valuation model assumes free cash flow will grow at an annual rate of 4.2% for the next 15 years and 3% in perpetuity. For Target, our model uses an 8.3% weighted average cost of capital to discount future free cash flows.
Wallace Weitz owns 1,329,414 shares of TGT, valued as $62 million as of June 30, 2011, which accounts for 2.7608% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 5484%, again in the June 30, 2011 quarter by 90.46%. He started to buy this stock in mid-2010 with an insignificant 13,000 shares and kept it constant until early 2011 when Weitz bought almost 700,000 shares and then next quarter up to 1.329 million shares. The stock price looks to just be slightly arcing downward after a high stock price in late 2010.
Martin Marietta Materials Inc. has a market cap of $3.02 billion; its shares were traded at around $66.1 with a P/E ratio of 35.9 and P/S ratio of 1.7. The dividend yield of Martin Marietta Materials Inc. stocks is 2.4%. The stock also lost 5.6% year-to-date. Martin Marietta Materials Inc. had an annual average earnings growth of 5.1% over the past 10 years.
From June 10, 2011, to Sept. 6, 2011, the stock price had fallen $9.03 (-11.5%) from $78.62 to $69.59. The stock price saw one of its best stretches over the last year between April 19, 2011 and April 27, 2011, when shares rose for six straight trading days, rising 6.4% (+$5.45). It saw one of its worst periods between July 22, 2011 and Aug. 2, 2011 when shares fell for eight straight trading days, falling 11.6% (-$9.13). Mason Hawkins’ Southeastern Asset Management had more than $400 million in MLM. Jean-Marie Evelliard’s First Eagle Investment Management also holds more than $150 million of MLM.
While aggregates pricing momentum in the first quarter continued with 2.6% increase in average selling prices of our heritage aggregate product line over the prior-year quarter, factors beyond our control such as erratic weather patterns, reduced investment in infrastructure products and low levels of private sector construction all limited our aggregate shipments and reduced our net sales compared to the prior-year quarter.
The second quarter results reflect our continued focus on controllable production costs as well as general and administrative expenses. Overall, stocks earned $0.78 per diluted share in the quarter compared with $1.18 in the prior-year quarter.
Wallace Weitz owns 705,633 shares of MLM, valued as $56 million as of June 30, 2011, which accounts for 2.4981% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 3.02%, again in the June 30, 2011 quarter by 3.45%. He started to buy this stock at the end of 2007 with an insignificant 11,000 shares. Right afterwards and since then, Weitz’s position has been steadily growing while the stock price remained unchanged.
For the quarter, Omnicare generated approximately $137 million in cash flows from operations, which brings our year-to-date total to $281 million, marking the strongest cash flow performance in the first six months of any year in our 30-year history. Omnicare Inc. has a market cap of $3.28 billion; its shares were traded at around $28.29 with a P/E ratio of 13.8 and P/S ratio of 0.5. The dividend yield of Omnicare Inc. stocks is 0.6%.
Nursing home pharmacy Omnicare Inc. is taking its $456 million offer for smaller competitor PharMerica Corp. to PharMerica shareholders amid an unsuccessful effort to reach an agreed-upon deal. The $15 per share, a premium of about 37%, unsolicited tender offer is conditioned on PharMerica's board of directors invalidating a shareholder-rights plan it recently adopted to thwart a potential hostile takeover. Omnicare first went public with its offer about few weeks ago, but PharMerica said it rejected that proposal amid worries about regulatory hurdles.
Net sales were higher by $30.3 million or 2% in the second quarter of 2011 from the first quarter 2011 results. Also, cash flow from operations was increasing from $400 million to $450 million excluding settlement payments from the previous guidance of $375 million to $425 million.
Omnicare believes it has an attractive business model, with a market leadership position in the long-term care market, and its relative position in the growing specialty care market supported by strong cash flows. Omnicare believes its business model positions the Company to benefit (presently and in the future) from certain factors including the favorable impact of branded drug price inflation and the increased availability of generic drugs. Increased generic usage also benefits Omnicare's payers, including facility customers and government-sponsored health programs, by lowering their healthcare costs. During the first six months of 2011, the Company's strong cash flow enabled Omnicare to pay off $175 million of long-term debt and also to return approximately 28% of the Company's operating cash flow from continuing operations to shareholders, through dividends (which were increased from 3.25 cents per common share to 4.0 cents per common share during the second quarter of 2011) and share repurchases.
The annualized customer retention rate expanded another 130 basis points sequentially and 300 basis points on a year-over-year basis to 93.7%, as Omnicare are close on the long-term objective of at least 95% customer retention.
Wallace Weitz owns 2,038,540 shares of OCR, valued as $65 million as of Jun. 30, 2011, which accounts for 2.8779% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 14.4%, again in the Jun. 30, 2011 quarter by 49.78%. He started to buy this stock in mid-2006 with a relatively low 176,000 shares. Over the years, Weitz went through two major rising and bubbles with a difference of over 3 million shares. The stock price was on a constant decline until early 2008, and has been in the mid $20s range constantly.
The stock has performed poorly over the last month, losing 40.34%. Target price implies an 89.4% increase potential, while the stock is currently trading 49.03% lower than its 52-week high. Debts nearly tripled since 2007, outrunning assets percentage with a landslide. O-Metrix score is 0.71, and it returned 57.0% in the last twelve months. Debt-to equity ratio is 2.0, crushed by the industry average of 0.9. Earnings decreased by 987.45% this quarter. ROA, ROE, and ROI are -0.70%- -4.67% and -0.87%, respectively. Operating margin is -11.8%. While SMA50 is -27.66%, SMA200 is -27.68%. EPS growth estimation (500.00%) for the next year is looks unattainable under these circumstances.
In late 2009 Sandridge was a natural gas company with very little exposure to oil. Sandridge’s CEO, Tom Ward, saw that natural gas prices were not going to turn any time soon. With his natural gas hedges expiring in the near future, Ward made a hard decision and entered into two major oil-weighted acquisitions that heavily diluted his existing Sandridge shareholders. The dilution was painful, but the cash flow brought in through the acquisition helped deleverage Sandridge and allow it to survive the extended $4 natural gas environment. Now Sandridge, a company that would have been spending all of its hundreds of millions of dollars of capex drilling for natural gas, is spending almost none.
Wallace Weitz owns 5,524,968 shares of SD, valued as $59 million as of Jun. 30, 2011, which accounts for 2.6073% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 26.84%, again in the Jun. 30, 2011 quarter by 3.59%. He started to buy this stock in mid-2010 with 4.663 million shares. Weitz made one more buy to increase his position to 8.036 million shares when the stock price was relatively low compared to any other time in the recent decade, and now Weitz has been on the path of selling ever since as the stock price has doubled to $11.2.
Ascent Capital Group, Inc. is a holding company and its assets primarily consist of its wholly-owned subsidiary, Monitronics International, Inc. The Monitronics business provides security alarm monitoring and related services to residential and business subscribers throughout the United States and parts of Canada. It monitors signals arising from burglaries, fires and other events through security systems at subscribers' premises. Nearly all of its revenues are derived from monthly recurring revenues under security alarm monitoring contracts purchased from independent dealers in our exclusive nationwide network.
Consolidated revenue increased $77,577,000 and $151,477,000 for the three and six months ended June 30, 2011, respectively, as compared to the corresponding prior year periods. The increase in revenue was due to the acquisition of the Monitronics business in December 2010. All previous revenue generating businesses have been included in discontinued operations for the three and six months ended June 30, 2010. As well as the cost of services increased $9,597,000 and $18,727,000. Also, selling, general, and administrative costs increased $10,727,000 and $23,380,000. The Company had a pre-tax loss from continuing operations of $6,712,000 and $15,272,000 for the three and six months ended June 30, 2011, respectively, and an income tax benefit of $1,783,000 and $3,289,000.
As of June 30, 2011, Ascent Capital shut down the operations of the Systems Integration business. In connection with ceasing its operations, the Company recorded exit costs of $1,119,000 related to employee severance. The operations of the Systems integration business has been treated as a discontinued operation in the condensed consolidated financial statements for all periods presented.
Wallace Weitz owns 610,000 shares of ASCMA, valued as $32 million as of Jun. 30, 2011, which accounts for 1.4304% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 8.69%, again in the Jun. 30, 2011 quarter by 1.61%. He started to buy this stock in early 2010 with a relatively low 60,000 shares. Weitz then increased his holdings up to 679,000 shares until 2011 when he started to sell in small amounts of shares. The stock price throughout the last 4 years has been steadily increasing and at a higher rate since late 2010.
Walmart may also benefit if gas prices come down as middle income consumers looking to save money may actually trade up from looking for extreme value at venues like the dollar stores. Bringing back layaway is a way for WMT to underwrite its retail sales in difficult times. It allows customers to plan for major holidays like Christmas and Thanksgiving, and family events, and to budget accordingly to pay for their needs. It also teaches those who have forgotten how to live within their means – if you can’t get easy credit anymore, and you desperately want that 52” TV and Wii for the kids at Christmas time, they now have three months to pay overtime -- with cash -- what they can’t afford in one lump sum. Without layaway, WMT would lose these customers’ buying power, and ultimately this would lead to reduced retail sales.
This narrow trading band has suffered key downward pressure points in March and August 2011 (like the rest of the market), but the stock has been quick to regain these losses and resume a relatively stable (given current volatility) trading pattern. In the eye of representatives of investors, seeing value in the stock, the company not being overly committed, and regular cash flow sustained by a loyal customer base.
Wallace Weitz owns 547,500 shares of WMT, valued as $29 million as of Jun. 30, 2011, which accounts for 1.288% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 0.9%, again in the Jun. 30, 2011 quarter by 0.45%. He started to buy this stock in early 2006 with a massive 5.762 million shares. Until early 2008, Weitz had roughly 5 million shares when the stock price was generally stable. In 2008 the stock price went up in about $10, and Weitz sold almost all his shares right before the stock price peaked. Weitz has not changed his position in WMT since mid-2008 and the stock price has been stable after it returned back down.
Discovery Communications reported another good quarter, matching or exceeding most Street estimates. Revenues grew 11% and EBITDA rose 12%. EPS of 62 cents was a penny ahead of consensus. The company slightly raised guidance to reflect the better than expected second quarter performance. In addition to the solid financial report, the company announced accelerating share repurchases. DISCK was late to the stock buyback game much to the chagrin of Wall Street. This now appears to be in the past. Share buybacks provide some downside protection and also enhance EPS growth.
The closely watched domestic advertising growth was 14%, indicating that operating fundamentals have not yet been impacted by the slowing economy. Comments on the ad market for the rest of the year were positive, getting a boost in 4Q from the strong up front selling season. The positive tone of DISCK's advertising surely influenced management to raise guidance. Recent ratings performance has improved at most of the company's large networks, providing another boost to the outlook.
Wallace Weitz owns 320,000 shares of DISCK, valued as $12 million as of Jun. 30, 2011, which accounts for 0.5178% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 2.94%, again in the Jun. 30, 2011 quarter by 3.03%. He started to buy this stock in late 2009 with 30,000 shares. Since early 2010, Weitz had an average of 340,000 shares varying in just a few tens of thousands of shares every quarter. The stock price has been rising, but seems to be slowing down in 2011.
Weitz Fund September 30, 2010 Semi-Annual Report
The Value Fund returned +8.9% in the third calendar quarter, compared to a +11.3% return for the S&P 500. For the calendar year-to-date, the Fund increased 9.4% compared to a 3.9% gain for the S&P 500. Liberty Media Interactive (+31%) was the largest contributor to the Fund’s quarterly results. Google rose 18% during the quarter, as did European cable operator Liberty Global. The long-term competitive advantages of these businesses remain firmly intact. Martin Marietta Materials (-9% for the quarter) have the potential for outsized multi-year investment returns from today’s depressed prices.
Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Wallace Weitz.
Weitz’s investment career began in 1961, at age 12, when he invested the profits from various entrepreneurial ventures. After going through a charting phase in high school, Weitz discovered Benjamin Graham's "Security Analysis" and was converted to value investing. After earning a B.A. in economics at Carleton College in 1970, Weitz spent three years in New York doing security analysis, primarily on the small companies in which G.A. Saxton made over-the-counter markets. In 1973 he joined Chiles, Heider & Co., a regional brokerage firm in Omaha, where he spent ten years as an analyst and portfolio manager. In 1983 he started Wallace R. Weitz & Company with about $10 million under management, and now heads a group of eight investment professionals that manages approximately $4 billion.
Weitz’s approach to value investing has evolved over the years. It combines Graham's price sensitivity and insistence on a "margin of safety" with a conviction that qualitative factors that allow companies to have some control over their own destinies can be more important than statistical measurements, such as historical book value or reported earnings. Weitz's personal twist on the classic value strategy is he likes firms that offer services rather than those that make a tangible product. He feels that service firms are less vulnerable to pricing pressure and are therefore in firmer control of their own destinies. He also likes companies that generate plenty of free cash flow. When he can't find stocks that meet his exacting value criteria, Weitz simply increases his cash holdings and waits until something comes along that he thinks is worth buying. Currently about 30% of the Value fund is in cash.
According to Wallace R. Weitz & Company, they seek understandable, well-managed, cash-generating businesses, and try to understand what a rational, informed buyer would pay for the whole business and to buy shares at a significant discount to that business value. Also, they are interested in the present value of the future free cash that the business will generate. They look at companies of all sizes, and since we focus on economic (cash) earnings, some of our stocks may not appear “statistically cheap” based on GAAP accounting. Portfolio managers and analysts do primary “bottom-up” research on individual companies. The research process combines reading of company filings and industry publications with regular personal and telephone contacts with company managements supplemented with Wall Street research. The focus is on business valuation, management competence, and long-term prospects, with virtually no attention to technical analysis, “earnings momentum,” or short-term trading.
The no-load Weitz Value fund (WVALX) had average returns of 20.9% between 1990 and 2000, outperforming the benchmark Standard & Poor's 500. Even the tech wreck that humbled so many managers last year left Weitz unruffled--his fund returned 19.6% in 2000, while the S&P 500 declined 9.1%. Weitz's firm offers three stock funds, a bond fund and a government money-market fund. Weitz himself manages the Value fund and the similar Partners Value fund (WPVLX), both of which have five-star ratings from Morningstar. The Value fund is listed in the mid-cap category, although Weitz does leaven the mix with an occasional large cap. "If they're cheap, we're happy to own them," he says.
No one who owns telecoms can be accused of hiding his head in the sand during the great Internet revolution of the '90s. But Weitz is no starry-eyed visionary either. In 1999, when the Internet frenzy was pushing telecom valuations into the stratosphere, he had the discipline to lighten up on that sector before it peaked. Later that year he began rotating into attractively priced financials such as Washington Mutual, which has more than doubled since early 2000. Both moves were beautifully timed--"a happy coincidence," Weitz modestly avers--and Weitz Value fund continued its winning ways in 2000 while many other funds rode its plunging telecom holdings into negative territory.
Stocks That Wallace Weitz Keeps Buying
No. 1: Aon Corp. (AON, Financial), Weightings: 5.4138% - 2,383,886 Shares
Aon Corporation is a holding. Named the world's best broker by Euromoney magazine's 2008, 2009, and 2010 Insurance Survey, and Aon was also ranked highest on Business Insurance's listing of the world's insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary 2007-2010, best reinsurance intermediary 2006-2010, best captives manager 2009-2010, and best employee benefits consulting firm 2007-2009 by the readers of Business Insurance.Aon Corp. has a market cap of $14.24 billion; its shares were traded at around $43.59 with a P/E ratio of 14.1 and P/S ratio of 1.7. The dividend yield of Aon Corp. stocks is 1.4%. MRQ total debt to assets is at 0.15. TTM gross margin is at 21.14% vs. industry gross margin is at 16.73%. TTM operating margin is at 16.47% vs. industry operating margin is at 13.42%. TTM pretax margin is at 12.41% vs. industry pretax margin is at 11.98%. MRQ net profit margin has increased to 9.18% from 8.06% one year ago, MRQ Sales/Assets has increased to 0.09 from 0.08, and MRQ Assets/Equity has decreased to 3.63 from 4.41. The stock has gained 24.2% over the last year. Aon Corp. had an annual average earnings growth of 3.2% over the past 10 years. But, the stock has performed poorly over the last month, losing 10.52%.
Thirty-five funds had Aon in their portfolios last quarter. It seems to be a pretty popular pick among the funds, considering hedge funds own more than 20% of all outstanding shares. Aon is sitting on the fence in terms of returns; it has so far lost 1% this year.
Operating expenses for the quarter were $2.4 billion, an increase of 46% or $747 million over the prior year. Operating expenses for the first six months of 2011 were $4.7 billion, a 45% or $1.5 billion increase over 2010. The increase in both periods is primarily a result of the inclusion of operating expenses from the acquisition of Hewitt and other smaller companies, an unfavorable impact from foreign exchange rates, and a $62 million increase in intangible asset amortization expense, partially offset by benefits related to the restructuring initiatives and a decrease in restructuring related expenses.
In addition, the prior year included a $49 million non-cash U.S defined benefit pension plan expense, arising from an adjustment to the market-related value of plan assets. Operating margin from continuing operations increased to 15.4% in the second quarter 2011 from 14.1% in the second quarter 2010. The six month operating margin was 14.9% as compared to 14.2% in 2010. Net income from continuing operations attributable to Aon stockholders for the second quarter 2011 increased $77 million, or 43%, from the second quarter 2010 to $256 million. Year to date, Net income from continuing operations attributable to Aon stockholders increased $143 million, or 40%, compared to the first six months 2010 to $500 million.
Current stock market instability and falling bond yields underscore the risk defined benefit pension plan sponsors are assuming if they don't have measures in place to minimize that risk, according to Aon Hewitt, the global human resources consulting and outsourcing solutions business of Aon Corporation. The "perfect storm" of declining equity markets combined with diminishing bond yields increases plans' funding deficits, which may well require additional sponsor contributions to these plans.
Wallace Weitz owns 2,383,886 shares of AON, valued as $122 million as of June 30, 2011, which accounts for 5.4138% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011, quarter by 1.34%, again in the June 30, 2011, quarter by 1.96%. He started to buy this stock in mid-2010 with 1.3 million shares and has increased to 2.3 million now, and the stock price has risen from the low during Weitz’s position of $37.5 to the current $51.8. The rate of increase is slowing down as well as the rate of buying more shares.
No. 2: Liberty Global Inc. Series C (LBTYK, Financial), Weightings: 4.3222% - 2,286,517 Shares
Liberty Global is the leading international cable operator offering advanced video, voice and broadband Internet services to connect its customers to the world of entertainment, communications and information. As of June 30, 2011, Liberty Global operated state-of-the-art networks serving 18 million customers across 14 countries principally located in Europe, Chile and Australia. Liberty Global’s operations also include significant programming businesses such as Chellomedia in Europe. Liberty Global Inc. Series C has a market cap of $4.38 billion; its shares were traded at around $35.2.This is a European provider of video, internet and telephone services. The K shares have no voting power. This has returned more than 8% so far this year, and that's good news to the 23 hedge funds that had in their portfolios in the second quarter.
Wallace Weitz owns 2,286,517 shares of LBTYK, valued as $98 million as of June 30, 2011, which accounts for 4.3222% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 1.62%, again in the June 30, 2011 quarter by 1.14%.
He started to buy this stock early 2006 with a massive and an all-time high of 10.4 million shares. Since then Weitz has been selling LBTYK constantly with a few quarters of buying insignificant amount of shares as to his holdings. Weitz sold half of his initial holdings before the massive price decline in 2007. The stock price went through two major upswings and is currently still on the second substantial growth since early 2009 at $13.7 to the current $41.9. The stock price has been on the uptrend for years now, and Weitz has his lowest position in this stock ever excluding him buying 26,000 shares last quarter. It all depends on how Weitz feels the prosperity will continue for LBTYK.
No. 3: Google Inc. (GOOG, Financial), Weightings: 3.1488% - 140,465 Shares
Google is a public and profitable company focused on search services. Google Inc. has a market cap of $169.47 billion; its shares were traded at around $524.85 with a P/E ratio of 18 and P/S ratio of 5.8. Google Inc. had an annual average earnings growth of 58.4% over the past 10 years.Amazon's Google Android-powered Kindle Tablet, which is set to be released in November, will try to compete in a market dominated by the Apple iPad. With the purchase of Motorola Mobility, Google is soon to bundle together its software with Motorola Mobility’s hardware, as Apple has been doing with its iPhone. We could see more Google products that rival Apple’s. Google Inc.'s purchase of restaurant review company Zagat Survey LLC will cost $125 million. Zagat, based in New York, publishes a popular, pocket-sized book that reviews restaurants and other attractions with the help of 350,000 contributors. Although it has a small presence on the Internet, Google's purchase is part of a strategy to get local businesses to advertise more on the Internet such as Google Maps and establish its travel-search business.
Google’s revenue comes mostly from sales of advertisement space, which are discretionary in company budgets. This means that a weak economy or an outright recession will make a big dent in Google’s revenue.
The current Google is not yet a manufacturing company. Developing search engines and advertising and operating platform systems requires a more liberal and entrepreneurial organization that allows employees to experiment with new things with little supervision. Manufacturing mobile devices, on the other side, requires a less liberal organization that defines the different tasks employees must perform under extensive supervision, which includes close monitoring and control. Google has always been an innovative company, but unfortunately the area Google has been venturing into doesn't create much revenue. Out of its services Gmail, Google Docs, Google Groups, Google Scholar, Google Finance, and Google Maps, Google has really only made money off of Gmail's ad revenue. Google believes that it can monetize these services other than using ad revenue. Google's business model revolves primarily around ad revenue. The recent market conditions have caused a decrease in spending in marketing by many large corporations. Even Google's Android O/S only generated $1 billion in sales. $1 billion may sound like a lot of money, but only accounts for 3% of the company's total revenue
Another constant issue with Google is its presence globally. After settling regulation issues in the U.S., Google continues to face issues in Europe and Asia, especially Korea and China.
Wallace Weitz owns 140,465 shares of GOOG, valued as $71 million as of June 30, 2011, which accounts for 3.1488% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 3.1%, again in the June 30, 2011 quarter by 36.45%. He started to buy this stock early 2008 with an insignificant 2000 shares. Weitz has been increasing his holdings ever since especially in early 2010 when he went 28,000 shares to 99,000 shares. The stock price increased mostly in 2008 and 2009, but in recent years it went through a bubble going from $480 to $600 then back down again to the current $527.3.
No. 4: Tyco International Ltd. (TYC, Financial), Weightings: 2.8634% - 1,308,530 Shares
Tyco International Ltd., a diversified manufacturing and service company, is the world's largest manufacturer and servicer of electrical and electronic components and undersea telecommunications systems. Also, it is the world's largest manufacturer, installer, and provider of fire protection systems and electronic security services. Tyco has strong leadership positions in disposable medical products, plastics, and adhesives, and is the largest manufacturer of flow control valves.Tyco International Ltd. has a market cap of $18.43 billion; its shares were traded at around $39.68 with a P/E ratio of 13 and P/S ratio of 1.1. The dividend yield of Tyco International Ltd. stocks is 2.4%. Price to earnings ratio is 12.05, gross margin is 37.9%, and Tyco’s operating margin is 11.48%. They have traded in a 52-week range of $36.28 to $53.38. Volume today was 4,371,357 shares, against a 3-month average volume of 4,223,790 shares.
With the security segment the biggest earnings driver, Tyco is on track to post solid growth for fiscal 2011. The company’s Flow Control and Fire Protection divisions offer lucrative cross selling opportunities in the industries it serves, especially the energy industry. This bodes well for top- and bottom-line growth going forward.
Wallace Weitz owns 1,308,530 shares of TYC, valued as $65 million as of June 30, 2011, which accounts for 2.8634% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 4.06%, again in the June 30, 2011 quarter by 2.21%. He started to buy this stock in early 2009 with 1.5 million shares, and kept it fairly constant since then. The only interesting point was in mid-2010 when Weitz suddenly increase his position to 1.6 million shares for just one quarter and when back down to 1.23 million shares afterwards. As of late 2010, both Weitz’s position and the stock price are in a gradual rising pace.
No. 5: Target Corp. (TGT, Financial), Weightings: 2.7608% - 1,329,414 Shares
Target Corporation operates large-format general merchandise and food discount stores in the United States, which include Target and SuperTarget stores. Target Corp. has a market cap of $34.47 billion; its shares were traded at around $50.02 with a P/E ratio of 11.9 and P/S ratio of 0.5. The dividend yield of Target Corp. stocks is 2.3%. Shares of Target Corporation have a dollar volume of $158.8 million based on a current price of $49.85(-65 cents) and 3.2 million shares traded. From August 10, 2011, to September 8, 2011, the stock price had raised $4.18 (9%) from $46.41 to $50.59.Target Corp reported strong second-quarter results that showed accelerating same-store sales growth (its best showing in four years), but modest operating-income and net-earnings expansion that still beat expectations. Total sales increased about 5% thanks to a 3.9% jump in comps, while segment EBIT expanded 4.6% from the same period a year ago. Target Corp. had an annual average earnings growth of 9.2% over the past 10 years. GuruFocus rated Target Corp. the business predictability rank of 5-star.
The firm’s earnings per share leapt 11.5% during the quarter (mostly driven by share buybacks), and the company issued full-year 2011 diluted EPS in the range of $4.15 to $4.30, a range we think is achievable. The firm’s average transaction amount increased 3.5% from the same period a year ago, thanks to a 1.8% jump in units per transaction and a 1.7% increase in the average selling price per unit. Management also indicated that every region across the country experienced a healthy increase in comparable store sales, broad-based strength.
According to Valuentum Securities Inc., their model on Target project bullish future. They discounted cash flow model indicates that Target's shares are worth between $51-77 each. The margin of safety around our fair value estimate is driven by the firm's LOW ValueRisk rating, which is derived from the historical volatility of key valuation drivers.
The estimated fair value of $64 per share represents a P/E ratio of about 16 times last year's earnings and an implied EV/EBITDA multiple of about 8.2 times last year's EBITDA. The model reflects a compound annual revenue growth rate of 3.2% during the next five years, a pace that is higher than the firm's three-year historical compound annual growth rate of 2.1%. The model reflects a five-year projected average operating margin of 7.3%, which is above Target’s trailing 3-year average. Beyond year five, our valuation model assumes free cash flow will grow at an annual rate of 4.2% for the next 15 years and 3% in perpetuity. For Target, our model uses an 8.3% weighted average cost of capital to discount future free cash flows.
Wallace Weitz owns 1,329,414 shares of TGT, valued as $62 million as of June 30, 2011, which accounts for 2.7608% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 5484%, again in the June 30, 2011 quarter by 90.46%. He started to buy this stock in mid-2010 with an insignificant 13,000 shares and kept it constant until early 2011 when Weitz bought almost 700,000 shares and then next quarter up to 1.329 million shares. The stock price looks to just be slightly arcing downward after a high stock price in late 2010.
No. 6: Martin Marietta Materials Inc. (MLM, Financial), Weightings: 2.4981% - 705,633 Shares
Martin Marietta Materials is a producer of aggregates for the construction industry, including highways, infrastructure, commercial and residential. The company also manufactures and markets magnesia-based products, including heat-resistant refractory products for the steel industry, chemical products for industrial and environmental uses, and dolomitic lime.Martin Marietta Materials Inc. has a market cap of $3.02 billion; its shares were traded at around $66.1 with a P/E ratio of 35.9 and P/S ratio of 1.7. The dividend yield of Martin Marietta Materials Inc. stocks is 2.4%. The stock also lost 5.6% year-to-date. Martin Marietta Materials Inc. had an annual average earnings growth of 5.1% over the past 10 years.
From June 10, 2011, to Sept. 6, 2011, the stock price had fallen $9.03 (-11.5%) from $78.62 to $69.59. The stock price saw one of its best stretches over the last year between April 19, 2011 and April 27, 2011, when shares rose for six straight trading days, rising 6.4% (+$5.45). It saw one of its worst periods between July 22, 2011 and Aug. 2, 2011 when shares fell for eight straight trading days, falling 11.6% (-$9.13). Mason Hawkins’ Southeastern Asset Management had more than $400 million in MLM. Jean-Marie Evelliard’s First Eagle Investment Management also holds more than $150 million of MLM.
While aggregates pricing momentum in the first quarter continued with 2.6% increase in average selling prices of our heritage aggregate product line over the prior-year quarter, factors beyond our control such as erratic weather patterns, reduced investment in infrastructure products and low levels of private sector construction all limited our aggregate shipments and reduced our net sales compared to the prior-year quarter.
The second quarter results reflect our continued focus on controllable production costs as well as general and administrative expenses. Overall, stocks earned $0.78 per diluted share in the quarter compared with $1.18 in the prior-year quarter.
Wallace Weitz owns 705,633 shares of MLM, valued as $56 million as of June 30, 2011, which accounts for 2.4981% of his equity portfolio. Wallace Weitz added his positions in the March 31, 2011 quarter by 3.02%, again in the June 30, 2011 quarter by 3.45%. He started to buy this stock at the end of 2007 with an insignificant 11,000 shares. Right afterwards and since then, Weitz’s position has been steadily growing while the stock price remained unchanged.
Stocks That Wallace Weitz Keeps Selling
No. 1: Omnicare Inc. (OCR, Financial), Weightings: 2.8779% - 2,038,540 Shares
Omnicare, Inc. is a Fortune five hundred company based in Covington, Ky., is a provider of pharmaceutical care for the elderly. Omnicare is a market leader in providing pharmaceutical care for the elderly. The industry is essential to serving the needs of the long-term care population. The company has reduced costs and increased efficiency through its Full Potential Plan.For the quarter, Omnicare generated approximately $137 million in cash flows from operations, which brings our year-to-date total to $281 million, marking the strongest cash flow performance in the first six months of any year in our 30-year history. Omnicare Inc. has a market cap of $3.28 billion; its shares were traded at around $28.29 with a P/E ratio of 13.8 and P/S ratio of 0.5. The dividend yield of Omnicare Inc. stocks is 0.6%.
Nursing home pharmacy Omnicare Inc. is taking its $456 million offer for smaller competitor PharMerica Corp. to PharMerica shareholders amid an unsuccessful effort to reach an agreed-upon deal. The $15 per share, a premium of about 37%, unsolicited tender offer is conditioned on PharMerica's board of directors invalidating a shareholder-rights plan it recently adopted to thwart a potential hostile takeover. Omnicare first went public with its offer about few weeks ago, but PharMerica said it rejected that proposal amid worries about regulatory hurdles.
Net sales were higher by $30.3 million or 2% in the second quarter of 2011 from the first quarter 2011 results. Also, cash flow from operations was increasing from $400 million to $450 million excluding settlement payments from the previous guidance of $375 million to $425 million.
Omnicare believes it has an attractive business model, with a market leadership position in the long-term care market, and its relative position in the growing specialty care market supported by strong cash flows. Omnicare believes its business model positions the Company to benefit (presently and in the future) from certain factors including the favorable impact of branded drug price inflation and the increased availability of generic drugs. Increased generic usage also benefits Omnicare's payers, including facility customers and government-sponsored health programs, by lowering their healthcare costs. During the first six months of 2011, the Company's strong cash flow enabled Omnicare to pay off $175 million of long-term debt and also to return approximately 28% of the Company's operating cash flow from continuing operations to shareholders, through dividends (which were increased from 3.25 cents per common share to 4.0 cents per common share during the second quarter of 2011) and share repurchases.
The annualized customer retention rate expanded another 130 basis points sequentially and 300 basis points on a year-over-year basis to 93.7%, as Omnicare are close on the long-term objective of at least 95% customer retention.
Wallace Weitz owns 2,038,540 shares of OCR, valued as $65 million as of Jun. 30, 2011, which accounts for 2.8779% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 14.4%, again in the Jun. 30, 2011 quarter by 49.78%. He started to buy this stock in mid-2006 with a relatively low 176,000 shares. Over the years, Weitz went through two major rising and bubbles with a difference of over 3 million shares. The stock price was on a constant decline until early 2008, and has been in the mid $20s range constantly.
No. 2: Sandridge Energy (SD, Financial), Weightings: 2.6073% - 5,524,968 Shares
SandRidge Energy, Inc. is an oil and natural gas company headquartered in Oklahoma City with its principal focus on exploration and production. Sandridge Energy has a market cap of $2.83 billion; its shares were traded at around $6.87 with and P/S ratio of 3.1. The company shows a trailing P/E ratio of 156.3, and a forward P/E ratio of 17.4. Estimated annualized EPS growth for the next five years is 12.5%, which is reasonable when its 10.72% EPS growth of past five years is considered. With a profit margin of -2.5%, Sandridge pays no dividend yield.The stock has performed poorly over the last month, losing 40.34%. Target price implies an 89.4% increase potential, while the stock is currently trading 49.03% lower than its 52-week high. Debts nearly tripled since 2007, outrunning assets percentage with a landslide. O-Metrix score is 0.71, and it returned 57.0% in the last twelve months. Debt-to equity ratio is 2.0, crushed by the industry average of 0.9. Earnings decreased by 987.45% this quarter. ROA, ROE, and ROI are -0.70%- -4.67% and -0.87%, respectively. Operating margin is -11.8%. While SMA50 is -27.66%, SMA200 is -27.68%. EPS growth estimation (500.00%) for the next year is looks unattainable under these circumstances.
In late 2009 Sandridge was a natural gas company with very little exposure to oil. Sandridge’s CEO, Tom Ward, saw that natural gas prices were not going to turn any time soon. With his natural gas hedges expiring in the near future, Ward made a hard decision and entered into two major oil-weighted acquisitions that heavily diluted his existing Sandridge shareholders. The dilution was painful, but the cash flow brought in through the acquisition helped deleverage Sandridge and allow it to survive the extended $4 natural gas environment. Now Sandridge, a company that would have been spending all of its hundreds of millions of dollars of capex drilling for natural gas, is spending almost none.
Wallace Weitz owns 5,524,968 shares of SD, valued as $59 million as of Jun. 30, 2011, which accounts for 2.6073% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 26.84%, again in the Jun. 30, 2011 quarter by 3.59%. He started to buy this stock in mid-2010 with 4.663 million shares. Weitz made one more buy to increase his position to 8.036 million shares when the stock price was relatively low compared to any other time in the recent decade, and now Weitz has been on the path of selling ever since as the stock price has doubled to $11.2.
No. 3: Ascent Capital Group Inc. Series A (ASCMA, Financial), Weightings: 1.4304% - 610,000 Shares
Ascent Capital Group provides creative and network services to the media and entertainment industries in the United States, the United Kingdom and Singapore. Ascent Capital Group Inc. Series A has a market cap of $596.4 million; its shares were traded at around $43.56 with and P/S ratio of 4.3.Ascent Capital Group, Inc. is a holding company and its assets primarily consist of its wholly-owned subsidiary, Monitronics International, Inc. The Monitronics business provides security alarm monitoring and related services to residential and business subscribers throughout the United States and parts of Canada. It monitors signals arising from burglaries, fires and other events through security systems at subscribers' premises. Nearly all of its revenues are derived from monthly recurring revenues under security alarm monitoring contracts purchased from independent dealers in our exclusive nationwide network.
Consolidated revenue increased $77,577,000 and $151,477,000 for the three and six months ended June 30, 2011, respectively, as compared to the corresponding prior year periods. The increase in revenue was due to the acquisition of the Monitronics business in December 2010. All previous revenue generating businesses have been included in discontinued operations for the three and six months ended June 30, 2010. As well as the cost of services increased $9,597,000 and $18,727,000. Also, selling, general, and administrative costs increased $10,727,000 and $23,380,000. The Company had a pre-tax loss from continuing operations of $6,712,000 and $15,272,000 for the three and six months ended June 30, 2011, respectively, and an income tax benefit of $1,783,000 and $3,289,000.
As of June 30, 2011, Ascent Capital shut down the operations of the Systems Integration business. In connection with ceasing its operations, the Company recorded exit costs of $1,119,000 related to employee severance. The operations of the Systems integration business has been treated as a discontinued operation in the condensed consolidated financial statements for all periods presented.
Wallace Weitz owns 610,000 shares of ASCMA, valued as $32 million as of Jun. 30, 2011, which accounts for 1.4304% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 8.69%, again in the Jun. 30, 2011 quarter by 1.61%. He started to buy this stock in early 2010 with a relatively low 60,000 shares. Weitz then increased his holdings up to 679,000 shares until 2011 when he started to sell in small amounts of shares. The stock price throughout the last 4 years has been steadily increasing and at a higher rate since late 2010.
No. 4: Walmart Stores (WMT, Financial), Weightings: 1.288% - 547,500 Shares
Wal-Mart Stores, Inc. is the world's largest retailer. Walmart Stores has a market cap of $178.35 billion; its shares were traded at around $51.36 with a P/E ratio of 12 and P/S ratio of 0.4. The dividend yield of Walmart Stores stocks is 2.8%. Walmart Stores had an annual average earnings growth of 11.1% over the past 10 years. GuruFocus rated Walmart Stores the business predictability rank of 5-star. Wal-Mart is also a favorite of Eagle Capital. Warren Buffett holds more than $2 Billion of WMT.Walmart may also benefit if gas prices come down as middle income consumers looking to save money may actually trade up from looking for extreme value at venues like the dollar stores. Bringing back layaway is a way for WMT to underwrite its retail sales in difficult times. It allows customers to plan for major holidays like Christmas and Thanksgiving, and family events, and to budget accordingly to pay for their needs. It also teaches those who have forgotten how to live within their means – if you can’t get easy credit anymore, and you desperately want that 52” TV and Wii for the kids at Christmas time, they now have three months to pay overtime -- with cash -- what they can’t afford in one lump sum. Without layaway, WMT would lose these customers’ buying power, and ultimately this would lead to reduced retail sales.
This narrow trading band has suffered key downward pressure points in March and August 2011 (like the rest of the market), but the stock has been quick to regain these losses and resume a relatively stable (given current volatility) trading pattern. In the eye of representatives of investors, seeing value in the stock, the company not being overly committed, and regular cash flow sustained by a loyal customer base.
Wallace Weitz owns 547,500 shares of WMT, valued as $29 million as of Jun. 30, 2011, which accounts for 1.288% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 0.9%, again in the Jun. 30, 2011 quarter by 0.45%. He started to buy this stock in early 2006 with a massive 5.762 million shares. Until early 2008, Weitz had roughly 5 million shares when the stock price was generally stable. In 2008 the stock price went up in about $10, and Weitz sold almost all his shares right before the stock price peaked. Weitz has not changed his position in WMT since mid-2008 and the stock price has been stable after it returned back down.
No. 5: Discovery Communications Inc. Series C (DISCK, Financial), Weightings: 0.5178% - 320,000 Shares
Discovery Communications is the world's number one nonfiction media company. Discovery Communications Inc. Series C has a market cap of $4.64 billion; its shares were traded at around $36.7 with a P/E ratio of 17.7 and P/S ratio of 1.3. This entry focuses on the class C shares, which do not have voting power. The stock is trading close to $39/share and has returned close to 6% so far this year. Twenty-one hedge funds had DISCK in their portfolios last quarter.Discovery Communications reported another good quarter, matching or exceeding most Street estimates. Revenues grew 11% and EBITDA rose 12%. EPS of 62 cents was a penny ahead of consensus. The company slightly raised guidance to reflect the better than expected second quarter performance. In addition to the solid financial report, the company announced accelerating share repurchases. DISCK was late to the stock buyback game much to the chagrin of Wall Street. This now appears to be in the past. Share buybacks provide some downside protection and also enhance EPS growth.
The closely watched domestic advertising growth was 14%, indicating that operating fundamentals have not yet been impacted by the slowing economy. Comments on the ad market for the rest of the year were positive, getting a boost in 4Q from the strong up front selling season. The positive tone of DISCK's advertising surely influenced management to raise guidance. Recent ratings performance has improved at most of the company's large networks, providing another boost to the outlook.
Wallace Weitz owns 320,000 shares of DISCK, valued as $12 million as of Jun. 30, 2011, which accounts for 0.5178% of his equity portfolio. Wallace Weitz reduced his positions in the Mar. 31, 2011 quarter by 2.94%, again in the Jun. 30, 2011 quarter by 3.03%. He started to buy this stock in late 2009 with 30,000 shares. Since early 2010, Weitz had an average of 340,000 shares varying in just a few tens of thousands of shares every quarter. The stock price has been rising, but seems to be slowing down in 2011.
Weitz Fund September 30, 2010 Semi-Annual Report
The Value Fund returned +8.9% in the third calendar quarter, compared to a +11.3% return for the S&P 500. For the calendar year-to-date, the Fund increased 9.4% compared to a 3.9% gain for the S&P 500. Liberty Media Interactive (+31%) was the largest contributor to the Fund’s quarterly results. Google rose 18% during the quarter, as did European cable operator Liberty Global. The long-term competitive advantages of these businesses remain firmly intact. Martin Marietta Materials (-9% for the quarter) have the potential for outsized multi-year investment returns from today’s depressed prices.
Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Wallace Weitz.
