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Mason Hawkins' Top 3rd-Quarter Buys

Southeastern Asset Management buys Discovery, adds to top holding

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Nov 23, 2021
Summary
  • Southeastern took new stakes in Discovery, IAC and RenaissanceRe.
  • The firm also added to its investments in FedEx and Lumen Technologies.
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Southeastern Asset Management recently disclosed its 13F portfolio updates for the third quarter of 2021, which ended on Sept. 30.

Founded by

Mason Hawkins (Trades, Portfolio) in 1975, the Memphis, Tennessee-based firm manages the Longleaf Partners Funds. The firm employs a fundamental, bottom-up appraisal process based on in-house research in order to select a concentrated portfolio of quality investments that have strong balance sheets, good management teams and attractive valuations.

Based on its latest 13F filing, the firm’s top five buys for the quarter were Discovery Inc. (

DISCK, Financial), IAC/InterActiveCorp (IAC, Financial), RenaissanceRe Holdings Ltd (RNR, Financial), FedEx Corp. (FDX, Financial) and Lumen Technologies Inc. (LUMN, Financial).

Discovery Inc.

Hawkins’ firm established a new holding worth 10,451,012 shares in Discovery Inc. (

DISCK, Financial) after selling out of its previous investment in the stock in the second quarter of 2010. The stock now has a weight of 4.81% in the equity portfolio, and shares traded around $26.77 apiece during the quarter.

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Established in 1985, New York-based Discovery is a multinational media company that primarily operates a group of factual and lifestyle television brands, such as Discovery Channel, Animal Planet, Science Channel and TLC.

The company has a financial strength rating of 4 out of 10. While the Altman Z-Score of 1.44 indicates risk of bankruptcy, the Piotroski F-Score of 7 out of 9 represents a healthy financial situation. Its profitability rating is 9 out of 10 on the back of a three-year revenue per share growth rate of 10% and a three-year Ebitda per share growth rate of 30.5%.

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On Nov. 23, shares of Discovery traded around $25.06 for a market cap of $12.83 billion. The GuruFocus Value chart rates the stock as modestly undervalued.

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IAC/InterActiveCorp

The firm also bought 1,669,422 shares of IAC/InterActiveCorp (

IAC, Financial), giving the stock a weight of 4.13% in the equity portfolio. Shares were trading for an average price of $134.57 in the three months through the end of September.

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Commonly known by its acronym, IAC is a media and internet holding company based in New York. It owns a wide variety of brands across 100 countries and frequently spins off successful subsidiaries into their own publicly traded companies. It even spun itself off from former subsidiary Match Group Inc. (MTCH), since Match had grown larger than the rest of the subsidiaries combined.

The company has a financial strength rating of 7 out of 10, with the cash-debt ratio of 6.94 and Altman Z-Score of 5.61 showing a fortress-like balance sheet. Its profitability rating is 2 out of 10. Even though the net margin of 6.57 is above the industry median, the operating margin is in the red at -3.47%.

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On Nov. 23, shares of IAC traded around $127.59 for a market cap of $11.43 billion. Since the company spun itself off from Match Group, shares are up 79%.

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RenaissanceRe Holdings Ltd

The firm took a 908,953-share stake in RenaissanceRe Holdings Ltd (

RNR, Financial). At the average price of $151.40 per share for the quarter, the stock now has a 2.40% weight in the equity portfolio.

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RenaissanceRe Holdings, which is based in Bermuda, provides reinsurance, insurance and other related business services, specializing in the catastrophe reinsurance, specialty reinsurance and individual risk businesses.

The company has a financial strength rating of 3 out of 10. The cash-debt ratio of 1.27 and debt-to-equity ratio of 0.17 are lower than most peers in the insurance industry. Its profitability rating is 6 out of 10, driven by strong top-line growth even as the bottom line remains fairly consistent.

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On Nov. 23, shares of RenaissanceRe traded around $167.04 for a market cap of $7.70 billion. The GuruFocus Value chart rates the stock as modestly undervalued.

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FedEx Corp

Southeastern Asset Management added 302,412 shares to its FedEx Corp. (

FDX, Financial) investment for a total holding of 1,148,459 shares. The trade had a 1.26% impact on the equity portfolio. During the quarter, shares traded for an average price of $271.73.

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FedEx is a multinational delivery service based in Memphis, Tennessee. In the U.S., it is the go-to company when it comes to fast shipping for individuals and small online businesses. Its stores also have printing services, where customers can print things like posters and flyers in high quality.

The company has a financial strength rating of 4 out of 10. The Altman Z-Score of 2.64 and Piotroski F-Score of 7 out of 9 show a stable balance sheet. Its profitability rating is 8 out of 10, driven by a three-year revenue per share growth rate of 9.7% and a three-year Ebitda per share growth rate of 13.2%.

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On Nov. 23, shares of FedEx traded around $245.97 for a market cap of $65.29 billion. The GuruFocus Value chart rates the stock as fairly valued.

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Lumen Technologies Inc.

The firm added another 4,032,502 shares to its top holding, Lumen Technologies Inc. (

LUMN, Financial), which traded at an average price of $12.55 per share during the quarter. The buy added 0.95% to the equity portfolio. However, the firm did trim 340 shares off of the position after the quarter ended, according to GuruFocus Real-Time Picks. The holding is now worth 65,689,808 shares.

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Lumen Technologies is an American telecommunications company headquartered in Monroe, Louisiana. It operates under the CenturyLink brand name, offering communications, network services, security, cloud solutions, voice and managed services.

The company has a financial strength rating of 3 out of 10; the cash-debt ratio of 0.02 Altman Z-Score of 0.51 indicate bankruptcy is a possibility. Its profitability rating is 5 out of 10. The return on invested capital (ROIC) was higher than the weighted average cost of capital (WACC) in the last two full years, indicating a turn to profitability.

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On Nov. 23, shares of Lumen traded around $13.86 for a market cap of $14.13 billion. According to the Peter Lynch chart, the stock is trading below both its intrinsic value and its median historical valuation.

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Portfolio overview

As of the end of the quarter, Southeastern’s equity portfolio consisted of 29 common stock holdings valued at a total of $5.27 billion. The turnover for the quarter was 19%.

The top holdings by weight were Lumen Technologies with 15.45% of the equity portfolio, CNX Resources Corp (

CNX, Financial) with 6.74% and Mattel Inc. (MAT, Financial) with 6.46%.

In terms of sector weighting, the firm was most invested in communication services stocks, followed by consumer cyclical and financial services.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the SEC filings for the quarter in question and may not include non-U.S.-listed international stocks or changes made after the quarter ended.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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