Investment firm Tweedy Browne (Trades, Portfolio) has revealed its portfolio for the third quarter of 2021. The firm’s top trades include major reductions in Alibaba Group Holding Ltd. (BABA, Financial), Baidu Inc. (BIDU, Financial) and Alphabet Inc. (GOOG, Financial) alongside a new buy into FMC Corp. (FMC, Financial) and selling out of its AbbVie Inc. (ABBV, Financial) holding.
The Tweedy Browne (Trades, Portfolio) investment approach derives from the work of Benjamin Graham. Their research seeks to appraise the worth of a company by determining its acquisition value, or by estimating the collateral value of its assets and cash flow. Investments are made at a significant discount to intrinsic value. Investments are then sold as the market price approaches intrinsic value, with the proceeds reinvested in other situations offering a greater discount to intrinsic value.
Portfolio overview
At the end of the quarter, the firm’s portfolio contained 46 stocks with one new holding. It was valued at $2.99 billion and has seen a turnover rate of 4%. Top holdings in the portfolio include Berkshire Hathaway Inc. (BRK.A, Financial), Alphabet Inc. (GOOGL, Financial), Johnson & Johnson (JNJ, Financial), Alphabet’s Class C shares and Cisco Systems Inc. (CSCO, Financial).
The top sectors represented in the portfolio are financial services (31.33%), communication services (24.92%) and health care (10.68%).
Alibaba
The firm slashed its Alibaba (BABA, Financial) holding during the quarter by 95.93% after two quarters of significant additions. Managers sold 1.48 million shares during the quarter that traded at an average price of $182.30. Overall, the sale had a -9.46% impact on the equity portfolio and GuruFocus estimates the total loss on the holding at 28.64%.
Alibaba is the world's largest online and mobile commerce company, measured by GMV (6.6 trillion yuan ($1 trillion) for the fiscal year ended March 2020). It operates China's most-visited online marketplaces, including Taobao (consumer-to-consumer) and Tmall (business-to-consumer). Alibaba's China commerce retail division accounted for 69% of revenue in the December 2020 quarter, with Taobao generating revenue through advertising and other merchant data services and Tmall deriving revenue from commission fees.
On Nov. 29, the stock was trading at $131.96 per share with a market cap of $356.89 billion. According to the GF Value Line, the stock is trading at a significantly undervalued rating.
GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rank of 8 out of 10. There are two severe warning signs issued for a declining gross margin and a declining operating margin. Despite the warning signs, Alibaba’s operating margin exceeds 76.76% of industry competitors and its gross margin performs even better.
Other top guru shareholders in Alibaba (BABA, Financial) include Primecap Management, Ken Fisher (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), Dodge & Cox and Pioneer Investments.
Baidu
The firm also took a major chunk out of its Baidu (BIDU, Financial) position during the quarter. The sale of 943,377 shares cut the holding by 96.89% as share prices fell to an average of $164.72. GuruFocus estimates the firm has lost 0.97% on the holding and the sale had a -5.41% impact on the equity portfolio.
Baidu is the largest internet search engine in China with 84% share of the search engine market in September 2021 per web analytics firm, Statcounter. The company generated 62% of revenue from online marketing services from its search engine in 2020. Outside its search engine, Baidu is a technology-driven company and its other major growth initiatives are artificial intelligence cloud, video streaming services, voice recognition technology and autonomous driving.
As of Nov. 29, the stock was trading at $151.07 per share with a market cap of $52.49 billion. The GF Value Line shows the stock trading at a modestly undervalued rating.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 10 out of 10. There are three severe warning signs issued for assets growing faster than revenue, a declining gross margin and a declining operating margin. The company’s cash-to-debt ratio of 1.9 ranks worse than 70.40% of the interactive media industry and is approaching the minimum value seen by the company in the last decade.
Baidu (BIDU, Financial) shares are also owned by Primecap Management, Dodge & Cox, Baillie Gifford (Trades, Portfolio), John Rogers (Trades, Portfolio) and Pioneer Investments.
FMC
A new holding was established in FMC (FMC, Financial) by the firm during the third quarter. Managers purchased 991,210 shares that traded at an average price of $98.79 throughout the quarter. Share prices have risen slightly since the holding was established for an estimated gain of 5.24% on the new holding and the purchase had a 3.03% impact on the equity portfolio.
FMC is a pure-play crop chemical company. The company has diversified its sales to create a balanced crop chemical portfolio across geographies and crop exposure. Through acquisitions, FMC is now one of the five largest patented crop chemical companies and will continue to develop new products through its research and development pipeline.
The stock was trading at $104.30 per share with a market cap of $13.22 billion on Nov. 29. The stock is trading at a fair value rating according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 4 out of 10. There are no severe warning signs issued for the company, but several medium warning signs caution against new long-term debt and slowing revenue growth. The company’s revenue growth seems to have tapered off over the last several years with net income at a consistent level since 2017.
Larry Robbbins, Pioneer Investments, the Tweedy Browne (Trades, Portfolio) Global Value Fund, Mario Gabelli (Trades, Portfolio) and Keeley-Teton Advisors, LLC (Trades, Portfolio) also own FMC (FMC, Financial) shares.
Alphabet
Tweedy Browne (Trades, Portfolio) managers also pulled back the firm’s Alphabet (GOOG, Financial) holding. The holding was reduced by 21.73% with the sale of 24,895 shares. The shares traded at an average price of $2,756.72 throughout the quarter. The firm has seen a staggering total estimated gain of 397.79% on the holding and the sale had a -1.75% impact on the equity portfolio.
Alphabet is a holding company, with Google, the internet media giant, as a wholly-owned subsidiary. Google generates 99% of Alphabet revenue, of which more than 85% is from online ads. Google's other revenue is from sales of apps and content on Google Play and YouTube, as well as cloud service fees and other licensing revenue. Sales of hardware such as Chromebooks, the Pixel smartphone and smart homes products, which include Nest and Google Home, also contribute to other revenue.
On Nov. 29, the stock was trading at $2,923.84 per share with a market cap of $1.94 trillion. According to the GF Value Line, the stock is trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 8 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 3 out of 10. There are two severe warning signs issued for a declining gross margin and a declining operating margin. Alphabet has consistently maintained a strong balance of its weighted average cost of capital and return on invested capital, indicating strong capital efficiency over the years.
Other top guru shareholders in Alphabet (GOOG, Financial) include Dodge & Cox, Pioneer Investments, Primecap Management, Baillie Gifford (Trades, Portfolio) and Al Gore (Trades, Portfolio).
AbbVie
The firm also cut ties with its AbbVie (ABBV, Financial) holding and sold the remaining 390,370 shares. Throughout the quarter, the shares traded at an average price of $114.24, landing the firm at a 25.10% total gain on the holding. Overall, the sale had a -1.24% impact on the equity portfolio.
AbbVie is a drug company with a strong exposure to immunology and oncology. The company's top drug, Humira, represents close to half of the company's current profits. The company was spun off from Abbott in early 2013. The recent acquisition of Allergan adds several new drugs in aesthetics and women's health.
As of Nov. 29, the stock was trading at $117.29 per share with a market cap of $207.58 billion. The stock is trading at a fair value rating according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 8 out of 10. There are four severe warning signs issued for a declining gross margin, a declining operating margin, poor financial strength and an Altman Z-Score placing the company in the distress column. The company’s free cash flow has easily supported increasing dividend payouts over the last several years.
AbbVie (ABBV, Financial) shares are also owned by Warren Buffett (Trades, Portfolio), Pioneer Investments, the T Rowe Price Equity Income Fund (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies.
