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Wallace Weitz Buys Gartner, Boosts 2 Top Holdings

Guru's firm releases 1st-quarter portfolio

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May 24, 2022
Summary
  • Investor entered one new position and increased the CoStar and Meta Platforms stakes.
  • He also reduced the holdings of Charles Schwab and Aon.
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Wallace Weitz (Trades, Portfolio), head of Weitz Investment Management, disclosed his first-quarter portfolio earlier this month.

When picking stocks, the guru's Omaha, Nebraska-based firm combines Benjamin Graham's principles of price sensitivity and insistence on margin of safety with a conviction that qualitative factors that allow the company to control its future can be more important than statistical metrics like book value and earnings.

In his first-quarter letter for the Partners III Opportunity Fund, Weitz noted the year started with a “cloudy investment outlook that only grew more tumultuous.” He wrote:

“The Omicron wave of Covid-19 cases peaked in early January, but global supply chains are far from healthy. By the end of 2021, supply shortages combined with sustained, massive monetary and fiscal stimulus had already stoked the flames of inflation. Anticipating a hawkish shift at the Federal Reserve, investors began the year repricing assets for a higher interest rate environment. The outbreak of war in Ukraine brought senseless death and destruction, injecting further disruption to global markets. Energy prices surged further as importers of Russian oil and natural gas sought alternative supply. Market conditions remain dynamic, and although markets have recovered a portion of their intra-quarter drawdown, we anticipate further volatility ahead.”

Keeping these considerations in mind, Weitz was active on both the buy and sell sides of the trading ledger during the three months ended March 31. According to 13F filings with the SEC, he entered one new position during the quarter, which was Gartner Inc. (

IT, Financial), and added to or trimmed a number of existing investments. Other notable trades included increased bets on CoStar Group Inc. (CSGP, Financial) and Meta Platforms Inc. (FB, Financial) as well as reductions in the Charles Schwab Corp. (SCHW, Financial) and Aon PLC (AON, Financial) holdings.

Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

Gartner

Weitz invested in 127,979 shares of Gartner (

IT, Financial), allocating 1.7% of the equity portfolio to the position. The stock traded for an average price of $289.47 per share during the quarter.

The Stamford, Connecticut-based company, which offers subscription-based research services to IT and business professionals, has a $19.60 billion market cap; its shares were trading around $241.70 on Tuesday with a price-earnings ratio of 25.7, a price-book ratio of 167.14 and a price-sales ratio of 4.21.

The GF Value Line suggests the stock is modestly overvalued currently based on historical ratios, past performance and future earnings projections.

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GuruFocus rated Gartner’s financial strength 5 out of 10. In addition to sufficient interest coverage, the Altman Z-Score of 3.45 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital also slightly exceeds the weighted average cost of capital, meaning value is being created as the company grows.

The company’s profitability fared much better with a 10 out of 10 rating, driven by an expanding operating margin as well as strong returns on equity, assets and capital that top a majority of competitors. Gartner also has a high Piotroski F-Score of 7 out of 9, meaning operations are healthy, and consistent earnings and revenue growth contributed to a predictability rank of four out of five stars. According to GuruFocus research, companies with this rank return an average of 9.8% annually over a 10-year period.

Of the gurus invested in Gartner,

Ron Baron (Trades, Portfolio) has the largest stake with 6.55% of its outstanding shares. Al Gore (Trades, Portfolio)’s Generation Investment Management, Bill Nygren (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Joel Greenblatt (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio) also have positions in the stock.

CoStar Group

The guru boosted the CoStar Group (

CSGP, Financial) stake by 27.78%, picking up 313,700 shares. The transaction had an impact of 0.93% on the equity portfolio. Shares traded for an average price of $66.50 each during the quarter.

Weitz now holds 1.44 million shares total, accounting for 4.3% of the equity portfolio and his fourth-largest holding. GuruFocus estimates he has lost 19.48% on the investment since establishing it in the first quarter of 2020.

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The company headquartered in Washington D.C., which provides information, analytics and marketing services to the commercial property industry, has a market cap of $32.08 billion; its shares were trading around $812.35 on Tuesday with a price-earnings ratio of 138.39, a price-book ratio of 5.89 and a price-sales ratio of 18.36.

According to the GF Value Line, the stock is significantly undervalued.

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CoStar’s financial strength was rated 8 out of 10 by GuruFocus on the back of adequate interest coverage and a robust Altman Z-Score of 10.2. Although assets are building up at a faster rate than revenue is growing, indicating it may be becoming less efficient, there is good value creation since the ROIC overshadows the WACC.

The company’s profitability scored a 9 out of 10 rating, driven by an expanding operating margin and returns that outperform over half of its industry peers. CoStar also has a moderate Piotroski F-Score of 5, indicating conditions are typical for a stable company. Steady earnings and revenue growth contributed to a 4.5-star predictability rank. GuruFocus data shows companies with this rank return an average of 10.6% annually.

With 4.76% of outstanding shares, Baron is CoStar’s largest guru shareholder. Other top guru investors are

Baillie Gifford (Trades, Portfolio), Frank Sands (Trades, Portfolio), Chuck Akre (Trades, Portfolio)’s firm, Simons’ firm, Jerome Dodson (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Tom Gayner (Trades, Portfolio).

Meta Platforms

The Meta Platforms (

FB, Financial) holding was increased by 29.44%, with the investor buying 609,257 shares. The transaction impacted the equity portfolio by 0.90%. The stock traded for an average per-share price of $250.52 during the quarter.

Weitz now holds 397,250 shares, which represent 3.95% of the equity portfolio and is the seventh-largest position. He has lost an estimated 2.8% on the investment since establishing it in the first quarter of 2018, according to GuruFocus.

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The Menlo Park, California-based social media company formerly known as Facebook has a $478.02 billion market cap; its shares were trading around $176.55 on Tuesday with a price-earnings ratio of 14.82, a price-book ratio of 4.34 and a price-sales ratio of 4.63.

Based on the GF Value Line, the stock appears to be significantly undervalued currently.

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GuruFocus rated Meta Platforms’ financial strength 8 out of 10 due to a comfortable level of interest coverage and a robust Altman Z-Score of 10.26 that indicates it is in good standing. The ROIC also eclipses the WACC, suggesting the company is creating value.

The company’s profitability fared even better with a 10 out of 10 rating. Despite recording a decline in its margins, Meta is supported by strong returns that top a majority of competitors. It also has a moderate Piotroski F-Score of 5. Consistent earnings and revenue growth contributed to a 4.5-star predictability rank.

Ken Fisher (Trades, Portfolio) is Meta’s largest guru shareholder with a 0.41% stake. Dodge & Cox, Baillie Gifford (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Steve Mandel (Trades, Portfolio), Chris Davis (Trades, Portfolio), Simons’ firm, Ruane Cunniff (Trades, Portfolio), Philipe Laffont and Diamond Hill Capital (Trades, Portfolio), among several others, also have significant holdings in the company.

Charles Schwab

With an impact of -1.74% on the equity portfolio, Weitz curbed the Charles Schwab (

SCHW, Financial) position by 41.09%, selling 510,363 shares. The stock traded for an average price of $88.05 per share during the quarter.

The investor now holds a total of 731,650 shares, which make up 2.76% of the equity portfolio. Weitz has gained about 47.30% on the investment so far.

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Headquartered in Westlake, Texas, the company, which offers banking, online brokerage and wealth management advisory services, has a market cap of $119.81 billion; its shares were trading around $63.10 on Tuesday with a price-earnings ratio of 22.9, a price-book ratio of 3.21 and a price-sales ratio of 6.49.

The GF Value Line suggests the stock is fairly valued currently.

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Charles Schwab’s financial strength was rated 3 out of 10 by GuruFocus. Although the company has issued new long-term debt over the past several years, it is manageable due to a comfortable level of interest coverage.

The company’s profitability fared a bit better, scoring a 7 out of 10 rating on the back of margins and returns that outperform over half of its industry peers as well as a moderate Piotroski F-Score of 5. Boosted by steady earnings and revenue growth, Charles Schwab has a four-star predictability rank.

Of the gurus invested in Charles Schwab, Dodge & Cox has the largest stake with 3.81% of its outstanding shares.

PRIMECAP Management (Trades, Portfolio), Gore’s firm, Ruane Cunniff (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), Baron, Nygren, First Eagle and several other gurus also have sizeable holdings.

Aon

Impacting the equity portfolio by -1.13%, the guru trimmed the Aon (

AON, Financial) holding by 37.07%, selling 93,007 shares. During the quarter, shares traded for an average price of $290.48 each.

Weitz now holds a total of 157,900 shares, giving it 2.30% space in the equity portfolio. GuruFocus estimates he has gained 111.93% on the long-held investment.

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The British insurance company, which offers a range of financial risk-mitigation products, has a $56.16 billion market cap; its shares were trading around $266.12 on Tuesday with a price-earnings ratio of 41.98, a price-book ratio of 47.83 and a price-sales ratio of 4.75.

According to the GF Value Line, the stock is fairly valued currently.

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GuruFocus rated Aon’s financial strength 4 out of 10. Although the company has issued new long-term debt over the past several years, it is still at a manageable level due to adequate interest coverage. The low Altman Z-Score of 1.64, however, warns it could be at risk of bankruptcy. The WACC also surpasses the ROIC, indicating struggles with creating value.

The company’s profitability fared better with an 8 out of 10 rating on the back of operating margin expansion and strong returns that outperform over half of its competitors. Aon also has a moderate Piotroski F-Score of 5. As a result of recording losses in operating income, the one-star predictability rank is on watch. GuruFocus says companies with this rank return an average of 1.1% annually.

With a 2.07% stake,

Warren Buffett (Trades, Portfolio) is the company’s largest guru shareholder. Andreas Halvorsen (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), Steven Romick (Trades, Portfolio) and several other gurus also own the stock.

Additional trades and portfolio performance

During the quarter, Weitz also added to the CarMax Inc. (

KMX, Financial) holdings and reduced positions in Berkshire Hathaway Inc. (BRK.B, Financial), AutoZone Inc. (AZO, Financial), JPMorgan Chase & Co. (JPM, Financial) and Markel Corp. (MKL, Financial).

Slightly over half of the guru’s $2.23 billion equity portfolio, which is made up of 57 stocks, is invested in the financial services and communication services sectors.

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The Partners III Opportunity Fund returned 23.57% in 2021, underperforming the S&P 500’s 28.7% return.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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