The firm was originally founded as Chieftain Capital Management in 1984, and when the partners split the firm up into two separate companies in 2010, Greenberg’s firm was renamed Brave Warrior Advisors. Greenberg likes to run a highly concentrated portfolio, which he considers to be a “defense against ignorance,” since the more companies you own, the less you know about each. He prefers to invest in companies that have little competition, high returns on invested capital, good balance sheet strength and attractive valuations.
As per its latest 13F filing, Greenberg’s firm only made one new buy for the second quarter of 2022: OneMain Holdings Inc. (OMF, Financial), an American subprime lending giant. Meanwhile, it slashed its holdings in Progressive Corp. (PGR, Financial) and Elevance Health Inc. (ELV, Financial).
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Brave Warrior Advisors picked up 2,889,274 shares of OneMain Holdings (OMF, Financial) in the second quarter, marking its only new buy for the three months through June. The stake has a weight of 3.71% in the equity portfolio. During the second quarter, shares of OneMain changed hands for an average price of $43.26.
Headquartered in Evansville, Indiana, OneMain is a financial services holding company that owns and operates the largest personal installment loan company in the U.S. It makes emergency loans to those with nonprime credit scores who do not qualify for a loan from a bank or credit union. Heading into recessionary conditions which will primarily impact low-income households, the demand for OneMain’s loans will likely increase.
A bet on OneMain is a risky one because the company’s recessionary outlook depends on just how bad the recession turns out to be. In the case of a small recession that soon corrects with lower inflation and rising wages, OneMain could reap the benefits of lower credit scores and a greater need for personal loans. If the recession turns out to be steep, though, the number of customers defaulting on loans could go through the roof, bringing huge losses for OneMain; you can’t get loan money back from people if they already spent it and do not have anything. Thus, it seems likely that Greenberg is forecasting only a minor recession with a swift correction.
The firm sold nearly all of its Progressive (PGR, Financial) position, reducing it by 99.9% for a remaining holding of 1,746 shares. The trade took 5.75% off the equity portfolio at the quarter’s average share price of $113.39.
Ohio-based Progressive is the third-largest insurance company in the U.S. and is best known for auto insurance. It operates in three segments: commercial auto, personal lines and general and professional liability. Progressive is considered to be one of the best-run insurance companies as it has often managed to record underwriting profits even when many peers were operating at a loss. With a three-year revenue per share growth rate of 14.2%, it is also growing quite rapidly for a company that is already among the top names in its industry.
Greater efficiency does not mean that Progressive is guaranteed to always perform well, though. Inflation is hitting insurance companies hard, especially auto insurers, due to the rapidly rising costs of the parts and materials needed for repairs. While Progressive and other insurers have filed for rate increases, many states have been slow to grant them due to worries that it will cause an increase in the number of uninsured drivers.
Greenberg’s firm also trimmed its top holding, Elevance Health Inc. (ELV, Financial), by 10.49% for a remaining stake of 1,211,276 shares. The trade reduced the equity portfolio by 2.06%. During the quarter, shares averaged $494.66 apiece.
Elevance is primarily in the business of health insurance. It offers medical, pharmaceutical, dental, behavioral health, long-term care and disability insurance plans. It is based in Indianapolis. The company is aiming to transform itself from a traditional health benefits organization to what it calls a “lifetime trusted health partner.” This approach means integrating not just physical health but also behavioral health, social health and long-term care for ageing and disabled patients.
The company's industry prospects seem generally positive, with the ageing population forecasted to spur greater health care spending per capita. It is possible that given Elevance’s enthusiastic rebranding, some might be bearish on the stock due to a problem that has unfortunately become quite pervasive in the health care industry: the problem of companies buying up doctors' offices and other health care facilities, cutting costs and hurting the quality of care for short-term profits (which comes at the expense of long-term growth). However, given that this is still the top holding in Brave Warrior’s portfolio, it would seem that the firm remains mostly bullish on it.
Greenberg’s other notable trades for the quarter included additions to Apollo Global Management Inc. (APO, Financial), United Rentals Inc. (URI, Financial) and Lithia Motors Inc. (LAD, Financial) and a reduction to HCA Healthcare Inc. (HCA, Financial). You can view the firm’s full trades here.
As of its latest 13F filing, the firm held shares of 23 common stocks in an equity portfolio valued at $2.91 billion. The top holding was Elevance Health with 20.07% of the equity portfolio, followed by Apollo Global with 12.36% and Fidelity National Financial Inc. (FNF, Financial) with 11.57%.
In terms of sector allocation, the firm has by far the highest weighting in financial services, followed distantly by health care and consumer cyclical.