Martin Whitman's Top 3rd Quarter Buys and Adds

Author's Avatar
Oct 02, 2012
Article's Main Image
Martin Whitman is the chairman and portfolio manager of asset management firm Third Avenue Management , which he founded in 1986. Whitman employs a disciplined value approach, stating in his third-quarter letter: “The Third Avenue belief is that underlying values, and growth in underlying values, will eventually be recognized in OPMI [Outside Passive Minority Investor] market prices, especially if potential catalysts such as changes in control, or going private, exist.”

In Whitman's third quarter — the three months ended July 31, 2012 — he made two new domestic buys: Stanley Furniture Co. (STLY, Financial) and Symantec Corporation (SYMC, Financial).

Stanley Furniture Co. (STLY, Financial)

Whitman bought 92,333 shares of Stanley Furniture at an average price of $4.12 in the third quarter.

Stanley Furniture Company is a designer and manufacturer of residential wood furniture exclusively targeted at the upper-medium price range. Stanley Furniture Co. has a market cap of $70.9 million; its shares were traded at around $4.95 with and P/S ratio of 0.7.

Over the last five years, Stanley Furniture’s stock has declined almost 79%, but it has rallied recently, increasing almost 71% in the last year, including a 50% run up in March. That month, the Census Bureau reported that furniture sales increased 8.3% in April from a year earlier. A few months earlier, in January, the largest increase since July 2000 occurred. Existing single-family homes also sold at an annual rate of 4.1 million in January, the highest rate in roughly two years, according to the National Association of Realtors, further boosting investor confidence.

Although profitable before 2009, Stanley has reported losses for its last three fiscal years. In its most recent second quarter, ended June 30, 2012, Stanley reported net income of $36.9 million, increased from a $1.56 million loss the previous quarter and a $0.60 loss the previous year. Revenue was $24.4 million, a decline from $26.8 million the previous quarter and $27.4 million the previous year.

The company had $47.4 million in cash on its balance sheet at quarter-end, up from $17.3 million at Dec. 31, 2011, helped by CDSOA proceeds of $39.9 million from funds that were previous withheld.

Symantec Corp. (SYMC, Financial)

Whitman bought 1,550,000 shares of Symantec at an average price of $15 in the third quarter.

Symantec, a world leader in Internet security technology, provides a broad range of content security solutions to individuals and companies. Symantec has a market cap of $12.62 billion; its shares were traded at around $17.78 with a P/E ratio of 12.8 and P/S ratio of 1.9. Symantec had an annual average earnings growth of 13.2% over the past 10 years. GuruFocus rated Symantec the business predictability rank of 4-star.

“We initiated a position in the common stock of Symantec Corp. (SYMC), a leading provider of security, backup / recovery and storage management software. The company's products are sold to both consumers (through its Norton product line) and corporations. Symantec's end markets seem to be generally healthy and growing, and the software business is very attractive owing to recurring maintenance revenue, high margins (gross margins in excess of 80%) and robust cash flow generation. Symantec has a very strong financial position with $4.1 billion of cash and investments, compared to total debt of $3.0 billion. During the quarter, the company issued $1 billion of long-term debt at very attractive rates (2.75% and 3.9% for five and ten year maturities, respectively),” Third Avenue Management commented in its third-quarter letter. Continue reading its comments on Symantec here.

Whitman’s also added to 11 of his existing positions. His greatest new adds were: Devon Energy Corp. (DVN, Financial) and Alleghany Corp. (Y, Financial).

Devon Energy Corp. (DVN, Financial)

Whitman increased his position in Devon Energy by 119.19%, or 607,195 shares, at an average price of $59 each. He initiated the position with 519,149 shares at a cost of $63 each on average. As of the end of his third quarter, he owns 1,125,344 shares total.

Devon Energy is an independent energy company engaged primarily in oil and gas exploration, development and production, and in the acquisition of producing properties. Devon Energy has a market cap of $24.47 billion; its shares were traded around $60.8 with a P/E ratio of 12.9 and P/S ratio of 2.1. The dividend yield of Devon Energy stocks is 1.3%.

“Devon's common stock price has been falling recently, owing primarily to weakness in commodity prices. In Devon's recently reported second quarter, oil, natural gas and natural gas liquids prices fell 19%, 54% and 26%, respectively, compared to a year ago,” Third Avenue Management commented in its third quarter letter. Read the complete comments on Devon here.

Alleghany Corp. (Y, Financial)

Whitman increased his position in Alleghany Corp. by 70.68%, or 28,201 shares, in the third quarter at an average price of $335 each. He initiated the position in the second quarter, buying 39,898 shares at an average price of $333 each. At the end of his third quarter, he owned 68,099 shares total.

Alleghany Corp. is engaged, through its subsidiaries Chicago Title and Trust Company, Chicago Title Insurance Company, Security Union Title Insurance Company and Ticor Title Insurance Company and their subsidiaries, in the sale and underwriting of title insurance and in other real estate-related services businesses, and through CT&T's subsidiary, Alleghany Asset Management Inc.

Alleghany Corporation has a market cap of $5.84 billion; its shares were traded around $344.98 with a P/E ratio of 19.8 and P/S ratio of 6. Alleghany Corporation had an annual average earnings growth of 2.1% over the past 10 years.

“Future book value growth should be partially driven by the company's 2012 purchase of Transatlantic, a leading global reinsurer. This transaction appears to have been well timed, as it was completed at a significant discount to tangible book value and reinsurance rates are improving in 2012,” Third Avenue Management commented on Alleghany in its second quarter letter. Read the comments here.

See Martin Whitman’s other third-quarter buys and sells in his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Martin Whitman.

Also check out:
3 / 5 (12 votes)