The Tweedy Browne (Trades, Portfolio) International Value Fund recently disclosed its portfolio updates on its website for the fourth quarter of 2022, which ended on Dec. 31.
The fund operates as part of New York-based value investing firm Tweedy, Browne Co. LLC. The portfolio managers aim to invest in a diverse range of companies in developed countries, with an emphasis on undervalued non-U.S. securities, in order to achieve long-term capital growth. Though it invests primarily outsides of the U.S., the fund does own shares of some U.S.-listed securities if the portfolio managers perceive an attractive enough value opportunity.
Based on the fund’s latest report, it made three new buys for the quarter: Grafton Group PLC (LSE:GFTU, Financial), Alten (XPAR:ATE, Financial) and Norma Group SE (XTER:NOEJ, Financial).
Investors should be aware that portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Grafton Group
The fund’s top new buy was for 1,719,755 shares of Grafton Group (LSE:GFTU, Financial). At the quarter’s average share price of 7.48 British pounds ($9.24), the position takes up 0.31% of the equity portfolio.
Grafton is an Irish do-it-yourself and professional home and garden retailer that operates in Ireland, the U.K., the Netherlands and Finland. It primarily focuses on supplying professional trades people with the materials they need for residential repair, maintenance and building. The company also operates home improvement retail stores and an e-commerce site.
The GF Value chart rates Grafton as modestly overvalued. However, the price-earnings ratio of 7.69 is less than half of the company’s historical median, and the stock offers a considerable forward dividend yield of 3.41%.
The similarities to Home Depot (HD, Financial) in the U.S. are undeniable. Grafton is trading much cheaper than Home Depot’s price-earnings ratio of 18.81 and has a slightly higher dividend yield than Home Depot’s 2.42%, though Home Depot has a faster three-year earnings per share growth rate (16.9% versus 12.4%). The margins are solid and have shown long-term growth, as per the chart below:
Alten
The fund also purchased 112,219 shares of Alten (XPAR:ATE, Financial), giving it a portfolio weight of 0.26% at the quarter’s average share price of 118.20 euros ($128.05).
Alten is a French engineering and technology consulting company that was founded in 1988 and operates in over 30 countries (France accounts for about 35% of its operations). It works with customers in a wide variety of industries, including aeronautics, defense, finance, life sciences and more, helping them develop strategies for innovation, research and IT systems.
Alten’s GF Value chart suggests it is modestly undervalued, though its PEG ratio of 1.52 indicates it is slightly more expensive than its Ebitda growth. The GuruFocus discounted cash flow calculator suggests it would need to grow earnings per share at a rate of 11% for the next decade to be worth its current valuation.
As a key asset to helping businesses solve technological challenges, Alten has a huge opportunity ahead as more businesses update their technology and adopt innovations such as artificial intelligence and big data. On the back of these powerful tailwinds, Morningstar (MORN) analysts estimate the company’s three-to-five-year revenue growth rate at 14.65%.
Norma Group
The fund established a new holding of 537,857 shares in Norma Group SE (XTER:NOEJ, Financial) after selling out of its previous investment in the stock in the second quarter of 2022. During the fourth quarter, shares averaged 16.18 euros apiece, giving the stock a portfolio weight of 0.18%.
Norma is a German engineering and manufacturing company that focuses specifically on machine joining components that are divided into three categories: clamp, connect and fluid. It sells its products mainly under the ABA, Norma and Gemi brand names, though it also has several regional brands. It has over 10,000 customers in 100-plus countries around the world.
The GF Value chart shows Norma to be undervalued, but it is a potential value trap based on how the business has been shrinking on both the top and bottom lines for a few years now. The good news is, revenue has recovered and risen above pre-pandemic levels, even though the bottom line is still lagging. The forward dividend yield of 3.92% is also solid.
Despite a significant Covid-related drawdown, Norma’s top line has shown fairly consistent growth throughout its publicly traded history, and while earnings are still trending down, the company at least has a solid financial position with a Piotroski F-Score of 5 out of 9. The stock may remain down for some time as the company is being hit by an economic downturn and the war in Ukraine.
Portfolio overview
As of the end of the quarter, the fund’s latest report detailed holdings in 96 common stocks valued at a total of $5.34 billion. The turnover for the quarter was 3%.
The top holding was Nestle SA (XSWX:NESN, Financial) with 5.48% of the equity portfolio, followed by TotalEnergies SE (XPAR:TTE, Financial) with 4.49% and Diageo PLC (LSE:DGE, Financial) with 4.32%.
In terms of sector weighting, the fund was most invested in industrials, consumer defensive and financial services stocks.
