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Holly LaFon
Holly LaFon
Articles (8062) 

Martin Whitman’s Third Avenue Management First Quarter Stock Buys

March 26, 2014 | About:
Martin Whitman (Trades, Portfolio)’s Third Avenue Management (Trades, Portfolio) team mostly seeks companies trading at discounts to their net asset values (NAV) between 25% and 75%, which are well financed and have excellent growth records. Companies of the Dow Jones Industrial Average (DJIA), Whitman notes in his first quarter 2014 letter released today, cost $2.76 for each $1.00 of corporate net assets. His funds’ portfolio companies, by contrast, cost $0.25 to $0.75 for each $1.00 of corporate assets. “This discrepancy makes no economic sense except that the discounts have always existed for the securities named at the start of this paragraph and no catalysts such as changes in control or going private, appear to exist for those companies,” he says.

In addition: “The quality of net assets of the TAM portfolio companies appears to be significantly better than the quality of the net assets of the DJIA portfolio companies. Also NAV, or book values, seem to be significantly more important in analyzing the TAM portfolio companies and their securities than is the case for the DJIA portfolio companies.”

Third Avenue announced today adding two new stocks – both foreign – to its portfolio in the first quarter of 2014: Kurita Water Industries Ltd. (TSE:6370) and Michelin (XPAR:ML).

Kurita Water Industries Ltd. (TSE:6370)

Whitman purchased 1,180,000 shares of Kurita Water Industries, a 1.2% portfolio weighting. The price averaged 2,178 yen per share in the fourth quarter, and has dropped 2% from the average to 2,132 yen per share Wednesday, which is near a two-year high price.


Kurita Water Industries Ltd. is a Japanese company that purifies wastewater for use as clean water through water treatment systems. It has a 224.99 billion yen market cap.

In the nine months ended Jan. 31, 2014, Kurita reported a 4.5% net sales decline year over year to 123.8 billion yen, and net income fell 12.9% to 6.28 billion yen. The company attributed the weakness to low capital expenditure and moderate capacity utilization recovery at its main customers, intensifying price competition, and worsening of the cost rate alongside an increase in SG&A.

Kurita ended the period with 43 billion yen in cash, down from 48.7 billion yen at year-end 2013. The company has five-year per-share decline rates of 0.4% for revenue and 0.3% for EBITDA. Book value has increased at a rate of 5.8% annually over the same period.

Kurita’s 10-year revenue and earnings history:


The company trades with a P/E of 23.6, P/B of 1.06 and P/S of 1.46.

Michelin (XPAR:ML)

For his slightly larger purchase, Michelin bought 247,739 shares of Michelin, representing 1.3% of the portfolio. The fourth quarter average price was €84, and the price has since gained 7% from the average, rising to €89.16 on Wednesday, which is near a five-year high.


Michelin is the France-based tire manufacture and distribution company with a €16.98 billion market cap.

For the year ended Dec. 31, 2013, Michelin’s net sales declined to €20.25 billion, versus €21.47 billion in 2012. Earnings were €1.13 billion, down from €1.57 billion in 2012, on stable year-on-year volumes. Michelin generated €1.15 billion in free cash flow for the year, and ended the year almost debt-free, compared to net debt of €1.05 billion at year-end 2012.

For 2014, the company aims to increase its sales volumes by approximately 3%, as the global tire market grows, and generate free cash flow of more than €500 million in free cash flow.

Over the past five years, Michelin drove per-share growth rates of 1.2% for revenue, 10.2% for EBITDA and 6.4% for book value.

Michelin’s 10-year revenue and earnings history:


Michelin trades with a P/E of 15 and P/B of 1.91. Its P/S ratio of 0.85 is close to a 10-year high.

For more Third Avenue Management (Trades, Portfolio) stock holdings, view the portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days here!

Rating: 5.0/5 (1 vote)



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