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Amber Harris
Amber Harris
Articles (133) 

Tweedy Browne's Recent Stock Purchases Still Try to Follow Graham's Philosophy During the Market's All-Time High

November 13, 2014 | About:

Tweedy Browne (Trades, Portfolio) has been in business for almost 90 years and even had Benjamin Graham, the father of investing, as a client between 1930 and 1940. This investment partnership is owned by William H. Browne, John D. Spears, Thomas H. Shrager and Robert Q. Wyckoff, Jr.

Christopher H. Browne, William H. Browne and John D. Spears make up the operations management team.

Warren Buffett (Trades, Portfolio) sees the company as Graham-Doddsville super investors and so therefore, it is safe to assume Tweedy Browne (Trades, Portfolio) incorporates Graham’s philosophy when it comes to investing. The Graham philosophy specializes in net-net investments and also looks at buying companies that are trading at less than 2/3 working capital.

Graham's philosophy follows three rules that indicates whether or not a stock is a reasonable price:

  1. An investor should not pay more than 15 * 3-year EPS average
  2. An investor should not pay more than 1.5 * book value
  3. The product of P/E * P/B should not exceed 22.5

Some of Tweedy Browne (Trades, Portfolio)'s most recent stock purchaes include: Verizon Communications Inc (NYSE:VZ), Banco Santander Brasil SA/Brazl (NYSE:BSBR), ConocoPhillips (NYSE:COP), Core Molding Technologies Inc (CMT) and Walmart Stores Inc (NYSE:WMT).

Verizon Communications Inc (NYSE:VZ)

03May20171259061493834346.png

This chart shows revenue in relation to net income.

Verizon Communications is a Northern American broadband and communictions company. Its headquarters are located in Manhattan, New York City. 

Recent News: Verizon was recently noted as one of the most military-friendly companies when it comes to employment. The company currently has roughly 11,000 veterans and service members working for it. One of the reasons soldiers currently in active duty decide to work for Verizon could be due to the fact that if deployed, the company provides pay differential and provides full benefits for up to 36 months. 

Current Price: $50.82

Down by: 0.03%

Why we think you should invest:

  • The operating margin is expanding
  • P/E ratio is 10.60, close to the 10-year low 9.99

What we believe you need to watch out for:

  • Operations cash flow has a severe divergence from the net income, meaning payment from customers may not have been received

Banco Santander Brasil SA/Brazil (NYSE:BSBR)

1415920801346.png

This chart shows revenue in relation to net income.

Banco Santander Brasil SA/Brazil is a brazilian multiple service bank, operarting through three segments: Commercial Bank, Global Wholesale Bank and Asset Management and Insurance.

Recent news: The future of Banco Santander looks uncertain after the Spanish court rejected a pardon from chief executive, Alfred Saenz. The fate of Saenz now lies in the hands of the Bank of Spain, who will decide whether or not he needs to step down after his 2011 charges he received from allegedly making false accusations agaist supposed debtors to Banesto, a bank that was taken over by Santander. The case began in 1994.

Current Price: $5.51

Down by: 0.99%

Why we think you should invest:

  • P/E ratio is currently at 0.10, which is where it was at the one-year low

What be believe you need to watch out for:

  • Altman Z-score is in the distress zone, which indicates possible bankruptcy within the next couple years
  • Low Piotroski F-Score indicates poor business operation
  • The company is unable to cover interest expense and if the issue continues to occur, more debt will have to be issued
  • Banco Santader has already issued $17.3 billion of debt over a three year period
  • The operating margin has been declining by 18.8% per year over a five year period
  • The company's leadership future is uncertain

ConocoPhillips (NYSE:COP)

03May20171259501493834390.png

This chart shows revenue in relation to net income.

ConocoPhillips is responsible for developing and producing crude oil and natural gas.

Recent News: The company has recently announced that it will begin producing gas from the Kebabangan (KBB) gas field. The production will begin as soon as pipeline capacity becomes available.

Current Price: $70.59

Down by: 0.86%

Why we think you should invest invest:

  • Dividend yield is near one-year high
  • P/E ratio (9.50) * P/B ratio (1.59) = around 15.11

Core Molding Technologies Inc (CMT)

03May20171259501493834390.png

This chart shows revenue in relation to net income.

Core Molding Technologies Inc manufactures sheet molding compound and fiberglass reinforced plastics in the United States.

Recent News: The Chief Operating Officer, Stephen K. Klestinec is planning to retire, effective at the end of this month. Klestinec has been the Operating Officer since 2007 and has been part of the company since 1998. The company is currently looking for a replacement.

Current Price: $13.55

Down by: 1.02%

Why we think you should invest invest:

  • The company shows possible revenue and earnings growth
  • The operating margin is expanding
  • P/S ratio is 0.60, close to the one-year low of 0.55

What we think you need to watch out for:

  • Stock price is almost at its 10-year peak

Walmart Stores Inc (NYSE:WMT)

03May20171259511493834391.png

This chart shows the P/E ratio in relation to the P/B ratio.

Walmart Stores Inc is a retail store with merchandise sales in the following categories: grocery, entertainment, health and wellness,hardlines, apparel and home.

Recent News: The company has told managers that it will be able to match prices with Amazon along with other online retailers during the upcoming holiday season. Gred Foran, head of Walmart businesses, said that half of the 5,000 stores werre doing this already.

Current Price: $81.65

Up by: 3.09%

Why we feel you should invest:

  • The company's revenue and earnings will potentially grow
  • P/E ratio is 16.20, close to the one-year low of 14.92
  • P/B ratio is 3.29, close to the two-year low of 2.98

What we think you need to watch out for:

  • Stock price is almost the highest it has been in 10 years
  • Dividend yield id close to one-year low

Keep in mind an ideal stock price according to the Graham philosophy is a pretty conservative number and this is a guideline to follow, not the law of stock purchasing according to Graham. Since the market is at an all-time high, it is almost impossible to hit every single rule Graham has laid out.

To view the portfolios of more gurus, visit the List of Gurus page. Not a premium member of GuruFocus? Try it free for 7 days

About the author:

Amber Harris
Assistant Editor at GuruFocus.com


Rating: 0.0/5 (0 votes)

Comments

asawhneyy
Asawhneyy - 4 years ago    Report SPAM

However thier return has been below average during the past decade, while it is sexy to follow Grahm ,bur return is not there--through the money in SP 500 OR BUY A BUSINESS NOT A PAPER.

SerenityStocks
SerenityStocks premium member - 4 years ago
The price calculation above is popularly known as the the Graham Number.

The math is relatively straightforward.

(P/EPS of 15) x (P/BVPS of 1.5) = 22.5.

(Price/EPS) x (Price/BVPS) = 22.5

Price(sqr)/(EPS x BVPS) = 22.5

Price(sqr) = 22.5 x EPS x BVPS

Price = Square Root of [(22.5) x (Earnings Per Share) x (Book Value Per Share)]

But before being checked against the Graham Number, Benjamin Graham required that a stock first meet six other qualitative criteria.

For example, given below are all Graham ratings for Wal-mart Stores Inc (WMT).

Defensive Graham investment requires all the ratings to be at least 100%.

Enterprising Graham investment requires the ratings to be at least - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

Wal-mart Stores Inc - Graham Ratings

Sales | Size (100% ⇒ $500 Million): 95,258.00%

Current Assets ÷ [2 x Current Liabilities]: 44.12%

Net Current Assets ÷ Long Term Debt: 0.00%

Earnings Stability (100% ⇒ 10 Years): 100.00%

Dividend Record (100% ⇒ 20 Years): 100.00%

Earnings Growth (100% ⇒ 30% Growth): 138.29%

Graham Number ÷ Previous Close: 59.58%

Warren Buffett (Trades, Portfolio) once wrote an article explaining how Benjamin Graham's principles are everlasting, their results irrefutable, and his students consistently exceptional. It's called "The Superinvestors of Graham-and-Doddsville".

But most of what Graham actually taught has been forgotten today, and things he warned against are often attributed to him instead.

Graham recommended various categories of stocks - Index, Defensive, Enterprising and NCAV. He emphasized that the secret of sound investment was the "Margin of Safety", and specified precise qualitative and quantitative rules for each category.

http://www.gurufocus.com/news/262827/investing-for-beginners-with-benjamin-graham shows how anyone can do a true 17-point Benjamin Graham assessment for 5000+ NYSE and NASDAQ stocks; with no adjustments other than those for inflation.

LwC
LwC - 4 years ago    Report SPAM

IMO SerenityStocks = Spam

goforit
Goforit premium member - 4 years ago
Tweedy Browne (Trades, Portfolio) has had a lousy track record for 20 years now. Can someone explain to me how long a previously good investment group has to show poor performance before GuruFocus decides to remove them from their list of top gurus? This makes no sense to me. Am I missing something?

WARcpa
WARcpa premium member - 4 years ago
Actually, Tweedy Browne (Trades, Portfolio) has had a very good track record over the last 20 years. Their flagship Tweedy Browne (Trades, Portfolio) Global Value is up almost 800% during that time period. They were Morningstar's Stock Managers Of The Year in both 2000 and 2011, and were finalists for Stock Manager Of The Year in 2010 (as well as finalist in S&P Capital IQ for the same year). They currently have a 5 star rating in both Morningstar and Schwab ratings. They have good risk adjusted returns, and are tax efficient. Their investment letters are also generally rated as among the best in the business. To me, they clearly belong in the guru category.

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