"Paying less than something is worth is the only successful long-term strategy," value investor of Abrams Capital Management, David Abrams, has said.
Abrams currently has 13 stocks in his portfolio and according to GuruFocus Real Time Picks, Abrams has three new stocks in his portfolio and a quarter-over-quarter turnover of 26%. Out of the 13 stocks in his portfolio, 48.4% of those stocks are in the financial services sector. The second most heavily weighted sector is consumer cyclical, making up 18.3% of his overall portfolio, and last is the technology sector, which makes up 15% of his portfolio.
"We do things the exact same, regardless of the market. We look at things, we look for a margin of safety, we look at the math, we look at all the things that one would look at to analyze individual securities, and when they're reall cheap we buy them."
Four of the most heavily weighted stocks include: Western Union Co (WU, Financial), American International Group Inc (AIG, Financial), Microsoft Corp (MSFT, Financial) and Covidien PLC (COV, Financial).
Abrams currently owns 21,608,707 shares of WU, valued at $346.6 million and makes up 20.1% of his overall portfolio. WU is part of the credit services industry.
Abrams acquired this position during the first quarter of 2013 at an average price of $14.75/share, which resulted in a 19% gain.
Western Union was incorporated in 2006 as a global money transfer and payment services company and is part of the credit services industry.
According to Peter Lynch's chart, this stock is undervalued and is worth $26.00/share.
As of today, the company's market cap is $9.06 billion and the stock is trading at $17.33/share. The P/E ratio is 11.69, P/S ratio is 1.68 and P/B ratio is 7.70.
American International Group Inc, which is part of the insurance industry, makes up 15.3% of Abrams' overall portfolio and valued at $259.4 million.
Since the second quarter of 2013, Abrams purchased a total of 4,801,276 shares at an average price of $43.04/share, wich resulted in a 17% overall gain.
AIG was founded in 1919 as a company that focuses on insurance and insurance-related activities by providing property casualty insurance, life insurance, retirement products, mortgage insurance and other services to customers in 130 different countries.
According to the Lynch chart above, this stock is undervalued and should be trading at $79.00.
AIG's market cap is $70.61 billion and is currently trading at $50.33/share. As of today, the P/E ratio is 8.34, P/S ratio is 1.11 and P/B ratio is 0.65 and at its 1-year low.
Microsoft Corp, part of the application software industry, makes up 13.7% of the overall portfolio.
Abrams acquired this position during the first quarter of 2014 and purchased a total of $4,980,000 shares at an average price of $39.85/share, resulting in an 18% overall gain. This stock's value is $230.7 million.
Microsoft Corp was founded in 1975 as a company that develops, manufactures, licenses and supports software products and services for different types of computing devices.
According to the chart above, Lynch values the stock at $53.80 and the stock is currently trading at $42.43 and so the stock is undervalued.
As of today, the company's market cap is $387.5 billion and has a P/E ratio of 18.43. MSFT's P/S ratio is 4.30, which is close to the 5-year high of 4.65 and the P/B ratio is 4.30.
Covidien PLC is a new postition that was recently acquired during the third quarter of 2014. COV is part of the medical instrument and equipment industry.
Abrams purchased 2,620,000 shares of COV at an average price of $88.60/share, resulting in a 20% overall gain.
COV was incorporated in Bermuda in 2000 as a company that sells, manufactures and develops healthcare products for both clinical and home settings.
According to Lynch's chart, the stock is worth $65.50 and is currently trading for $106.71, meaning this stock is overvalued.
As of today, COV's market cap is $48.5 billion with a P/E ratio at 27.46, a P/S ratio at 4.55 and a P/B ratio at 4.66, which is close to the 10-year high of 4.72.