Like most value investors, I’m not really a macro guy.
I just go through filings alphabetically, chase leads like insider buying and guru buying, go over 52-week low lists, etc., and subsequently judge the fundamentals of each business individually to determine whether I like it as an investment or not. On a rare occasion I’m tempted to take a position in an ETF on the Russian stock market or the Greek stock market but in practice ended up owning a few specific Greek stocks based on their fundamentals.
We know Warren Buffett (Trades, Portfolio) used to leaf through stock manuals alphabetically, and these days he just looks at everything available within his investable universe, which isn’t that many stocks because he needs to understand it and it needs to be a huge company.
However, Buffett didn’t have the amount of technology available that you have today. Or if he had it it was through very expensive subscriptions or technology like a Bloomberg terminal. GuruFocus offers a lot of screens and tools I find highly useful and interesting for coming up with short lists of companies to look at. Most recently I have been enamored with the Aggregate Industry Trend screener. It allows you to quickly see in which industries value investing gurus like Joel Greenblatt (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio) and over 150 others are putting their money to work and from where they are running as fast as possible.
Below are the top five industries with the largest numbers of net sales. That means gurus have been selling more positions than they have been starting new positions.
Oil & Gas exploration and production
No. 1 by quite a margin is Oil & Gas exploration and production. This surprised me because I have seen interesting energy positions showing up in many a 13-F. However E&P is the business that is most vulnerable to low oil prices and usually carries a lot of debt that may not be serviceable if oil prices don’t recover in a timely manner.
Semiconductors
They are also running from Semiconductors, which is known to be a highly cyclical industry. Gurus like David Einhorn and Seth Klarman also turned bearish on Micron (MU, Financial) based on Chinese investments into the space. This changed certain industry dynamics and increased competition.
Application Software
Application Software is a very interesting industry because it appears there is a lot going on there. Gurus are net sellers, but among all industries, there isn’t a single industry where gurus did so much buying. Yet they did even more selling! There must be a lot of uncertainty here, and it wouldn’t surprise me if it was an excellent place to look for value for anyone whose circle of competence encompasses this industry.
Regulated Utilities
Regulated Utilities is highly unpopular with gurus. This makes sense because it is a sector that is likely to suffer when the Fed hikes rates. Regulated utilities have highly predictable cash flows but no pricing power. They can be a good place to go when markets are very hot and possibly overvalued, but when rate hikes are on the horizon and the market sells off, making more bargains available, it is time to look around.
Communications Services
Communication Services has been in a bear market for quite some time. High fixed costs and increasing competition with a secular shift toward selling data (a commodity) instead of connection everywhere (an emotional product) has turned this into a very tough industry.
The top five industries where gurus have been net buyers is also quite interesting:
Therefore the sample size isn’t super reliable. One man’s trash is another’s treasure. Waste Management stands out to me because percentagewise the buyers really outnumber the sellers strongly. That’s a good sign, but it isn’t super strong because it is an industry without a huge number of publicly traded companies and quite narrow in scope. Waste Management isn’t a sexy industry, which means it is extra deserving of your attention. Vanguard Health Care Fund (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Manning & Napier have been buyers of Stericycle (SRCL, Financial). Greenblatt bought into Darling Ingredients (DAR, Financial), US Ecology (ECOL, Financial) and Waste Connections (WCN). Ray Dalio (Trades, Portfolio) also bought Waste Connections. Paul Tudor Jones (Trades, Portfolio) allocated some capital toward Clean Harbors (CLH, Financial) and Stericycle.
Other buys by gurus include Republic Services (RSG, Financial), GS EnviroServices (GSEN, Financial), Quest Resource Holding (QRHC) and National Waste Management Holdings (NWMH).
Medical Instruments & Equipment
Medical Instruments & Equipment is a large industry. One company really stands out as many gurus, including Jana Partners (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio) and George Soros (Trades, Portfolio), are buying it, and that’s Baxter (BAX). I’ve previously written an article on the company. Other picks include Illumina (ILMN) by John Griffin (Trades, Portfolio) and ConforMIS Inc. (CFMS) by RS Investment Management and Hologic (HOLX) by Greenblatt.
Insurance
Insurance is a sector beloved by every Buffett fan, and value investors love to go looking for terrific capital allocators or undervalued portfolios of securities or competitive advantages like in all other sectors. It is, however, mostly a commodified sector. Few companies have an edge over others. Gurus' conviction appears somewhat low as they didn’t allocate large parts of their portfolios to these new buys. A few notable ones include Donald Smith (Trades, Portfolio) buying Endurance Specialty Holdings (ENH), David Tepper (Trades, Portfolio) buying AllState Corp. (ALL), John Hussman (Trades, Portfolio) buying Travelers Companies (TRV) and Michael Price (Trades, Portfolio) buying Chubb (CB). Both Bacon and Halvorsen bought Ace Ltd. (ACE).
Consumer Packaged Goods
The Consumer Packaged Goods sector was very much in vogue. It is, of course, a defensive sector; perhaps valuations were low or the gurus were sensing trouble ahead, but they piled in. The Kraft Heinz Co. (KHC) was one favorite with Daniel Loeb (Trades, Portfolio), David Rolfe (Trades, Portfolio) and Cohen among others. Mondelez International (MDLZ) was another widely bought favorite with Bill Ackman (Trades, Portfolio), Hussman and others.
Business Services
Business Services is the No. 1 sector when looking at the absolute difference in buy and sell decisions among the universe of established value investors with proven track records. Positively unsexy; the gurus didn’t care and bought a wide variety of companies. Below is a screenshot of the 12 buys with the largest percentage impact to portfolios of the gurus involved (full list here):
Zeke Ashton (Trades, Portfolio) bought CRA International (CRAI, Financial) in a big way, Towers Watson (TW, Financial) was a favorite with a number of gurus including Jim Simons (Trades, Portfolio) and Jeff Ubben (Trades, Portfolio), and HMS Holdings (HMSY, Financial) and TeleTech Holdings (TTEC, Financial) are also popular buys.
