Prominent value investor Wally Weitz, co-chief investment officer and portfolio manager of Weitz Investment Management, added Amazon.com (AMZN, Financial) to his Partners III Opportunity Fund in the fourth quarter, he said in a letter.
Amazon, considered a growth stock, has a price-earnings ratio of 346.4, largely disqualifying it from the portfolios of investors looking for discounted securities. In the past year alone, Amazon shares climbed 63% to trade for around $1,364.76 Wednesday afternoon.
Weitz has commented on the stock in past interviews but most recently wrote in his Partners III Opportunity Fund shareholder letter for the fourth quarter:
“Our lone portfolio addition, Amazon.com, requires little introduction. Amazon has built an unassailable global competitive advantage in its core retail business, and we believe it will continue to gain worldwide retail (not just e-commerce) market share for many years to come. In addition, Amazon Web Services has also built a significant share in the large and rapidly growing “infrastructure as a service” market. We foresee Amazon’s unique technical capabilities, global scale and culture of customer obsession will allow the company to grow its business value for many years.”
The buy shows a shift in thinking for Weitz. In an interview with GuruFocus in September, Weitz attributed some of the fund’s underperformance to the lack of a growth stock like Amazon or Netfix.
He also named Amazon CEO Jeff Bezos as one of a number of good managers.
“Somebody like Jeff Bezos is a fabulous business person in the sense of winning in the markets in which he’s competing,” Weitz said. “My only quarrel with Amazon is not that it’s taking over the world, it’s just that if the competitors are losing 100 units of value, 60 or 80 or 90 of those units of value are going to the consumer, not necessarily to Amazon. So at some point he’ll need to cash in, but he’s fabulous as a strategist and for being bold.”
Weitz’s fund has lagged the market in recent years on some contrarian bets, such as short positions in market indexes that are roaring ahead, such as the S&P 500 and Nasdaq. The Partners III Opportunity Fund returned 5.5% compared to the S&P 500 index’s 21.8% for full-year 2017.
The fund also endured a 21% drop in Allergan (AGN, Financial) during 2017 as a federal court invalidated patents for its dry eye drug Restasis. Weitz said he revised his estimate of the company’s business value after factoring in the “earlier-than-expected” loss of profits of Restasis but remained sure about the stock.
“Nevertheless, we believe Allergan’s share price decline has overshot reality, and it continues to trade at a significant discount,” he said.
Allergan was Weitz’s fifth largest position at the end of the third quarter. He held 523,810 shares, encompassing 4.54% of the portfolio.
Throughout the year, Weitz maintained his dedication to business fundamentals as the market ushered in low interest rates, weak inflation and slashed corporate taxes. He appeared to want to adhere to the same strategy for 2018 as well.
“We can’t predict what the market will do, but with tax reform now in the rearview mirror and the Federal Reserve looking to push short-term interest rates higher, we anticipate that individual company fundamentals and valuation may carry more weight in investors’ minds in 2018,” he wrote in his letter.
See Wally Weitz's portfolio here.
