Akre Capital Management expanded its position in just under a dozen stocks in a portfolio worth over $7 billion in the final months of the year.
The Virginia-based asset management firm headed up by Chuck Akre (Trades, Portfolio) expanded holdings of Moody’s Corp. (MA, Financial), representing one of its major stakes. The firm also staked out additional shares of Berkshire Hathaway Inc. (BRK.B, Financial). In Berkshire, Akre has gained an estimated 97% on his original investment of over 99,000 shares in the second quarter of 2012. He now holds about 288,000 shares of Berkshire with an average price per share in the fourth quarter just under $190.
Eleven adds included established positions in companies like Mastercard Inc. (MA, Financial), Dollar Tree Inc. (DLTR, Financial), American Tower Corp. (AMT, Financial), Markel Corp. (MKL), Alarm.com Holdings Inc. (ALRM, Financial) and Prime Water Corp. (PRMW, Financial). The largest expansions were in Prime Water Corp. and Alarm.com Holdings Inc. Akre had no new buys in the fourth quarter.
Almost half of a $7 billion portfolio is dedicated to stocks in the financial services industry while about 20% is in communication services, 13% in consumer cyclical, 9% in industrials and 7.5% in consumer defensive. Only 2.9% is in technology while 2.1% is in health care.
To Akre, who founded Akre Capital in 1989, the bottom line of all investing is the rate of return. His company focuses its capital in a select number of companies. In most cases, the firm "picks companies it believes meets specific standards related to the business itself, the people who manage it and the discipline they demonstrate when it comes to reinvesting free cash flow," according to its website.
He believes there are three areas of analysis: business, management and reinvestment. These are key components of a "three-legged stool" that describe a business that is a “compounding machine.” The firm seeks to purchase shares of such a business at modest valuation. Akre also notes that such businesses can be difficult to identify.
Akre reported returns in a fourth quarter commentary to shareholders. He said 2017 fourth quarter performance for the Institutional share class was 7.02% compared with the S&P 500’s 6.64%. For full year 2017, performance for the Institutional share class was 30.86% compared with S&P 500’s 21.83%. No other return information was provided in the commentary.
Akre will be speaking at the 2018 GuruFocus Value Conference in Omaha, Nebraska, in May.
Top additional buys
Primo Water Corp. (PRMW, Financial) makes up 0.04% of portfolio space. Akre holds almost 2 million shares of the provider of multi-gallon purified bottled water. Primo mostly operates two business segments, water and dispenser. It is based in Winston-Salem, North Carolina.
The average price per share in the fourth quarter was nearly $12. Akre Capital began buying shares in the second quarter of 2012 at under $1.50. The guru’s estimated gain on shares is a whopping 225% since he began purchasing shares.
According to the company’s fourth-quarter earnings report, net sales soared to $68 million from $40 million in the prior-year quarter. The company’s total operating costs and expenses also increased to $64 million from $47 million in the prior-year quarter. Net income reached over $3 million compared to a loss of $11 million in the prior-year quarter.
In diluted earnings on net income in the fourth-quarter, the company reported a gain of 9 cents per share or $3 million compared to loss of 39 cents a share or a loss of $11.7 million, in the prior-year quarter. The amount includes a non-cash income tax benefit of $4 million primarily related to the evaluation of its U.S. deferred tax liabilities as a result of tax reform. The numbers reflect a reduction in the overall federal income tax rate to 21% from 35%.
For the year, Primo reported a net income loss of 19 cents per share compared to a loss of 21 cents per share in the prior-year.
The company raised its guidance for 2018 to net sales of $302 million from $298 million. It is predicting an EBITDA of $63 million from $61 million.
GuruFocus rates the company 4 in 10 in financial strength and 5 in 10 in profitability and growth. It has a market cap of $369 million.
In Tuesday morning trading, shares were at just under $12, down 0.25%. Year-to-date, the stock is down 4%. Over the past year, the stock price has dropped 18%. It has seen a slight increase over six months.
Alarm.com
Akre also invested more shares in Alarm.com Holdings Inc., a cloud-based software security platform for homes and businesses. It is based in Tysons, Virginia.
Akre added 66,000 shares to the portfolio, bringing his total shares to 466,000 shares. The average share price was $43.20 in the fourth quarter. He first bought shares of the company in the second quarter of 2015. So far, shares have gained an estimated 99% since the 2015 purchase.
Alarm.com sits in 0.03% of the portfolio’s space.
Alarm.com was up over 0.56% in Tuesday afternoon trading to over $39 a share. Over the past year, the stock has risen 5%.
The company has a market cap of $1.86 billion. GuruFocus rates is 7 in 10 in financial strength and 6 in 10 in profitability and growth.
It has a price-earnings ratio of 60.90 versus an industry median of 24. Alarm.com has a price-book ratio of 8.02 versus an industry median of 3.25. Its price-sales ratio is 5.74 compared to an industry median of 2.57.
Some severe warnings signs to watch out for include a problematic Sloan ratio that indicates earnings are more likely tied to accruals. Also, the company’s operating margin has been in a five-year decline. On the other hand, the company’s price-sales and price-book ratios are close to one-year lows.
