Zeke Ashton (Trades, Portfolio), portfolio manager of the Centaur Total Return Fund, disclosed three purchases of the first five months of the year.
Ashton said he purchased shares of Facebook (FB, Financial), Fairfax Financial Holdings (TSX:FFH, Financial) and Sony Corp. (SNE, Financial). He also commented at length about the positions in his shareholder letter.
The Centaur Total Return Fund has returned 9.04% since its 2005 inception through April 30, besting the 8.54% return in the S&P 500 total return index for the same period. To purchase holdings for the fund, Ashton relies on the following characteristics: positive revenue or profit trends, strong balance sheet, positive free cash flow, competitive advantages, competent management and policies that benefit shareholders.
One highlight of the portfolio’s positioning is its cash holdings, which represent 41% of its assets. It is also highly concentrated, with its top 10 holdings representing 43% of assets.
Its largest positions at the end of April 30 were: Berkshire Hathaway (BRK.B, Financial) at 6.6%, Facebook at 5.51% and Alphabet (GOOGL, Financial) at 5.5%.
Ashton discussed the outsized cash position and his purchases in his semi-annual letter, calling recent volatility a “window of opportunity:”
“While we were pleased to be able to find some actionable ideas during the market decline, the sell-off was relatively brief and fairly uniform across most of the securities we own or follow. In our view, stocks selling for a 10% discount to recently reached all-time high price levels are not obviously bargains, so to some extent our buying was more an act of buying into fear rather than buying purely on the valuation merits. Nonetheless, we are satisfied that we added to either the best values we could find or to the positions in which we have reasonably high conviction on a value/safety basis.”
The new buys
Ashton held 8,000 shares of the social media giant as of April 30, representing 5.51% of the portfolio. The investor has held Facebook since the third quarter of 2017. Ashton commented on the holding in his semi-annual shareholder letter:
"Obviously, one of the major themes during the spring was the Facebook (NASDAQ:FB) data and privacy scandal referred to in the commentary above. This was, in our view, one of those classic “conviction checks” where an investor must determine relatively quickly whether the new information represents opportunity or whether it represents unacceptable danger and respond accordingly. In such scandals, the news often seems very bad in the short term and creates a strong negative media and market reaction. After assessing the information available and its likely near and longer-term impact to the company, we took the position that the Facebook scandal would be unlikely to be terribly damaging to the company in the longer term despite the intense media and political scrutiny. We obviously must acknowledge our limitations at making predictions of this kind, but our view was ultimately that the scandal was an opportunity to add to our existing Facebook investment at attractive prices. As sort of a tertiary decision, we also added to the Fund’s existing position in Alphabet, as that stock also declined under the weight of the media scrutiny.
Our general view remains that both Facebook and Alphabet are extremely well-positioned businesses and, after working hard to better understand them, we think are probably much cheaper on a valuation basis than one might expect given the ever-present FAANG narrative. Of course there are risks associated with owning these businesses, but we felt that the prices prevailing in late February and early March effectively discounted the risks to an acceptable degree."
Facebook Inc. has a market cap of $562.48 billion; its shares were traded around $194.32 Friday with a P/E ratio of 32.17 and P/S ratio of 12.87. Facebook Inc. had an annual average earnings growth of 63.50% over the past five years.
Fairfax Financial Holdings
Ashton purchased 2,100 shares of the Canadian financial conglomerate run by investor Prem Watsa (Trades, Portfolio) in the second quarter. He commented in his shareholder letter:
"Another example of our buying activity was our decision to purchase shares of Fairfax Financial Holdings (TSX:FFH) during early 2018. Fairfax is a business that we’ve long admired and one that has been a successful investment for the Fund in the past. It’s been nearly eight years since the Fund last owned shares, but we have continued to monitor the business and the share price in the interim. In early 2018, we concluded that the stock price, business value, and future prospects for Fairfax finally aligned in a way that we could get excited about.
Our decision to buy Fairfax wasn’t predicated entirely on the valuation; the stock has been cheaper on various metrics at times over the past several years. Rather, our decision to invest was due to our belief that Fairfax’s business outlook is better than it has been for many years, and the company is also much more strongly positioned to pursue the opportunities available to it than it has been in recent years."
Fairfax Financial Holdings Ltd. has a market cap of $20.96 billion; its shares were traded around $736.66 Friday with a P/E ratio of 6.82 and P/S ratio of 1.03. The trailing 12-month dividend yield of Fairfax Financial Holdings Ltd. stocks is 1.68%. The forward dividend yield of Fairfax Financial Holdings Ltd. stocks is 1.68%.
Ashton purchased 10,000 shares of electronics company Sony Corp., which he purchased in the second quarter. He commented in his shareholder letter:
"Finally, we purchased shares of Sony Corporation (NYSE:SNE) during the period, and have added to the investment subsequent to April 30th such that as of this writing Sony is a meaningful investment for the Fund. Sony has enjoyed a long and impressive business history, but the business had gradually lost momentum and relevance, particularly during the decade prior to 2012. However, in recent years Sony has mounted an impressive comeback driven by new management that has, in our view, done an effective job of re-focusing the sprawling conglomerate to emphasize those areas where it has the strongest advantages. Today, Sony’s major business units seem to be well-positioned in some of the more attractive growth markets we can identify. Sony is one of three companies (and the leader) in video gaming hardware and the surrounding ecosystem with its PlayStation business. Sony Music is one of three major players in a space that is benefitting dramatically from the digital migration of music, and Sony is also one of the top players in movies and TV production, where it has been showing strong improvement. There are a lot of other assets in place at Sony (too many to describe briefly), but suffice it to say that after doing our research, we came to the conclusion that Sony offers considerable value for a reasonable price. Based on our valuation efforts we think the stock is priced at roughly 10-11X the annualized average free cash flow generated by the core non-financial businesses. We think this valuation leaves plenty of opportunity for favorable returns if Sony continues to execute, and we also see potential for Sony to enact various corporate actions to better showcase the value of some of its unique assets over time, which could take the form of a spin-off or the sale of one or more of Sony’s business units."
Sony Corp. has a market cap of $65.01 billion; its shares were traded around $51.26 with a P/E ratio of 14.72 and P/S ratio of 0.85. The trailing 12-month dividend yield of Sony Corp. stocks is 0.22%. The forward dividend yield of Sony Corp. stocks is 0.39%. Sony Corp. had an annual average earnings growth of 7.0% over the past five years.
See Zeke Ashton (Trades, Portfolio)’s portfolio here.
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