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James Li
James Li
Articles (540)  | Author's Website |

Tom Gayner’s Top 6 Buys in 2nd Quarter

Guru establishes positions in Warren Buffett holding Wells Fargo and two airlines

Markel Corp. (NYSE:MKL) co-CEO Tom Gayner (Trades, Portfolio) disclosed on Friday that his top six buys for the second quarter are Verizon Communications Inc. (NYSE:VZ), Southwest Airlines Co. (NYSE:LUV), Activision Blizzard Inc. (NASDAQ:ATVI), AutoNation Inc. (NYSE:AN), Delta Air Lines Inc. (NYSE:DAL) and Electronic Arts Inc. (NASDAQ:EA).

Gayner said he “operates with a margin of safety in the investment portfolio.” The manager believes that he can earn solid returns by concentrating his focus and portfolio in areas where Markel has strong understanding and knowledge. Gayner dedicated 57.5% of his portfolio to consumer discretionary and financial services, his largest two sectors in terms of portfolio weight.

Verizon Communications

Gayner invested in 52,000 shares of Verizon Communications for an average price of $48.42. The manager dedicated 0.05% of his portfolio to the position.

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New York-based Verizon provides communications services to consumers, businesses and governmental agencies via two operating segments, wireless and wireline. CEO Lowell McAdam said on July 24 that the company delivered solid service revenue, earnings and operating cash flow during the first half even in a highly challenging marketplace. Operating margins of 20.03% are outperforming 86% of global telecommunication services companies even though revenues have declined approximately 1.2% over the past three years.

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Southwest Airlines

Gayner invested in 30,000 shares of Southwest for an average price of $52.68. The manager dedicated 0.03% of his portfolio to the position.

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Oakmark Global fund manager David Herro (Trades, Portfolio) said in his second-quarter shareholder letter that the Dallas-based airline “has been profitable for over 45 years,” generating above-average operating margins by using a “lower cost model” compared to competitors like American Airlines Group Inc. (AAL) and United Continental Holdings Inc. (UAL). GuruFocus ranks Southwest’s profitability 8 out of 10 and lists two positive investing signs: Over the past five years, the airline’s revenue and operating margins have grown 9.3% and 30.8% per year. Additionally, Southwest’s business predictability is ranked 2.5 stars out of five.

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Activision Blizzard

Gayner invested in 16,500 shares of Activision Blizzard for an average price of $70.78. The manager dedicated 0.02% of his portfolio to the position.

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Activision Blizzard develops and distributes content and services on video game consoles, personal computers and mobile devices. The company’s profitability ranks 9 out of 10 on several factors, including a strong Piotroski F-score of 7 and a Joel Greenblatt (Trades, Portfolio) return on capital that outperforms 93% of global competitors.

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AutoNation

Gayner invested in 22,200 shares of AutoNation for an average price of $47.41. The manager dedicated 0.02% of his portfolio to the position.

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Fort Lauderdale, Florida-based AutoNation offers various automotive products and services, including vehicles, vehicle parts, automotive services and finance products. GuruFocus ranks the company’s profitability 7 out of 10 and lists four positive investing signs, including a strong Piotroski F-score of 7 and price valuations near five-year lows. Despite this, the website also warns that AutoNation’s operating margins have contracted approximately 1.1% over the past five years and are underperforming 64% of global competitors.

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Delta Air Lines

Gayner invested in 22,000 shares of Delta for an average price of $53.33. The manager dedicated 0.02% of his portfolio to the position.

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GuruFocus ranks the Atlanta-based airline’s profitability 7 out of 10 and lists two positive investing signs: expanding operating margins and a dividend yield near a five-year high of 2.33%. Delta’s net profit margin of 7.72% outperforms 65% of global competitors.

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Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio) has not released his second-quarter portfolio as the deadline is 45 days after quarter-end. Despite this, the “Oracle of Omaha” disclosed in his first-quarter report a 53,599,357-share stake in Delta and a 47,659,456-share stake in Southwest.

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Electronic Arts

Gayner invested in 5,800 shares of Electronic Arts for an average price of $129.85. The manager dedicated 0.02% of his portfolio to the position.

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Electronic Arts owns a wide variety of franchises, including Madden, FIFA, Battlefield, Mass Effect, Dragon’s Age and Need for Speed. GuruFocus ranks the company’s financial strength 8 out of 10 on several factors, including a strong Altman Z-score of 10.08, a debt-to-Ebitda ratio near a 10-year low of 0.85, and solid interest coverage of 23.60.

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See also

Gayner also established positions in Citigroup Inc. (NYSE:C) and Wells Fargo & Co. (NYSE:WFC). According to aggregated portfolio data, Buffett and Gayner’s top five holdings in terms of combined weight are Apple Inc. (NASDAQ:AAPL), Wells Fargo, American Express Co. (AXP), Visa Inc. (V) and Moody’s Corp. (MCO).

Disclosure: no positions.

About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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