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Yamil Berard
Yamil Berard
Articles (192) 

Tweedy Browne's Dumping Spree in 2nd Quarter

The firm tossed the stock of this tobacco giant after holding over five years for an estimated return of 24%. Only one new buy in the second quarter

Tweedy Browne (Trades, Portfolio) Co. was busier dumping and reducing stakes than establishing new ones in the second quarter of the year, filings showed.

All told, the guru investment firm and former broker-dealer of legendary investor Benjamin Graham dropped two positions while initiating only one, global drugmaker Merck & Co. (NYSE:MRK). Tweedy Browne, in a 44-stock equity portfolio worth $3 billion with a quarter-over-quarter turnover of 2%, reduced its stakes in nearly two dozen stocks. Those stocks included the ticker symbols of the following companies: HAL, CSCO, DVN, COP, ANAT, BRK.A, JNJ, BK, WFC, MRC, BIDU, EMR, MMM, GOOGL, GOOG, BRK.B, NWLI, UN, UNP and AXP.

Meanwhile, the guru expanded stakes in five companies, of which three of those were significant. The top additions were in the stocks of AutoZone Inc. (NYSE:AZO), Verizon Communications (NYSE:VZ) and Avnet Inc. (NASDAQ:AVT). Each reported gains of up to 24% since the positions were initiated.


The firm removed shares of specialty retailer Williams-Sonoma Inc. (NYSE:WSM) from its portfolio. It also closed its position in tobacco giant Philip Morris International Inc. (NYSE:PM).

The bulk of the manager's portfolio is in the stocks of technology, financial services, health and energy companies.

The firm is an investment partnership owned by its four managing directors, William H. Browne, John D. Spears, Thomas H. Shrager, and Robert Q. Wyckoff Jr. The operations of Tweedy, Browne are managed by its management committee, consisting of Christopher H. Browne, William H. Browne and John D. Spears. The investment partnership has been recognized by Warren Buffett (Trades, Portfolio) as Graham-Doddsville Superinvestors. The firm has been in the investment business for 90 years.

Merck & Co.

Tweedy Browne purchased a total of 3,306 shares of the company for an average price of $59.12 a share. The shares have climbed since the buy as they stood at more than $66 a share in Monday afternoon trading. Browne last owned shares of the company in the third quarter of 2013, when it bought roughly the same amount of shares and sold out the following quarter.


Its new position in the stock of Merck has produced an estimated 13% return since it initiated the holding, as of June 30.

Merck makes pharmaceutical products to treat several conditions in a number of therapeutic areas, including cardiovascular disease, asthma, cancer and infections. The company also has a substantial vaccine business, with treatments to prevent hepatitis B and pediatric diseases, as well as HPV and shingles. From a geographical perspective, close to half of the company's sales are generated in the U.S.

In terms of market cap, the GuruFocus industry overview page shows that the global drug manufacturer is the third-largest after Johnson & Johnson (JNJ) and Pfizer Inc. (NYSE:PFE).

In February, guru Jeff Auxier (Trades, Portfolio) wrote in a commentary that the company had faced a challenging quarter as total sales declined due to a temporary production shutdown from a cyberattack. However, the outlook for its new cancer-fighting drug was very encouraging, Auxier said.

Monday afternoon, Merck traded at just under $66.50, up 0.39%. In five years, the stock reported an increase of 37%. In the last three years, it reported gains of 14%. Year to date, it was up 18%. The GuruFocus median price-sales chart showed the stock traded on Monday afternoon slightly above historical valuation.


It traded at 132 times price-earnings, which is among the lowest in the industry. It traded at forward price-earnings of 15.53. It reported a price-book ratio of 5.32 and a price-sales ratio of 4.46. The price-book ratio was lower than 64% of its peers in the Global Drug Manufacturer category. The price-sales ratio was lower than 56% of its peers. It reported a dividend of 2.86%, which is higher than the majority of its peers.

Analysts targeted revenue of more than $45.7 billion in 2020, compared to $42.4 billion in 2018. In profits and revenues, the company has had a struggle with declining profits, but revenues appear to be on the way up. The company also reported a decline in operating margins.


The Peter Lynch chart showed Merck traded above fair market value.


Merck has a market cap of $178 billion. Its financial strength was rated 6 out of 10 and its profitability and growth scored a 5 out of 10 rating.

Gurus who hold the stock include Kahn Brothers (Trades, Portfolio), the Vanguard Health Care Fund (Trades, Portfolio) and David Carlson (Trades, Portfolio).


The guru dumped its holding of specialty retailer Williams-Sonoma for an estimated return of 4%. The position was initiated in the fourth quarter of 2016 with a total number of shares of more than 248,000. The purchase was for an average of just under $51 a share. Shares sat in about 0.21% of the portfolio. Shares of Williams-Sonoma were valued on Monday at $58.66.


The Peter Lynch chart showed the stock traded above fair value on Monday.


Philip Morris

GuruFocus records showed the investment dated prior to 2012. Records showed that the manager held about 4.1 million shares in the portfolio for an average price of about $76 a share at that time. Over the years, Tweety Browne whittled down the investment to nothing in the second quarter, producing an investment gain of an estimated 24%. The current price of Philip Morris is over $85 a share.

Shares of the tobacco giant sat in about 0.13% of the portfolio.


Gurus who hold Philip Morris include the T. Rowe Price Equity Income Fund, Yacktman Asset Management (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Ken Fisher (Trades, Portfolio).

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