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Rupert Hargreaves
Rupert Hargreaves
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Finding Value the Jean-Marie Eveillard Way

Tips on finding value from one of the world's most experienced investors

July 11, 2019 | About:

Jean-Marie Eveillard is one of the most experienced institutional value investors alive today.

Eveillard has been called the first truly global value investor, using his experience to find undervalued stocks all around the world. He is a strict follower of the rules of value investing set out by Benjamin Graham and David Dodd and has used these principles to produce fantastic returns over the past several decades.

He began his career in 1962 at Societe Generale and became portfolio manager of what is now the First Eagle Global Fund in 1979, which he managed until he stepped down in 2004. Between 1979 and 2004, the First Eagle Global Fund produced a15.8% average annual return compared to 13.7% for the S&P 500.

First Eagle Value

Today, Eveillard is a senior advisor to First Eagle and has little to no input in the day-to-day management of the First Eagle U.S. Value Fund.

Nevertheless, the fund continues to follow his value investing principles.

The most significant position in the portfolio, making up 5.4% of assets under management, is technology business Oracle Corp. (NYSE:ORCL). This is a long-standing position for the value fund. It first began buying shares of the business back in the fourth quarter of 2011 and increased the holding up to a maximum of 3 million shares during the third quarter of 2013.

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Since then, the value of the position has decreased as assets have been withdrawn from the First Eagle Fund. Today, it holds around 1.2 million shares, but the stock is a more significant percentage of the overall portfolio. As a percentage of total assets under management, Oracle peaked at 6.8% in the second quarter of 2017, when the fund owned 2.1 million shares.

The second most significant position in the portfolio, according to First Eagle's latest 13F filing with the Securities and Exchange Commssion, is Comcast Corp. (NASDAQ:CMCSA). At the end of April, the fund owned 1.4 million shares of the business, accounting for 5.1% of the overall portfolio. Compared to Oracle, this is a relatively new position as the firm only started acquiring shares in 2016.

Moving down the rankings of other top holdings in the First Eagle portfolio, there is a selection of blue-chip stocks, which it seems the managers believe are undervalued. The third- and fourth-largest positions are Exxon Mobil (NYSE:XOM) and Alleghany Corp (NYSE:Y).

Deep value

One of the top holdings in the portfolio that sticks out is Weyerhaeuser Co. (NYSE:WY). This timber and forest products company looks expensive from an earnings perspective. It is currently dealing at a forward price-earnings ratio of 42.2, and earnings per share are expected to fall by around 40% this year. However, the stock does offer an attractive dividend yield of 5.2% based on Wall Street's expectations for 2019.

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But this company is an excellent example of Eveillard's style of value investing. While he no longer manages the First Eagle Fund, he commented on this position back in 2008 as part of an interview with the Graham and Doddsville student magazine:

"Well, in terms of hunting grounds, in general, we don't do screens because we like to check the accounting carefully and make our own adjustments. To take an extreme example, take a look at an American forest products company. If they still own timberland, as is the case of Weyerhaeuser, which they acquired about a century ago, they continue to carry it on the balance sheet for about $1 an acre. Today, it is more like $1,000 an acre or more in the south and $2,000 an acre in the Pacific Northwest. So a screen would not help you in any way in that respect. The way we go about it is that if we decide to look into a particular investment idea we have to do most of the work in-house, hence the extreme importance of the in house research department. This is because sell-side research is directed towards the 95% or so of professional investors who are not value investors, so their time horizon is usually more along the lines of six to twelve months as opposed to five or more years for."

As Eveillard explained, if you're relying on stock screeners to find value, it would have been impossible to find the hidden value at Weyerhaeuser.

Indeed, according to current figures, the stock is trading at a significant premium to book value per share. At the end of its last reported period, book value per share was $11.80, which gives a current price-book value of 2.2. What's more, as noted above, it is expensive from an earnings perspective.

If you dig deeper, however, the real value appears, and that's the kind of rigorous deep-value investing Eveillard specialized in.

This gives us a fascinating insight into the experienced value investor's way of thinking and what he is looking for in terms of value. It also shows that while he might have stepped back from running the First Eagle fund, his replacement managers still follow his style of investing.

If you are looking for an undervalued security, then it might be worth taking a closer look at this timber business.

Disclosure: The author owns no stocks mentioned.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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