U.S. Markets open in 2 hrs 16 mins

Akre Capital Management's Top 3rd-Quarter Trades

GuruFocus.com
·5 min read

- By Margaret Moran

Akre Capital Management recently disclosed its portfolio updates for the third quarter of 2020, which ended on Sept. 30.

Chuck Akre (Trades, Portfolio) founded Akre Capital Management in 1989 and serves as the chairman and Chief Investment Officer of the firm. Headquartered in Middleburg, Virginia, the firm's portfolio management team invests in a small number of quality businesses run by good managers who reinvest their free cash flow wisely. These are the three components that make up the unique "three-legged stool" investment philosophy which the firm is known for sticking closely to.


Based on its investing principles, the firm's top buys for the quarter were Roper Technologies Inc. (NYSE:ROP) and Brookfield Asset Management Inc. (NYSE:BAM), while its top sells were CarMax Inc. (NYSE:KMX) and Markel Corp. (NYSE:MKL).

Roper Technologies Inc.

The firm added 178,891 shares, or 10.31%, to its Roper Technologies Inc. holding for a total position of 1,913,645 shares. The trade had a 0.50% impact on the equity portfolio. During the quarter, shares traded for an average price of $415.55.

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

Roper Technologies is a diversified industrial technology company that develops software and engineered products and solutions for niche markets worldwide. It is based in Sarasota, Florida.

On Nov. 16, shares of Roper traded around $408.48 for a market cap of $42.70 billion. The GuruFocus Value chart rates the stock as "modestly overvalued."

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

The company has a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.03 is lower than 97% of other companies in the industry, but the Altman Z-Score of 2.85 indicates that the company has only a low chance of encountering liquidity issues. The three-year revenue growth rate is 11.4%, while the three-year Ebitda growth rate is 28.8%.

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

Brookfield Asset Management

The firm also upped its Brookfield Asset management stake by 2,038,550 shares, or 17.72%, for a total position of 13,540,575 shares. The trade had a 0.48% impact on the equity portfolio. Shares traded for an average price of $33.38 during the quarter.

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

Brookfield is an alternative asset manager that takes a long-term investment approach towards high-quality assets and business in more than 30 countries worldwide. Its asset investments are primarily centered on commercial real estate, infrastructure and power plants, with a focus on reinvesting capital to improve asset quality.

On Nov. 16, shares of Brookfield traded around $39.60 for a market cap of $59.88 billion. The GuruFocus Value chart rates the stock as "modestly overvalued."

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

The company has a financial strength rating of 3 out of 10 and a profitability rating of 8 out of 10. The current ratio of 0.88 and Altman Z-Score of 0.42 suggest the company will likely need to raise additional liquidity in order to avoid bankruptcy. The weighted average cost of capital (WACC) has exceeded the return on invested capital (ROIC) for more than a decade, indicating consistent lack of profitability.

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

CarMax

The firm cut its CarMax holding by 673,879 shares, or 8.26%, for a remaining stake of 7,480,147 shares. The trade had a -0.45% impact on the equity portfolio. During the quarter, shares traded for an average price of $99.81.

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

Headquartered in Richmond, Virginia, CarMax is a used-car company with approximately 195 stores across the U.S. It offers upfront prices, nationwide availability and online shopping.

On Nov. 16, shares of CarMax traded around $97.44 for a market cap of $16.05 billion. The GuruFocus Value chart rates the stock as "modestly overvalued."

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

The company has a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.05 and Altman Z-Score of 1.89 indicate the company could face liquidity issues over the next couple of years. The company's three-year revenue growth rate is 13.8%, while its three-year Ebitda growth rate is 10.9%.

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

Markel Corp

The firm also trimmed its investment in Markel Corp. by 16,158, or 3.29%, impacting the equity portfolio by -0.11%. Shares traded for an average price of $1,014.90 during the quarter.

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

Market is a holding company for insurance operations. The Glen Allen, Virginia-based company provides insurance, reinsurance and investment products to clients around the world and specializes in hard-to-place risks.

On Nov. 16, shares of Markel traded around $1,063.74 for a market cap of $14.66 billion. The GuruFocus Value chart rates the stock as "modestly undervalued."

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

The company has a financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 1.31 is lower than 60% of competitors, but the Piotroski F-Score of 7 out of 9 is typical of a financially healthy company. The WACC has historically exceeded the ROIC for the company each year, though this situation flipped for the past couple of years, indicating a turn to profitability.

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

Portfolio overview

As of the quarter's end, the firm held 28 common stock positions valued at a total of $14.19 billion. It established one new minor position, sold out of another minor position and added to or reduced several other investments for a turnover rate of 1%.

The top holdings were Mastercard Inc. (MA) with 14.02% of the equity portfolio, American Tower Corp. (AMT) with 11.99% and Moody's Corporation (MCO) with 11.51%. By sector weighting, the firm is most invested in financial services, followed by real estate and consumer cyclical.

Akre Capital Management's Top 3rd-Quarter Trades
Akre Capital Management's Top 3rd-Quarter Trades

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

Read more here:

  • Prem Watsa's Top 3 Buys of the 3rd Quarter

  • Sarah Ketterer's Top 3rd-Quarter Trades

  • Chris Davis' Firm Trims Amazon, Invests in IAC



Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

This article first appeared on GuruFocus.