U.S. Markets close in 1 hr 35 mins

Gayner Dumps GE and Capital One, Adds 3 New Positions in 3rd Quarter

- By James Li

Markel Corp. (MKL) co-CEO Tom Gayner (Trades, Portfolio) disclosed last week that he closed his positions in General Electric Co. (GE) and Capital One Financial Corp. (COF) in exchange for three new positions during the third quarter: Crown Holdings Inc. (CCK), NXP Semiconductors Inc. (NXPI) and Mohawk Industries Inc. (MHK).


Gayner invests in companies using a value-oriented approach: he believes the company's stock is part of a business, which in turn is worth the present value of the future cash flows. Gayner said Markel "operates with a margin of safety in the investment portfolio" and can earn "the best returns" by concentrating his focus and portfolio in areas where he has the highest understanding and knowledge. Gayner's top three sectors in terms of portfolio weight are financial services, consumer cyclical and industrials.

General Electric

Gayner sold his 95,000 shares of GE, a major diversified industrials company. Shares averaged $12.86 during the quarter.

ac6631b0-e10e-11e8-9183-7119eeff7a05.png

Boston-based GE reported on Oct. 30 a third-quarter adjusted loss of 14 cents per share, down 33% from third-quarter 2017. New CEO Lawrence Culp Jr. said although GE, a "fundamentally-strong company," has a talented team and great technology, the earnings results far underperform its full potential.

44198774.png

GE announced two initiatives to strengthen its balance sheet and "position the business to win": a dividend cut from 12 cents to 1 cent per share and the consolidation of the Power business into two segments: a unified gas business combining the company's gas product and services groups and a second business containing GE Power's other assets. The dividend cut allows GE to retain approximately $3.9 billion in cash per year compared to the prior payout level.

1541432978088.png

GuruFocus ranks GE's financial strength 4 out of 10 on several weak indicators, which include a debt-to-equity ratio of 3.66 and an Altman Z-score that suggests financial bankruptcy within two years.

1541433138154.png

Capital One

Gayner sold his 75,000 shares of Capital One, a major diversified financial services company. Shares averaged $97.27 during the quarter.

35a47a60-e113-11e8-8385-ad88499a081a.png

The McLean, Virginia-based company provides a wide range of banking and non-banking services to consumers and small businesses. GuruFocus ranks the company's financial strength 3 out of 10 on several red flags, which include increasing long-term debt and high leverage: Capital One's equity-to-asset ratio of 0.14 underperforms 86% of global competitors.

1541433759912.png

Crown Holdings

Gayner invested in 11,000 shares of Crown Holdings, a major metal-packaging company. Shares averaged $44.43 during the quarter.

1541434337081.png

Yardley, Pennsylvania-based Crown Holdings manufactures beverage cans, metal food cans and aerosol cans. GuruFocus ranks the company's profitability 7 out of 10 on several positive investing signs, including profit margins that have increased approximately 5.80% per year over the past five years and are outperforming 82% of global competitors. Additionally, Crown Holdings' business predictability ranks 3.5 stars out of five on consistent revenue and earnings growth over the past 10 years.

580445396.png

NXP Semiconductors

Gayner invested in 28,000 shares of NXP Semiconductors, a global semiconductor company based in the Netherlands. Shares averaged $96.04 during the quarter.

1541434908241.png

NXP Semiconductors CEO Richard Clemmer said last week that third-quarter revenues of $2.45 billion were up 7% year over year and $20 million higher than the midpoint of management's guidance. Clemmer highlighted strong growth in NXP's business segments, which include Automotive; Secure Connected Devices; Secure Interface and Infrastructure; and Secure Identification Solutions. The strong revenue growth in each of the company's business segments contributed to a five-year revenue growth rate of 9.80%.

2087744248.png

GuruFocus ranks NXP's profitability 8 out of 10 primarily due to a strong Piotroski F-score of 8, a net profit margin near a 10-year high of 28.38% and a three-year EBITDA growth rate that outperforms 81% of global competitors.

Mohawk Industries

Gayner invested in 30,000 shares of Mohawk Industries, a major furniture manufacturer. Shares averaged $196.12 during the quarter.

1541435675081.png

The Calhoun, Georgia-based company manufactures a wide range of flooring products, which include carpets, rugs, ceramic tile, laminate, wood, luxury vinyl tile and vinyl flooring. GuruFocus ranks the company's financial strength 6 out of 10: even though the company's Piotroski F-score ranks a modest 4 out of 10, Mohawk Industries has a strong Altman Z-score of 3 and solid interest coverage of 38.69.

1541435936602.png

FPA Crescent Fund Chief Investment Officer Steven Romick (Trades, Portfolio) also invested in Mohawk Industries during the quarter.

Disclosure: No positions.

  • Dollar-Cost Average on Mohawk Industries
  • Small Caps: Assessing Management Guidance and Analysts' Estimates
  • David Carlson Buys 3, Sells 2 in 3rd Quarter


This article first appeared on GuruFocus.