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Gayner Invests in Embattled Berkshire Holding Kraft Heinz

Tom Gayner (Trades, Portfolio), the co-CEO of Markel Corp. (NYSE:MKL), disclosed last week that he established two new holdings during the third quarter: The Kraft Heinz Co. (NASDAQ:KHC) and Lennar Corp. (NYSE:LEN.B).


Markel, a Glen Allen, Virginia-based property and casualty insurance company, operates with a margin of safety in the investment portfolio. The company views stocks as part of the business, with a value equal to the present value of the future cash flows. Markel detailed in its 2018 annual report its four-part equity investment discipline: profitable business with good returns on capital, management teams with equal measures of talent and integrity, reinvestment opportunities and attractive prices.

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As of quarter-end, Markel's $6.62 billion equity portfolio contains 132 stocks with a turnover rate of 2%. The top four sectors in terms of portfolio weight are financial services, consumer discretionary, industrials and consumer staples.

Kraft Heinz

Gayner purchased 35,000 shares of Kraft Heinz, dedicating 0.01% of the equity portfolio to the holding. Shares averaged $28.76 during the quarter.

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The Pittsburgh-based company said on Halloween that third-quarter net sales of $6.1 billion declined 4.8% from the prior-year quarter. While CEO Miguel Patricio said the results "remain below [the company's] potential," the company showed sequential improvement versus the first half. For example, Kraft's U.S. total sauces business continued strong momentum, driven by strong revenue growth in ketchup, Miracle Whip and other sauce brands.

Patricio discussed during the earnings call nine initiatives for the next year, including five projects that will improve the company's top-line growth, two projects that improve streamline operational efficiencies and two projects that improve organizational effectiveness.

Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) has not released its third-quarter portfolio as the deadline is 45 days after the quarter ends. As of the second quarter, Berkshire owned 325,634,818 shares of Kraft Heinz.

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Lennar

Gayner purchased 21,750 shares of Lennar, giving the position 0.01% equity portfolio weight. Shares averaged $40.05 during the quarter.

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GuruFocus ranks the Miami-based homebuilder's profitability 7 out of 10 on several positive investing signs, which include a net profit margin that outperforms 82.51% of global competitors and a three-year revenue growth rate that outperforms 83.31% of global peers. Despite this, operating margins have contracted approximately 3.4% per year on average over the past five years and are outperforming just 77.41% of global residential construction companies.

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See also

Gayner's top four position boosts for the quarter were Mohawk Industries Inc. (NYSE:MHK), Goldman Sachs Group Inc. (NYSE:GS), Bank of New York Mellon Corp. (NYSE:BK) and NVR Inc. (NYSE:NVR).

Disclosure: No positions.

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This article first appeared on GuruFocus.