In this article, we discuss the top 10 stock picks in Osterweis Capital Management's portfolio as of the end of the third quarter and assess the performance of these stocks over the past 12 months. If you want to skip our detailed analysis of John Osterweis' history, investment philosophy, and hedge fund performance, go directly to Was Osterweis Capital Management Right About These 5 Stocks?.
We prepared the actual contents of this article in November 2021, when we analyzed the Q3 portfolio of Osterweis Capital Management to discuss the top 10 picks of the hedge fund at that time. We are publishing this article today because it’s always interesting for the readers to analyze how good the so-called “smart money” is when it comes to stock picking. When we look at the stock picks/sells of hedge funds in hindsight, we can better analyze their performance and see whether they were right or wrong. In this article you will see the top 10 stock picks of Osterweis Capital Management as of the third quarter of last year. To assess the performance of these stocks and the hedge fund, we have mentioned their performance over the past 12 months. At the time of writing we had mentioned analyst ratings for these stocks from famous Wall Street analysts. It’d be interesting for our readers to see how right or wrong were these analysts’ price targets and calls.
Founded in 1983 by its chairman and co-chief investment officer John S. Osterweis, Osterweis Capital Management serves the portfolio management needs of high net worth individuals, foundations and endowments. The firm provides investment management services through various products, including individually managed portfolios and mutual funds. After earning his B.A in Philosophy from Bowdoin College and his M.B.A from the Stanford Graduate School of Business, Osterweis began his career as a senior analyst focused on forest products and the paper industry for several regional brokerage firms. He later joined E.F. Hutton & Company. In late 1982, John Osterweis decided to pursue portfolio management as a fulltime occupation, thus establishing Osterweis Capital Management in April of 1983. A member of the Management Committee, he also serves as a principal and co-lead portfolio manager for the firm's core equity and flexible balanced strategies.
Osterweis Capital Management, as an investment management firm, focuses on investments with acceptable downside risk and underappreciated growth potential. Managing more than $1.8 billion in its investment portfolio as of the third quarter of 2021, over 25.8% of the fund's investment value is focused on the technology sector.
Some of the top stocks present in the investment portfolio of Osterweis Capital Management at the end of the third quarter of 2021 include Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN) and JPMorgan Chase & Co. (NYSE:JPM), among others discussed in detail below.
10. Union Pacific Corporation (NYSE:UNP)
Osterweis Capital Management's Stake Value: $35.3 million
Performance of the stock over the past 12 months as of November 24: -13%
The second largest railroad company in the United States, Union Pacific Corporation (NYSE:UNP), alongside its subsidiaries, operates over 8300 locomotives across 23 states. Founded in 1862, the company is based in Omaha, Nebraska.
On October 22, RBC Capital analyst Walter Spracklin raised the price target on Union Pacific Corporation (NYSE:UNP) to $252 from $227 and kept an Outperform rating on the shares of the company.
According to the 13F filings for the third quarter of 2021, Osterweis Capital Management holds 180,108 shares of Union Pacific Corporation (NYSE:UNP). These shares are valued at more than $35.3 million, representing 1.92% of the investment firm’s portfolio value.
Chris Hohn of TCI Fund Management is one of the biggest stakeholders of Union Pacific Corporation (NYSE:UNP) as of the end of the third quarter, according to the data tracked by Insider Monkey. Overall, 63 funds were bullish on the company by the end of Q3, compared to 69 in the previous quarter.
Vltava Fund, an investment management firm, published its first-quarter 2021 investor letter in which it mentioned Union Pacific Corporation (NYSE:UNP). Here is what the fund had to say:
“There was a slight change in Vltava Fund’s portfolio in the first quarter. We sold shares of Union Pacific. It was one of three stocks we bought a year ago at the market bottom. Although from a P/E viewpoint this was one of our most expensive purchases ever, the shares worked out quite well, and, when they were more than 90% higher at the beginning of this year, we decided to take profit and put the money into stocks with more attractive valuations.”
9. PS Business Parks, Inc. (NYSE:PSB)
Osterweis Capital Management's Stake Value: $35.3 million
Performance of the stock over the past 12 months as of November 24: Blackstone Inc. Acquired PS Business Parks for $7.5 Billion in April 2022
PS Business Parks, Inc. (NYSE:PSB) is a California-based publicly traded real estate investment trust (REIT) that acquires, develops, owns and operates commercial properties.
John Osterweis' hedge fund reported holding 225,249 shares of PS Business Parks, Inc. (NYSE:PSB) at the end of the third quarter, amounting to more than $35.3 million in worth and representing 1.92% of the fund's investment portfolio.
Of the 867 elite funds tracked by Insider Monkey, 12 were long PS Business Parks, Inc. (NYSE:PSB) at the end of the third quarter, down from 16 in the preceding quarter. Israel Englander of Millennium Management is among the leading stakeholders of the company.
On September 30, Wells Fargo analyst Blaine Heck upgraded PS Business Parks, Inc. (NYSE:PSB) to Equal Weight from Underweight with a price target of $163, up from $155. The analyst argues that the company has successfully overcome many concerns related to the impact of COVID-19 on small tenants and recent large move-outs, and valuation now appears fair, relative to peers.
Heartland Mid Cap Value Fund, in its Q1 2021 investor letter, mentioned PS Business Parks, Inc. (NYSE:PSB), and shared their insights on the company. Here is what the fund said:
“Filling a niche. The Real Estate sector continued to add to the strong run it has enjoyed since the COVID-19 lows of early 2020. At that time, we took a stake in PS Business Parks, Inc. (PSB) based on our view that the market was being overly pessimistic about the long-term prospects for the real estate investment trust (REIT). Our actions were validated as the business has been a solid performer in the portfolio.
PS Business Parks operates in the industrial, warehouse, and “flex” (combination of industrial & office) real estate segment. Unlike competitors who often lease tens of thousands of square feet to single tenants, many of PS Business’ clients rent less than 5,000 square feet at a given location. The business also offers shorter leases— usually one to three years—than many of its peers.
The company’s differentiated approach results in fewer competitors and less pricing pressure when seeking to attract tenants. Many investors initially saw the duration of PSB’s leases as a headwind for the business as the economy shut down and prospects for the commercial real estate market were dismal. However, rent collections and commercial activity have proven more resilient than feared, and PSB’s fundamentals appear to be heading in the right direction.
Longer term, we continue to be impressed with PSB’s management team, which has demonstrated a knack for efficient use of capital all while maintaining a strong balance sheet. Management’s focus on highly efficient capital deployment is evidenced by the company’s trailing 10-year free cash flow to invested capital yield of ~9% vs. an industrial real estate investment trust (REIT) peer median of 2%. The yield is impressive in our view, given the company has grown its inventory of square footage by a 10% compounded annualized growth rate over the past two decades.”
8. Waste Connections, Inc. (NYSE:WCN)
Osterweis Capital Management's Stake Value: $37.18 million
Performance of the stock over the past 12 months as of November 24: +3.4%
Waste Connections, Inc. (NYSE:WCN) is a Texas-based integrated waste services company that provides waste collection, transfer, disposal and recycling services, primarily of solid waste. Operating in both, the United States and Canada, it is the third largest North American waste management company.
On October 29, RBC Capital analyst Walter Spracklin raised his price target on Waste Connections, Inc. (NYSE:WCN) to $147 from $139, and kept an Outperform rating on the shares. According to the analyst, the company reported "strong" Q3 results, highlighting its ability to execute amidst an uncertain and changing industry and macro backdrop.
Based on the third quarter securities filings, Osterweis Capital Management holds 295,301 shares of Waste Connections, Inc. (NYSE:WCN), worth approximately $37.18 million, accounting for 2.03% of the fund's total portfolio value. At the end of the third quarter, 32 hedge funds in Insider Monkey’s database reported owning stakes worth $785.7 million in Waste Connections, Inc. (WCN). The number of hedge funds that held stakes in the company remained unchanged in the second and third quarters of 2021.
7. Old Dominion Freight Line, Inc. (NASDAQ:ODFL)
Osterweis Capital Management's Stake Value: $37.8 million
Performance of the stock over the past 12 months as of November 24: -17%
Old Dominion Freight Line, Inc. (NASDAQ:ODFL) is a leading, regional, inter-regional and national less-than-truckload (LTL) shipping company based in North Carolina. The company offers ground and air expedited transportation via a network of more than 238 service centers located throughout the United States.
On October 28, KeyBanc analyst Todd Fowler raised the price target on Old Dominion Freight Line, Inc. (NASDAQ:ODFL) to $350 from $310, and kept an Overweight rating on the shares of the company.
According to the 13F filings for the third quarter of 2021, Osterweis Capital Management holds 132,325 shares of Old Dominion Freight Line, Inc. (NASDAQ:ODFL). These shares are valued at $37.8 million and represent 2.06% of the fund's investment portfolio.
Among the hedge funds being tracked by Insider Monkey, Cliff Asness' AQR Capital Management is the leading shareholder of Old Dominion Freight Line, Inc. (NASDAQ:ODFL), with 897,068 shares worth approximately $256.5 million.
“We first bought shares of Old Dominion Freight Line in the third quarter 2018. Worried over the impact of the unfolding industrial downtown on the trucking industry, we sold the stock shortly thereafter during the second quarter of 2019. That was a mistake. We were correct to be worried about the trucking industry in 2019, but we were very wrong on how resilient Old Dominion’s business model would power through the industry downturn in 2019, as well as the Company’s exceptional performance during pandemic-laden 2020. Bucking the industry, the Company actually grew earnings per share by +3.8% and +11.4% in 2019 and 2020, respectively. Licking our wounds, we are shareholders once again in this terrific Company.
Old Dominion Freight Line has been a family run business for decades. Old Dominion was founded in 1934 in Richmond, Virginia by Earl and Lillian Congdon, running a single truck between Richmond and Norfolk. The founding year was fortuitous as the U.S. economy was in the early innings of its slow recovery from the Great Depression. The trucking industry boomed during the first half of the 1940s because of new congressional industry regulations and World War II armament spending…” (Click here to see the full text).
6. Visa Inc. (NYSE:V)
Osterweis Capital Management's Stake Value: $38.7 million
Performance of the stock over the past 12 months as of November 24: +4%
Visa Inc. (NYSE:V) is a financial services and payments technology company that enables digital payments across the world. The company represents 2.11% of John Osterweis' portfolio for the third quarter of 2021, with his investment fund owning a $38.7 million stake in the company.
On November 18, Morgan Stanley analyst James Faucette maintained an Overweight rating and $280 price target on Visa Inc. (NYSE:V) shares.
Of the 867 elite funds tracked by Insider Monkey, 143 reported holding stakes in Visa Inc. (NYSE:V) as of the third quarter, with stakes worth $26.16 billion. Ken Fisher’s Fisher Asset Management is one of the largest shareholders in Visa Inc. (NYSE:V), with over 18.33 million shares in the company, valued at over $4 billion.
“In our view, the payment network company, Visa, remains very well positioned to participate in an ever-expanding market for electronic payments. In time, ‘Buy now, Pay Later’ may have a modest impact on Visa’s transaction volumes, however in aggregate, we believe it will have the greater effect of supporting growth in electronic payments more broadly. Nearer term, we believe the recovery in international travel as the world gradually normalises and learns to live with COVID-19 will be materially positive for Visa’s financial performance. eCommerce will also remain a positive key driver for Visa growth.”
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Disclosure: None. Was Osterweis Capital Management Right About These 10 Stocks? is originally published on Insider Monkey.