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Tom Gayner's Top 5 Buys in the 4th Quarter

Tom Gayner (Trades, Portfolio), co-CEO of Markel Corp. (NYSE:MKL), disclosed this week that his top five buys for fourth-quarter 2019 included a new holding in O-I Glass Inc. (NYSE:OI) and position boosts in Mohawk Industries Inc. (NYSE:MHK), Illinois Tool Works Inc. (NYSE:ITW), Healthcare Services Group Inc. (NASDAQ:HCSG) and NVR Inc. (NYSE:NVR).


Gayner believes that the stock is part of a business, which in turn is worth the present value of cash flows. The chief investment officer of the Richmond, Virginia-based company said that Markel "operates with a margin of safety in the investment portfolio" and that the portfolio can earn good returns by focusing on areas where Gayner has high understanding and knowledge, a model that Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) define as the "circle of competence."

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As of quarter-end, Markel's $7.20 billion equity portfolio contains 134 stocks, of which two represent new holdings. The top three sectors in terms of weight are financial services, consumer cyclical and industrials.

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New buy: O-I Glass

Gayner purchased 350,000 shares of O-I Glass, giving the position 0.06% weight in the equity portfolio.

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The Perrysburg, Ohio-based company manufactures glass bottles for a wide range of beverages, including beer, wine, soda and spirits. According to GuruFocus, O-I Glass' operating margin has increased approximately 3.9% per year on average over the past five years and is outperforming 75.37% of global competitors, suggesting good profitability.

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Despite good profitability, O-I Glass' financial strength ranks 3 out of 10 on warning signs like low interest coverage and a weak Altman Z-score of 0.91.

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Steven Romick (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio) also have holdings in O-I Glass.

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Mohawk Industries

Gayner added 48,000 shares of Mohawk, increasing the holding 22.54%. Shares averaged $136.34 during the quarter.

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The Calhoun, Georgia-based company manufactures a wide range of flooring products, including rugs, carpets and laminate tiles. GuruFocus ranks the company's profitability 7 out of 10 on several positive investing signs, which include an operating margin that has increased approximately 10% per year on average over the past five years and a three-year revenue growth rate that outperforms 62.10% of global competitors.

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Gurus with holdings in Mohawk include Ruane Cunniff (Trades, Portfolio) and John Rogers (Trades, Portfolio)' Ariel Investment.

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Illinois Tool Works

Gayner added 33,000 shares of Illinois Tool Works, increasing the position 11.54%. Shares averaged $169.96 during the quarter.

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The Glenview, Illinois-based company manufactures a wide range of industrial equipment and products, which include engineered fasteners and seat heaters. GuruFocus ranks the company's profitability 9 out of 10 on several positive investing signs, which include a three-star business predictability rank, a high Piotroski F-score of 8 and profit margins that are expanding and outperforming over 96% of global competitors.

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Healthcare Services

Gayner added 177,000 shares of Healthcare Services, increasing the holding 44.64%. Shares averaged $24.81 during the quarter.

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The Bensalem, Pennsylvania-based company provides housekeeping and facility management services to the health care industry. GuruFocus ranks the company's financial strength and profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, debt ratios that outperform over 81% of global competitors, expanding profit margins and a return on equity that outperforms 80.35% of global companies operating medical care facilities.

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Healthcare Services' valuation ranks 10 out of 10 on the back of price-earnings, price-book and price-sales ratios close to 10-year lows.

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NVR

Gayner added 1,100 shares of NVR, increasing the position 15.16%. Shares averaged $3,705.32 during the quarter.

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The Reston, Virginia-based company builds single-family detached homes, town homes and condos under four trade names, operating in 28 metro areas in 14 states east of the Mississippi River. GuruFocus ranks NVR's financial strength 8 out of 10 several positive investing signs, which include robust interest coverage and Altman Z-scores.

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Other safe investing signs, which include expanding profit margins and a four-star business predictability rank, contribute to a GuruFocus profitability rank of 9.

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See also

Gayner and co-CEO Richard Whitt said in Markel's fourth-quarter earnings release that gross written premiums exceeded $6 million, driven by the synergies the company achieved "between [Markel's] underwriting and other insurance platforms." For the year, Markel reported revenues of $9.5 billion, up from revenues of $6.8 billion in 2018. Net earnings of $129.07 per share in 2019 increased from a net loss of $9.55 per share in 2018.

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Disclosure: No positions.

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This article first appeared on GuruFocus.