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Tom Gayner's Top 5 Trades of the 4th Quarter

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GuruFocus.com
·9 min read
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- By Sydnee Gatewood

Tom Gayner (Trades, Portfolio), the co-CEO of Markel Corp., disclosed his fourth-quarter 2020 portfolio late last week.

Concentrating on promising areas where Markel has good understanding and knowledge, the guru's Virginia-based firm uses a value-oriented approach to stock picking. Gayner also maintains a margin of safety within the investment portfolio and believes that since a stock is part of a business, it is worth what the present value of future cash flows are.


Keeping these ideas in mind, the guru established small positions in IAC/InterActiveCorp (NASDAQ:IAC) and Allstate Corp. (NYSE:ALL) during the quarter. Gayner's most notable trades for the three months ended Dec. 31, however, were reductions in the Rollins Inc. (NYSE:ROL) and Mohawk Industries Inc. (NYSE:MHK) holdings as well as additions to investments in International Flavors & Fragrances Inc. (NYSE:IFF), Healthcare Services Group Inc. (NASDAQ:HCSG) and SEI Investments Co. (NASDAQ:SEIC).

Rollins

With an impact of -0.25% on the equity portfolio, the investor curbed his stake in Rollins by 33.33%, selling 621,637 shares. The stock traded for an average price of $38.80 per share during the quarter.

Gayner now holds 1.24 million shares total, which represent 0.72% of the equity portfolio. GuruFocus estimates he has gained 169.26% on the investment since establishing it in the fourth quarter of 2013.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

The Atlanta-based pest control company, which owns the Orkin brand, among several others, has an $18.57 billion market cap; its shares were trading around $37.57 on Monday with a price-earnings ratio of 71.26, a price-book ratio of 19.72 and a price-sales ratio of 8.59.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 1 out of 10 aligns with this assessment.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

GuruFocus rated Rollins' financial strength 7 out of 10, driven by a comfortable level of interest coverage and a robust Altman Z-Score of 14.81 that indicates the company is in good standing even though its assets are building up at a faster rate than revenue is growing. The return on invested capital also surpasses the weighted average cost of capital, indicating good value creation.

The company's profitability fared even better, scoring a 9 out of 10 rating. Although the operating margin is in decline, it, along with strong returns on equity, assets and capital, outperform a majority of competitors. Rollins also has a moderate Piotroski F-Score of 5, which indicates business conditions are stable, while consistent revenue and earnings growth contributed to a predictability rank of five out of five stars. According to GuruFocus, companies with this rank return an average of 12.1% annually over a 10-year period.

Of the gurus invested in Rollins, Mario Gabelli (Trades, Portfolio) has the largest stake with 0.6% of outstanding shares. Other top guru shareholders include Ron Baron (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Pioneer Investments (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).

Mohawk Industries

Impacting the equity portfolio by -0.12%, Gayner trimmed his position in Mohawk Industries by 25.08%, selling 74,000 shares. Shares traded for an average price of $120.85 each during the quarter.

He now holds 221,000 shares total, which account for 0.46% of the equity portfolio. GuruFocus data shows Gayner has gained an estimated 5.44% on the investment since the third quarter of 2018.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

The flooring products manufacturer, which is headquartered in Calhoun, Georgia, has a market cap of $10.87 billion; its shares were trading around $152.61 on Monday with a price-earnings ratio of 20.6, a price-book ratio of 1.32 and a price-sales ratio of 1.16.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 8 out of 10, however, leans more toward undervaluation.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

Mohawk's financial strength was rated 6 out of 10 by GuruFocus. Despite having adequate interest coverage, the Altman Z-Score of 2.96 indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing. The WACC also eclipses the ROIC, indicating issues with creating value.

The company's profitability scored a 7 out of 10 rating even though its operating margin is in decline and its returns underperform over half of its industry peers. Mohawk is also being supported by a moderate Piotroski F-Score of 5, but the 3.5-star predictability rank is on watch as a result of revenue per share declining over the past 12 months. GuruFocus says companies with this rank return an average of 9.3% annually.

With a 2.67% stake, Richard Pzena (Trades, Portfolio) is Mohawk's largest guru shareholder. John Rogers (Trades, Portfolio), Charles Brandes (Trades, Portfolio), Third Avenue Management (Trades, Portfolio), the Third Avenue Value Fund (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Pioneer, Joel Greenblatt (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Simons' firm, Ruane Cunniff (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) also own the stock.

International Flavors & Fragrances

Gayner boosted his holding in International Flavors & Fragrances by 36.45%, buying 39,000 shares. The trade had an impact of 0.06% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $112.11.

The guru now holds 146,000 shares total, which make up 0.24% of the equity portfolio. GuruFocus data shows he has gained an estimated 2.04% on the investment so far.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

The New York-based company, which produces value-added ingredients like flavors, fragrances and cosmetic actives, has a $31.57 billion market cap; its shares were trading around $126.82 on Monday with a price-earnings ratio of 37.99, a price-book ratio of 2.38 and a price-sales ratio of 2.83.

Based on the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 4 out of 10 aligns with this analysis.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

GuruFocus rated International Flavors & Fragrances' financial strength 5 out of 10. Despite having insufficient interest coverage and assets that are building up at a faster rate than revenue is growing, the company is being supported by a high Altman Z-Score of 3.82. However, the company is also struggling to create value as the ROIC is below the WACC.

The company's profitability scored an 8 out of 10 rating even though margins are in decline and returns are underperforming over half of its competitors. International Flavors & Fragrances also has a moderate Piotroski F-Score of 4, but due to a slowdown in revenue per share growth over the past year, its three-star predictability rank is on watch. GuruFocus says companies with this rank return an average of 8.2% annually.

Pioneer is the company's largest guru shareholder with a 1.37% stake. Gabelli, Simons' firm, Dalio, Murray Stahl (Trades, Portfolio), Greenblatt and Paul Tudor Jones (Trades, Portfolio) also own the stock.

Healthcare Services Group

Boosting his position in Healthcare Services Group by 12.03%, Gayner invested in 84,000 shares. The transaction had an impact of 0.04% on the equity portfolio. During the quarter, the stock traded for an average price of $24.23 per share.

The guru now holds 782,500 shares total, accounting for 0.33% of the equity portfolio. He has gained an estimated 12.63% on the investment since the first quarter of 2017 according to GuruFocus.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

Headquartered in Bensalem Township, Pennsylvania, the company, which provides housekeeping and facility management services to the health care industry, has a market cap of $2.5 billion; its shares were trading around $33.55 on Monday with a price-earnings ratio of 28.01, a price-book ratio of 5.37 and a price-sales ratio of 1.42.

The Peter Lynch chart suggests the stock is overvalued, but the GuruFocus valuation rank of 9 out of 10 leans more toward undervaluation.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

Healthcare Services' financial strength and profitability were both rated 8 out of 10 by GuruFocus. In addition to comfortable interest coverage, the company is supported by a high Altman Z-Score of 8.89. Assets, however, are building up at a faster rate than revenue is growing. The ROIC also surpasses the WACC, indicating good value creation.

The company also has an expanding operating margin, strong returns that are outperforming a majority of industry peers and a high Piotroski F-Score of 7, which implies business conditions are healthy. Healthcare Services also has a one-star predictability rank despite seeing a decline in revenue per share over the past year. GuruFocus says companies with this rank return an average of 1.1% annually.

Gayner is the company's largest guru shareholder with a 1.05% holding. Chuck Royce (Trades, Portfolio), Greenblatt, Caxton and Pioneer also own the stock.

SEI Investments

The guru picked up 43,000 additional shares of SEI Investments, expanding the holding 11.22%. The stock traded for an average per-share price of $54.66 during the quarter. The transaction had an impact of 0.04% on the equity portfolio.

Gayner now holds 426,200 shares total, making up 0.36% of the equity portfolio. GuruFocus data indicates he has gained 52.04% on the investment.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

The Oaks, Pennsylvania-based financial services company has an $8.05 billion market cap; its shares were trading around $56.28 on Monday with a price-earnings ratio of 18.66, a price-book ratio of 4.72 and a price-sales ratio of 4.96.

The Peter Lynch chart suggests the stock is overvalued, but the GuruFocus valuation rank of 8 out of 10 indicates it is undervalued.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

SEI Investments' financial strength and profitability were both rated 9 out of 10 by GuruFocus. In addition to strong interest coverage, the robust Altman Z-Score of 16.19 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing.

The company also has an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6. Despite having consistent earnings and revenue growth, the five-star predictability rank is on watch.

Royce is the company's largest guru shareholder with a 0.32% holding. Simons' firm, Pioneer, Jones, Grantham, Ken Fisher (Trades, Portfolio) and Greenblatt also have positions in the stock.

Additional trades

During the quarter, Gayner also curbed his holding of Apple Inc. (NASDAQ:AAPL) and boosted his positions in O-I Class Inc. (NYSE:OI), Watsco Inc. (NYSE:WSO) and several other stocks.

The guru's $6.71 billion equity portfolio, which is composed of 115 stocks, is largely invested in the financial services and consumer cyclical sectors.

Tom Gayner's Top 5 Trades of the 4th Quarter
Tom Gayner's Top 5 Trades of the 4th Quarter

Disclosure: No positions.

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This article first appeared on GuruFocus.