In this article, we will discuss Top 10 Stocks to Buy According to David Abrams's Abrams Capital Management. You can skip our detailed analysis of Abrams Capital Management's strategy and David Abrams's background and go directly to Top 5 Stocks to Buy According to David Abrams's Abrams Capital Management.
Hailed as a "one-man wealth machine" by the Wall Street Journal, David Abrams is the CEO & founder of Abrams Capital Management. After studying History at the University of Pennsylvania, David Abrams entered the world of investing in 1988 by securing a job at Baupost Group LLC, which is one of the world's largest hedge-fund firms. While at Baupost Group LLC, he struck a friendship with Seth Klarman, who became his mentor and educated him on various principles of investing. Seth Klarman was impressed by the intelligence of David Abrams and regarded him as "smart as a whip." Seth Klarman's investment approach is reflected in the investment style of David Abrams, who takes a fundamental, value-based, long-term approach to investing. His portfolio is often concentrated in specific sectors that he believes will outperform the market in the future. Moreover, he likes businesses in which the CEO has a substantial stake or where the executive's compensation is predominantly stock-based.
Founded in 1999, Abrams Capital Management is an investment firm based out of Boston that invests in public and private companies. The firm applies unlevered and long-term oriented investment strategy following a fundamental stock-picking approach. Abrams Capital Management, as of its Q3 2022 filing, had a portfolio value of over $3.4 billion and a top 10 holdings concentration of 83.97%. The firm is highly concentrated in the Health Care, Consumer Discretionary, and Services sectors. Alphabet Inc. (NASDAQ:GOOG), TransDigm Group Incorporated (NYSE:TDG), and Change Healthcare Inc. (NASDAQ:CHNG) were some of the top holdings of Abrams Capital Management at the end of Q3 2022.
We picked the top 10 stocks from Abrams Capital Management's portfolio as of its Q3 2022 filing.
10. Teva Pharmaceutical Industries Ltd (NYSE:TEVA)
Abrams Capital Management Stake: $192,867,000
Percentage of Abrams Capital Management's Portfolio: 5.56%
Number of Hedge Fund Holders: 35
Teva Pharmaceutical Industries Ltd (NYSE:TEVA) is a global company committed to helping patients worldwide by providing medicines at affordable prices and improving health through their constant innovations. Its operations are extended worldwide including United States and Europe. The medicines developed by Teva Pharmaceutical Industries Limited are over-the-counter drugs and specialty medicines for specific diseases. David Abrams reduced his stake in Teva Pharmaceutical Industries Ltd (NYSE:TEVA) by 1% during the third quarter. The fund held 23,899,296 shares of the company at the end of Q3 2022.
On October 21, 2022, Glen Santangelo, an analyst at Jefferies, initiated coverage of Teva Pharmaceutical Industries Ltd (NYSE:TEVA) with a Buy rating and a price target of $10. The analyst believes that the company is out of the courtroom trouble, which had previously weighed on the company's stock price, but now after the settlement, the company is set to achieve a low-single-digit sales revenue growth going forward. At the end of Q3 2022, Abrams Capital Management held the highest stake in Teva Pharmaceutical Industries Ltd (NYSE:TEVA), with an investment value of over $192 million in the company.
In addition to Teva Pharmaceutical Industries Ltd (NYSE:TEVA), Abrams Capital Management had investments in Change Healthcare Inc. (NASDAQ:CHNG), Asbury Automotive Group, Inc. (NYSE:ABG), and Lithia Motors, Inc. (NYSE:LAD) at the end of Q3 2022.
9. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Abrams Capital Management Stake: $214,754,000
Percentage of Abrams Capital Management's Portfolio: 6.19%
Number of Hedge Fund Holders: 50
Willis Towers Watson Public Limited Company (NASDAQ:WTW) has been a leading global advisory which helps its clientele all over the world to turn risk into the path leading to growth. The company employs over 44,000 people, and its clients are present in more than 140 countries. The clients are of large to medium scale, from multinational companies to domestic companies. David Abrams didn't make any changes to his stake in Willis Towers Watson Public Limited Company (NASDAQ:WTW) during Q3 2022. The fund held 1,068,745 shares of the company at the end of the third quarter ending September 2022.
On September 26, 2022, Andrew Kligerman, an analyst at Credit Suisse, started coverage of Willis Towers Watson Public Limited Company (NASDAQ:WTW) with an Outperform rating on the company's stock and a price target of $288. The analyst stated in a research note that the stock currently trades at a discount to its peers as the company's EPS is expected to increase at a double-digit growth rate in the next two years.
Willis Towers Watson Public Limited Company (NASDAQ:WTW) shares rose 2% in the quarter. This modest increase made it one of our best performers during a difficult quarter. Absent significant news, the business continues to benefit from a hard insurance market. Results are still lagging peers, but the management team seems to be making progress in closing the gap. In the meantime, the company is returning significant amounts of capital to shareholders. Over the past eight months, it has repurchased $4 billion in stock and reduced the share count by 15%. And there is more on the way. This is a good business in a fantastic industry trading at 12X normalized earnings . We believe it is worth much more.
First Eagle Investment Management remained the leading hedge fund with the biggest holding in the stock. The fund owned 4,868,960 shares of the company at the end of Q3 2022.
8. AMERCO (NASDAQ:UHAL)
Abrams Capital Management Stake: $215,358,000
Percentage of Abrams Capital Management's Portfolio: 6.2%
Number of Hedge Fund Holders: 20
Founded in 1945, AMERCO (NASDAQ:UHAL) through its subsidiary U-Haul International, Inc. provides services and products to help people move and store household and commercial items at a lesser price. The company also provides life and health insurance, as well as loss adjustment and claims management services. Abrams Capital Management did not make any changes to its holding of AMERCO (NASDAQ:UHAL) stock during the third quarter. The stock comprised 6.2% of the fund's portfolio at the end of the quarter.
On November 10, 2022, AMERCO (NASDAQ:UHAL) reported results for Q2 of the fiscal year 2023. The company reported revenue of $1.74 billion for the quarter, an increase of 2.4% YoY. The Normalized EPS for the quarter of $1.80 missed the market estimate by $0.27.
Third Avenue Management, an investment management firm, mentioned AMERCO (NASDAQ:UHAL) in their Q1 2022 investor letter. This is what they said:
Held in the Fund since 2018, AMERCO (NASDAQ:UHAL) is widely recognized as the leader in self-moving in North America through its U-Haul subsidiary where it has an unrivaled network with approximately 176,000 trucks, 126,000 trailers, and 46,000 towing devices available across more than 23,000 locations. What is not as widely recognized, in Fund Management's opinion, is that the company's forward thinking management team has also spent the last decade assembling one of the largest self-storage portfolios in North America-not only solidifying the "moat" around its core business but also creating substantial value in the process.
Due to these efforts, AMERCO (NASDAQ:UHAL) owned and managed more than 73 million square feet of self-storage facilities at the end of the 2021, placing it as the third largest owner of such properties in the US. Notwithstanding, the company does not seem to get much (if any) recognition for this transformation. To wit, if one were to apply the implied price per square foot for AMERCO's (NASDAQ:UHAL) closest comparable on the self-storage side of the business (e.g., Life Storage), they would arrive at an implied value for its impossible-to-replicate self-moving business of basically $0- despite it generating more than $1.0 billion of operating profits per year more recently, implying $7-8 billion of value based upon comparables within the rental segment.
This disconnect does not seem to be lost on Chairman and CEO Edward Shoen (who owns 42.7% of the company's stock along with beneficiaries). In fact, in response to a question about the price-to-value discrepancy during the company's most recent quarterly conference call, he remarked that "it's a question that is regularly discussed at the board level" and that "hopefully we'll have some news for you before the year is out." In the meantime, AMERCO (NASDAQ:UHAL) is not only continuing to self-finance the expansion of its self-storage portfolio with more than 7 million square feet of projects in development, but the company is also expanding its "U-Box" offering as it gains further market share in the portable storage and moving segment.
7. Coupang, Inc. (NYSE:CPNG)
Abrams Capital Management Stake: $223,295,000
Percentage of Abrams Capital Management's Portfolio: 6.43%
Number of Hedge Fund Holders: 37
Coupang, Inc. (NYSE:CPNG) owns and manages an e-commerce business in South Korea, mainly through mobile applications and Internet websites. It works in two divisions: Product Commerce and Growth Initiatives. The company sells home goods and décor products, fashion, beauty products, fresh food and groceries, sporting goods, electronics, and everyday consumables. David Abrams decreased his investment in Coupang, Inc. (NYSE:CPNG) by 2% during the third quarter of 2022 and held 13,395,026 shares of the company as of the end of Q3 2022.
Coupang, Inc. (NYSE:CPNG) recently reported results for Q3 2022, posting a revenue of $5.1 billion, a growth of 9.9% YoY. The company posted a Normalized EPS of $0.05 for the quarter, beating the market estimate by $0.08.
Here is what Baron Funds specifically said about Coupang, Inc. (NYSE:CPNG) in its Q3 2022 investor letter:
Coupang, Inc. (NYSE:CPNG), the largest e-commerce platform in South Korea, contributed after reporting a sizable beat on second quarter earnings and raising annual EBITDA guidance. Upside was concentrated in e-commerce, where Coupang is now driving sequential margin expansion while maintaining a growth rate that is triple that of the industry average, lending credence to the investment case that Coupang will consolidate the fragmented e-commerce industry in Korea across both general merchandise and grocery, with healthy long-term margins to follow.
6. Energy Transfer LP (NYSE:ET)
Abrams Capital Management Stake: $242,873,000
Percentage of Abrams Capital Management's Portfolio: 7%
Number of Hedge Fund Holders: 36
Energy Transfer LP (NYSE:ET) provides energy-related services operating pipelines for refined products, natural gas, natural gas liquids, and crude oil. It also conducts retail and wholesale motor gasoline operations and LNG terminals. Abrams Capital Management reduced its stake in Energy Transfer LP (NYSE:ET) during the third quarter by 7%. The fund has an investment value of over $242 million in the company's stock.
On October 19, 2022, Robert Kad, an analyst at Morgan Stanley, increased his price target on Energy Transfer LP (NYSE:ET) to $17. The analyst currently has an Overweight rating on the stock. According to the analyst, the growth in share buybacks could be a catalyst for an upside in the share price.
Energy Transfer LP (ET) rose over the period along with the price of oil climbing 40.59% over the period. The company received positive news that the Dakota Access Pipeline project would not be shut down while the Environmental Impact Statement by the US Army Corps of Engineers is drawn up. Energy Transfer reported strong 1Q results with revenue of $17B surpassing expectations for $11.8B with adjusted earnings before income, taxes, depreciation and amortization (EBITDA) hitting $5.04B ahead of consensus of $2.77B. The company raised full year adjusted EBITDA guidance to $12.9-13.3B from $10.6-11.0B previously, with the increase largely related to the benefits realized from Winter Storm Uri. The company paid down $3.7B in debt during the quarter, using strong cash flow to reduce leverage. The company also announced the issuance of $900M in 6.5% Series H perpetual preferreds with the company using the proceeds to repay debt and for general purposes.
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Disclosure: None. Top 10 Stocks to Buy According to David Abrams's Abrams Capital Management is originally published on Insider Monkey.