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Tweedy Browne Adds Fresenius, Progressive to Portfolio

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·10 min read
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- By Sydnee Gatewood

Investment firm Tweedy Browne (Trades, Portfolio) disclosed its portfolio updates for the first quarter of the year earlier this week.


The New York-based firm, which has been operating for a century, is an investment partnership that is owned and operated by its seven managing directors, Roger R. de Bree, Frank H. Hawrylak, Jay Hill, Sean McDonald, Thomas H. Shrager, John D. Spears and Robert Q. Wyckoff Jr. Deriving its investment approach from the work of Benjamin Graham, the firm oversees around $4.5 billion in assets through four unique mutual funds. Each of the portfolios is managed according to the same value principles with an emphasis on seeking undervalued stocks.

In the firm's first-quarter letter, the fund managers noted that investors' "concerns about valuation, increased speculation, rising inflationary expectations and the prospects for higher interest rates" were trumped by the global rollout of Covid-19 vaccines and optimism regarding the prospects of a strong economic rebound that were fuelled by "unprecedented levels of fiscal and monetary stimulus."

Despite the rising valuations, Tweedy, Browne noted it continued to "uncover pockets of undervaluation around the world." During the three months ended March 31, the firm established new holdings in Fresenius Medical Care AG & Co. KGAA (NYSE:FMS) and Progressive Corp. (NYSE:PGR), sold out of four stocks and added to or trimmed a slew of other existing positions. Other notable trades for the period included a boost to the Alibaba Group Holding Ltd. (NYSE:BABA) stake and reductions in the Baidu Inc. (NASDAQ:BIDU) and Cisco Systems Inc. (NASDAQ:CSCO) investments.

Fresenius Medical Care

The firm invested in 530,064 shares of Fresenius (NYSE:FMS), allocating 0.57% of the equity portfolio to the holding. The stock traded for an average price of $37.81 per share during the quarter.

The German health care company, which provides dialysis products and services, has a $23.03 billion market cap; its shares were trading around $39.32 on Monday with a price-earnings ratio of 16.24, a price-book ratio of 1.69 and a price-sales ratio of 1.06.

The GF Value Line suggests the stock is currently modestly undervalued based on its historical ratios, past performance and future earnings projections.

Tweedy Browne Adds Fresenius, Progressive to Portfolio
Tweedy Browne Adds Fresenius, Progressive to Portfolio

The valuation rank of 10 out of 10 supports this assessment.

In their quarterly letter, the management team noted the company will "benefit from the secular demand growth of aging demographics and increasing per capita healthcare consumption."

GuruFocus rated Fresenius' financial strength 4 out of 10. Although the company has adequate interest coverage, the Altman Z-Score of 1.91 indicates it is under some pressure since assets are building up at a faster rate than revenue is growing. The return on invested capital is also eclipsing the weighted average cost of capital, indicating good value creation.

Although its margins are declining, the company's profitability scored an 8 out of 10 rating. Fresenius' returns on equity, assets and capital are also outperforming over half of its competitors. It is also being supported by a high Piotroski F-Score of 7, which indicates business conditions are healthy, and consistent earnings and revenue growth that contribute to a predictability rank of 3.5 out of five stars. According to GuruFocus, companies with this rank return an average of 9.3% annually over a 10-year period.

Of the gurus invested in Fresenius, Tweedy, Browne now has the largest position with 0.09% of outstanding shares. NWQ Managers (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies also own the stock.

Progressive

The firm picked up 136,403 shares of Progressive (NYSE:PGR), dedicating 0.38% of the equity portfolio to the position. Shares traded for an average price of $90.79 each during the quarter.

The insurance company, which is headquartered in Mayfield, Ohio, has a market cap of $62.27 billion; its shares were trading around $106.45 on Monday with a price-earnings ratio of 9.69, a price-book ratio of 3.59 and a price-sales ratio of 1.39.

According to the GF Value Line, the stock is fairly valued currently.

Tweedy Browne Adds Fresenius, Progressive to Portfolio
Tweedy Browne Adds Fresenius, Progressive to Portfolio

The valuation rank of 5 out of 10 aligns with this assessment even though the share price and price-sales ratio are approaching 10-year highs.

In its quarterly letter, the firm noted that Progressive is a "best-of-breed auto insurance carrier" that has a long, successful history of innovation, market share gains, industry-leading profitability and generating high returns.

Despite having a comfortable level of interest coverage, GuruFocus rated Progressive's financial strength 4 out of 10. The ROIC also surpasses the WACC, indicating there is good value creation.

The company's profitability scored a 7 out of 10 rating on the back of strong margins and returns that outperform a majority of industry peers and a high Piotroski F-Score of 8. Consistent earnings and revenue growth also contributed to a three-star predictability rank. GuruFocus says companies with this rank return an average of 8.2% annually.

With 0.67% of outstanding shares, Pioneer Investments (Trades, Portfolio) is Progressive's largest guru shareholder. Other top investors include PRIMECAP Management (Trades, Portfolio), Glenn Greenberg (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio), Tom Gayner (Trades, Portfolio), John Rogers (Trades, Portfolio), Simons' firm, David Rolfe (Trades, Portfolio), John Hussman (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).

Alibaba

Boosting its stake by 67.76%, Tweedy, Browne purchased 447,895 more shares of Alibaba (NYSE:BABA), impacting the equity portfolio by 2.96%. During the quarter, the stock traded for an average per-share price of $245.98.

It now holds 1.1 million total shares of the company, accounting for 7.32% of the equity portfolio. GuruFocus estimates the firm has lost 16.72% on the investment since establishing it in the fourth quarter of 2020.

Tweedy Browne Adds Fresenius, Progressive to Portfolio
Tweedy Browne Adds Fresenius, Progressive to Portfolio

The Chinese e-commerce company has a $595.96 billion market cap; its shares were trading around $219.56 on Monday with a price-earnings ratio of 25.65, a price-book ratio of 4.16 and a price-sales ratio of 6.38.

Based on the GF Value Line, the stock appears to be significantly undervalued currently.

Tweedy Browne Adds Fresenius, Progressive to Portfolio
Tweedy Browne Adds Fresenius, Progressive to Portfolio

Driven by a good cash-debt ratio, a comfortable level of interest coverage and a robust Altman Z-Score of 5.65, Alibaba's financial strength was rated 7 out of 10 by GuruFocus.

The company's profitability scored an 8 out of 10 rating. Although the operating margin is in decline, Alibaba has strong returns that outperform a majority of competitors as well as a moderate Piotroski F-Score of 4, indicating business conditions are stable. Despite recording consistent earnings and revenue growth, the 2.5-star predictability rank is on watch. GuruFocus data shows companies with this rank return an average of 7.3% annually.

Baillie Gifford (Trades, Portfolio) is Alibaba's largest guru shareholder with a 0.98% stake. Ken Fisher (Trades, Portfolio), PRIMECAP, Frank Sands (Trades, Portfolio), Pioneer, Chase Coleman (Trades, Portfolio), Chris Davis (Trades, Portfolio), Dodge & Cox, Sarah Ketterer (Trades, Portfolio), Ron Baron (Trades, Portfolio), David Tepper (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Al Gore (Trades, Portfolio), Grantham, Daniel Loeb (Trades, Portfolio) and Philippe Laffont (Trades, Portfolio) also have significant positions in the stock.

Baidu

With an impact of -2.91% on the equity portfolio, the firm curbed its Baidu (NASDAQ:BIDU) holding by 30.66%, selling 432,579 shares. The stock traded for an average price of $261.90 per share during the quarter.

Tweedy, Browne now holds 978,153 shares total, representing 6.19% of the equity portfolio. GuruFocus estimates it has gained 3.88% on the investment since the first quarter of 2017.

Tweedy Browne Adds Fresenius, Progressive to Portfolio
Tweedy Browne Adds Fresenius, Progressive to Portfolio

The Chinese company, which provides internet services and artificial intelligence products, has a market cap of $64.61 billion; its shares were trading around $186.15 on Monday with a price-earnings ratio of 19.36, a price-book ratio of 2.25 and a price-sales ratio of 4.05.

The GF Value Line suggests the stock is modestly overvalued currently.

Tweedy Browne Adds Fresenius, Progressive to Portfolio
Tweedy Browne Adds Fresenius, Progressive to Portfolio

GuruFocus rated Baidu's financial strength 6 out of 10. Although it has poor interest coverage and assets are building up at a faster rate than revenue is growing, the Altman Z-Score of 3.36 indicates it is in good standing. The WACC also eclipses the ROIC, indicating it struggles with creating value.

The company's profitability fared much better, scoring an 8 out of 10 rating even though the operating margin is in decline. Baidu's returns are outperforming over half of its industry peers. It is also being supported by a high Piotroski F-Score of 7 as well as a one-star predictability rank. GuruFocus says companies with this rank return an average of 1.1% annually.

Of the gurus invested in Baidu, PRIMECAP has the largest stake with 2.79% of outstanding shares. Simons' firm, Baillie Gifford, Dodge & Cox, Rogers, Ketterer and Catherine Wood (Trades, Portfolio) also have significant stakes in the company.

Cisco Systems

Impacting the equity portfolio by -1.29%, the firm trimmed its Cisco Systems (NASDAQ:CSCO) stake by 18.82%, selling 924,520 shares. During the quarter, shares traded for an average price of $46.95 each.

It now holds 3.9 million shares total, which make up 6% of the equity portfolio. GuruFocus data shows the firm has gained an estimated 104.95% on the investment since the first quarter of 2011.

Tweedy Browne Adds Fresenius, Progressive to Portfolio
Tweedy Browne Adds Fresenius, Progressive to Portfolio

Headquartered in San Jose, California, the software company, which develops networking, cloud and security solutions, has a $227.51 billion market cap; its shares were trading around $53.89 on 22.65, a price-book ratio of 5.81 and a price-sales ratio of 4.75.

According to the GF Value Line, the stock is modestly overvalued currently.

Tweedy Browne Adds Fresenius, Progressive to Portfolio
Tweedy Browne Adds Fresenius, Progressive to Portfolio

The valuation rank of 2 out of 10 aligns with this assessment since the share price and price-sales ratio are both closing in on 10-year highs.

Cisco's financial strength was rated 6 out of 10 by GuruFocus, driven by a comfortable level of interest coverage as well as a high Altman Z-Score of 3.53. The ROIC eclipses the WACC, indicating good value creation.

The company's profitability fared even better with a 9 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 8. As a result of revenue per share growth declining over the past 12 months, the five-star predictability rank is on watch. GuruFocus data reveals companies with this rank return an average of 12.1% annually.

With a 0.91% stake, Dodge & Cox is Cisco's largest guru shareholder. Al Gore (Trades, Portfolio), Fisher, PRIMECAP, Pioneer, Grantham, the T Rowe Price Equity Income Fund (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio) and Yacktman Asset Management (Trades, Portfolio) also have significant stakes.

Additional trades and portfolio performance

Other top trades of the quarter included the divestment of Goldman Sachs Group Inc. (NYSE:GS) from the portfolio and a reduction in the ConocPhillips (NYSE:COP) holding.

Over half of Tweedy, Browne's $3.44 billion equity portfolio, which is composed of 46 stocks, is invested in the financial services and communication services sectors.

Tweedy Browne Adds Fresenius, Progressive to Portfolio
Tweedy Browne Adds Fresenius, Progressive to Portfolio

According to GuruFocus data, the Value Fund returned -1.99% in 2020, severely underperforming the 18.4% return of the S&P 500.

Disclosure: No positions.

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This article first appeared on GuruFocus.