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Tweedy Browne Adds Morgan Stanley, AbbVie to Portfolio

GuruFocus.com

Investment firm Tweedy Browne (Trades, Portfolio) disclosed its second-quarter portfolio 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 four managing directors, William H. Browne, John D. Spears, Thomas H. Shrager 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 second-quarter letter, the fund managers commented on the global equity market's recovery, which they compared to "the rise of a phoenix." They wrote:

"For the average stock, it has been somewhat of a different story. While many, if not most, sectors, industry groups, and stocks participated in the recovery in stock prices, the strongest returns were concentrated in technology stocks, particularly those dominant U.S. companies we know so well. Economically sensitive stocks, in general, once again took a backseat to their higher growth brethren. It has led to a bifurcated market where the spread between growth and value indices has rarely if ever been wider."

Since most stocks were "trading well below their pre-pandemic prices," Tweedy, Browne said it took advantage of the buying opportunities presented. The firm revealed its top trades for the quarter included new positions in Morgan Stanley (NYSE:MS) and AbbVie Inc. (NYSE:ABBV) as well as additions to its Coca-Cola Femsa SAB de CV (NYSE:KOF) and Comcast Corp. (NASDAQ:CMCSA) stakes. It also divested of its holding in Delta Air Lines Inc. (NYSE:DAL).

Morgan Stanley

Tweedy, Browne invested in 462,500 shares of Morgan Stanley, allocating 0.89% of the equity portfolio to the position. The stock traded for an average price of $41.83 per share during the quarter.

The New York-based investment bank has an $83.54 billion market cap; its shares were trading around $53.15 on Wednesday with a price-earnings ratio of 9.35, a price-book ratio of 1.04 and a price-sales ratio of 2.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The GuruFocus valuation rank of 6 out of 10 also supports this assessment.

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GuruFocus rated Morgan Stanley's financial strength 3 out of 10. Although the company has issued approximately $7.4 billion in new long-term debt over the past three years, it is still at a manageable level. The weighted average cost of capital is also significantly above the return on invested capital, indicating the company struggles to turn a profit.

The company's profitability scored a 5 out of 10 rating on the back of margins and returns that outperform at least half of its competitors. It also has a high Piotroski F-Score of 8, which implies business conditions are healthy, and a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Morgan Stanley, Jeff Ubben's ValueAct has the largest stake with 0.9% of outstanding shares. Other top guru shareholders include Ken Fisher (Trades, Portfolio), Richard Pzena (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Hotchkis & Wiley and Steven Cohen (Trades, Portfolio).

AbbVie

The firm picked up 206,000 shares of AbbVie, allocating 0.81% of the equity portfolio to the holding. Shares traded for an average price of $87.80 each during the quarter.

The biopharmaceutical company, which is headquartered in Chicago, has a market cap of $167.5 billion; its shares were trading around $94.88 on Wednesday with a price-earnings ratio of 19.73, a price-book ratio of 11.11 and a price-sales ratio of 3.92.

According to the Peter Lynch chart, the stock is overvalued.

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AbbVie's financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $29.5 billion in new long-term debt over the past three years, the company has low interest coverage. In addition, the Altman Z-Score of 1.18 warns the company could be in danger of going bankrupt since it has recorded an operating income loss and its assets are building up at a faster rate than revenue is growing. The ROIC, however, significantly outweighs the WACC, indicating good profitability.

The company's profitability scored a 9 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 6, which suggests business conditions are stable. AbbVie also has a one-star predictability rank.

With 0.77% of outstanding shares, Jim Simons (Trades, Portfolio)' Renaissance Technologies is the company's largest guru shareholder. Pioneer, T Rowe Price, Cohen, Ken Heebner (Trades, Portfolio), Robert Bruce (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Diamond Hill and several other gurus also own the stock.

Coca-Cola Femsa

With an impact of 2.18% on the equity portfolio, the firm boosted its stake in Coca-Cola Femsa by 83.33%, or 1.25 million shares. The stock traded for an average per-share price of $42.06 during the quarter.

Now holding a total of 2.7 million shares, GuruFocus estimates Tweedy, Browne has lost 0.5% on the investment since the second quarter of 2011.

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The Mexican company, which bottles and distributes Coke products in Latin America, has a $72.35 billion market cap; its shares were trading around $42.99 on Wednesday with a price-earnings ratio of 66.24, a price-book ratio of 2.22 and a price-sales ratio of 1.42.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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GuruFocus rated Coca-Cola Femsa's financial strength 5 out of 10. In addition to weak interest coverage, the low Altman Z-Score of 2.11 indicates the company is under some pressure.

The company's profitability scored a 6 out of 10 rating. While the operating margin is in decline, it still outperforms versus competitors. Coca-Cola Femsa also has steady returns that outperform at least half of the industry players and a moderate Piotroski F-Score of 4. As a result of declining revenue per share over the past five years, the one-star predictability rank is on watch.

Bill Gates (Trades, Portfolio)' foundation trust has the largest stake in the bottling company with 0.37% of outstanding shares. Simons' firm and the Tweedy Browne (Trades, Portfolio) Global Value Fund are also shareholders.

Comcast

Tweedy, Browne increased its stake in Comcast by 14.35%, buying 655,367 shares. The trade had an impact of 1.02% on the equity portfolio. During the quarter, the stock traded for an average price of $38.04 per share.

The firm now holds 1.13 million shares total, which account for _ of the equity portfolio. GuruFocus data shows the firm has gained an estimated 20.48% on the investment since the fourth quarter of 2010.

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The Philadelphia-based telecommunications conglomerate, which owns a variety of cable networks, internet providers and theme parks, has a market cap of $198.71 billion; its shares were trading around $43.47 on Wednesday with a price-earnings ratio of 17.27, a price-book ratio of 2.35 and a price-sales ratio of 1.88.

The Peter Lynch chart suggests the stock is overvalued. The GuruFocus valuation rank of 4 out of 10 also leans toward overvaluation since the share price and several price ratios are near multiyear highs.

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Comcast's financial strength was rated 4 out of 10 by GuruFocus. Due to issuing approximately $35.2 billion in new long-term debt over the past three years, the company has insufficient interest coverage. In addition, the Altman Z-Score of 1.57 warns the company could be at risk of bankruptcy.

The company's profitability fared much better, scoring an 8 out of 10 rating even though its operating margin is in decline. Comcast is also supported by strong returns that outperform more than 70% of industry peers and a high Piotroski F-Score of 7. As a result of a slowdown in revenue per share growth over the past year, the 3.5-star predictability rank is on watch. GuruFocus says companies with this rank typically return an average of 9.3% annually.

Of the gurus invested in Comcast, Dodge & Cox has the largest stake with 1.81% of outstanding shares. First Eagle Investment (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, First Pacific Advisors (Trades, Portfolio), Pioneer, Bill Nygren (Trades, Portfolio), and Steven Romick (Trades, Portfolio), among others, also own the stock.

Delta Air Lines

The firm divested of its Delta holding, selling all 927,620 shares. The trade had an impact of -1.23% on the equity portfolio. Shares traded for an average price of $25.43 each during the quarter.

GuruFocus estimates the firm lost 49.18% on the investment, which it established in the first quarter.

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The airline, which is headquartered in Atlanta, has an $18.29 billion market cap; its shares were trading around $28.86 on Wednesday with a price-book ratio of 2.18 and a price-sales ratio of 0.56.

According to the median price-sales chart, the stock is overvalued. The GuruFocus valuation rank of 6 out of 10, however, leans more toward undervaluation.

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GuruFocus rated Delta's financial strength 4 out of 10. While the cash-debt ratio of 0.51 is outperforming versus its industry and history, the Altman Z-Score of 0.56 warns the company could be in danger of going bankrupt.

The company's profitability fared better with a 7 out of 10 rating on the back of an expanding operating margin. Its returns, however, are negative and underperform a majority of competitors. Delta also has a moderate Piotroski F-Score of 4, but the one-star predictability rank is on watch as a result of declining revenue per share over the past year.

PRIMECAP Management (Trades, Portfolio) is the company's largest guru shareholder with a 4.48% stake. Other top guru investors are Pioneer, NWQ Managers (Trades, Portfolio), Greenblatt, Robert Olstein (Trades, Portfolio), Ronald Muhlenkamp (Trades, Portfolio), Bernard Horn (Trades, Portfolio), Richard Snow (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Jeff Auxier (Trades, Portfolio).

Additional trades and portfolio performance

Other top trades of the quarter included additions to the firm's U.S. Bancorp (NYSE:USB), Baidu Inc. (NASDAQ:BIDU) and Berkshire Hathaway Inc. (NYSE:BRK.B) holdings and exiting the MRC Global Inc. (NYSE:MRC) and WPP PLC (NYSE:WPP) positions.

Over half of Tweedy, Browne's $2.51 billion equity portfolio, which is composed of 43 stocks, is invested in the financial services and communication services sectors.

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According to GuruFocus data, the Value Fund returned 16.05% in 2019, underperforming the 31.48% return of the S&P 500.

Disclosure: No positions.

Read more here:

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  • Chuck Royce's Firm Boosts 2 Positions in July



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This article first appeared on GuruFocus.