Wallace Weitz's Top 5 Trades of the 4th Quarter
- By James Li
Wallace Weitz (Trades, Portfolio), leader of Weitz Investment Management, disclosed this week that his firm's top five trades during the fourth quarter of 2020 included position reductions in Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) and Redwood Trust Inc. (NYSE:RWT) and boosts in three positions: Aon PLC (NYSE:AON), Fidelity National Information Services Inc. (NYSE:FIS) and CarMax Inc. (NYSE:KMX).
The Omaha, Nebraska-based firm's investing approach combines Benjamin Graham's price sensitivity and insistence on a margin of safety with the conviction that qualitative factors that allow a company to have control over its destiny can give more important insights than statistical measures like historical book values and reported earnings.
Weitz said in his Partners Value Fund shareholder letter that the fund returned 15.37% during the fourth quarter of 2020, outperforming the Standard & Poor's 500 index benchmark return of 12.15%. The fund manager said that the "long-waited resurgence" in the fund's midcap and small-cap holdings propelled returns. Weitz added that stocks surged on the back of positive developments around Covid-19 vaccines.
As of the quarter-end, Weitz's $2.32 billion equity portfolio contains 64 stocks with a turnover ratio of 2%. The top three sectors in terms of weight are financial services, communication services and technology, representing 34.87%, 21.80% and 15.75% of the equity portfolio.
Berkshire Hathaway
Weitz sold 85,250 Class B shares of Berkshire Hathaway (NYSE:BRK.B), trimming the position 11.98% and the equity portfolio 0.86%. Shares averaged $220.33 during the fourth quarter of 2020.
GuruFocus ranks the Omaha, Nebraska-based insurance conglomerate's profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7 and a three-star business predictability rank.
Gurus with holdings in Berkshire include Bill Gates (Trades, Portfolio)' foundation trust and Diamond Hill Capital (Trades, Portfolio).
Redwood Trust
The firm sold 1,207,200 shares of Redwood Trust (NYSE:RWT), trimming the position 67.97% and the equity portfolio 0.43%. Shares averaged $8.61 during the fourth quarter.
Weitz said in his letter that although the Mill Valley, California-based REIT's managers "navigated admirably during the mortgage REIT tsunami" in March 2020, the storm still took a toll. The firm sold the shares as the stock climbed back from depressed levels while the risk-reward outlook started becoming sour.
GuruFocus ranks Redwood Trust's financial strength 3 out of 10 on several warning signs, which include a low Piotroski F-score of 3 and a debt-to-equity ratio that underperforms more than 90% of global competitors.
Aon
The firm purchased 45,500 shares of Aon (NYSE:AON), increasing the position 14.17% and the equity portfolio 0.41%. Shares averaged $204.13 during the fourth quarter.
GuruFocus ranks the U.K.-based insurance company's profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 8 and an operating margin that has increased approximately 7.4% per year on average over the past five years. Despite this, Aon's three-year average revenue growth rate of 7.4% outperforms just over half of global competitors.
Other gurus with holdings in Aon include Steven Romick (Trades, Portfolio)'s FPA Crescent Fund and Andreas Halvorsen (Trades, Portfolio)'s Viking Global Partners.
Fidelity National Financial Services
Weitz purchased 64,000 shares of Fidelity National Financial Services (NYSE:FIS), increasing the position 25% and the equity portfolio 0.39%. Shares averaged $142.64 during the fourth quarter.
GuruFocus ranks the Jacksonville, Florida-based payment processing software company's financial strength 4 out of 10 on several warning signs, which include a weak Altman Z-score of 1.65 and debt ratios that underperform over 70% of global competitors.
CarMax
Weitz purchased 90,156 shares of CarMax (NYSE:KMX), increasing the position 14.2% and the equity portfolio 0.37%. Shares averaged $93.78 during the fourth quarter.
GuruFocus ranks the Richmond, Virginia-based vehicle retailer's profitability 7 out of 10 on the back of a five-star business predictability rank and three-year revenue growth rates outperforming over 70% of global competitors, yet weighed down by operating margins outperforming just over half of global vehicle and parts companies.
Disclosure: No positions.
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This article first appeared on GuruFocus.
