Marty Whitman’s Top Stock Picks
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Marty Whitman, a value investor, founded Third Avenue in 1990 after having run a money management firm since 1986. Third Avenue currently has over $10 billion under management and, at least over the last several quarters, has demonstrated a preference for the financial sector. By doing deep bottom-up research on companies Third Avenue attempts to find stocks which are “safe”- a good management team in an understandable business with stable financials- and also sell at a discount to fundamental value. We have gone through our database of 13F filings for the second quarter of the year. Read on to see five stocks that Third Avenue liked or see the full list of their favorite stocks.
According to filings, the top equity position in Third Avenue’s portfolio was POSCO (NYSE: PKX). POSCO is a $6.3 billion market cap steel manufacturer based in South Korea. It trades at only three times trailing earnings, partly due to the fact that the stock is down 14% in the last year (even though the market has risen 22% and one would generally expect steel companies to be responsive to the broader economy). However, the company’s earnings fell 62% in its most recent quarter compared to the same period a year ago; this was almost entirely caused by falling margins, as revenue dropped 3%. The sell-side expects further decays in the business and the forward P/E based on their estimates is 9.
$22 billion market cap real estate and investment management company Brookfield Asset Management (NYSE: BAM) is another top pick from Third Avenue. The fund owned 9.1 million shares of the Canadian company at the end of June, down 12% from its stake at the beginning of the quarter. Similarly to POSCO, Brookfield looks fairly cheap (trailing P/E of 18) but is expected to have lower earnings for 2013 based on the poor recent performance of its business. Revenue increased in its last quarter compared to a year ago but earnings fell 84%. Wall Street consensus implies a forward earnings multiple of 26.
Third Avenue owned 16.7 million shares of Forest City Enterprises (NYSE: FCE-A), a commercial and residential real estate developer serving major metropolitan areas in the United States. Forest City Enterprises has also not been doing well: it was unprofitable in 2011 and is unprofitable so far this year. It is highly exposed to the broader market with a beta of 2.5.
Another of the fund’s favorite stocks is The Bank of New York Mellon (NYSE: BK), with the fund owning 9.5 million shares at the end of June. Warren Buffett’s Berkshire Hathaway more than tripled its position in the bank during the second quarter and owned roughly twice as many shares as Whitman and his team (find more stocks Warren Buffett is buying). The entire banking industry is cheap compared to its earnings, and Bank of New York Mellon is no exception. Its P/B ratio is 0.8 and it trades at 12 times trailing earnings, paying a 2.3% dividend yield. This company is on solid ground and analysts expect 17% EPS growth in 2013 compared to this year.
Covanta Holding Corporation (NYSE: CVA) rounds out our list of Whitman and his team’s favorite stocks according to their 13F filing. Covanta, a $2.3 billion market cap company, primarily operates energy-from-waste plants as well as other waste management operations and an insurance business. It trades at trailing and forward P/E multiples of 32 and 26, respectively. Third Avenue owned 8.5 million shares of the company at the end of June, down 8% from the number of shares it owned at the beginning of April.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Covanta Holding. Motley Fool newsletter services recommend Brookfield Asset Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.