In 2013, Mason Hawkins (Trades, Portfolio)’ Longleaf Partners Funds kept pace with the S&P 500’s buoyant return of over 32%. As disciplined investors, his team prefers to wait for more discounted stocks than investing in over-priced situations just for the sake of being invested. Hawkins wrote in his 2014 shareholder letter:
“A broad market pullback could provide our next qualifiers. We are not market prognosticators, but few markets around the globe can claim undervaluation, and many have pockets of overvaluation. In the event of a correction, short-term performance is likely to decline. Our long-term results, however, will benefit from a lower P/V as we are armed with a vetted wish list of businesses and ample cash to be liquidity providers when new opportunities or existing names are offered at less than 60% of our appraisals. Additionally, lower prices will allow management teams at our current holdings to use their balance sheet strength to execute repurchases at deeper discounts that build values per share more rapidly.”
Hawkins will unveil his fourth quarter portfolio within a week. But according to GuruFocus Real Time Picks, today he reported increasing his position in three companies: News Corp (NWS, Financial), Everest Re Group Ltd. (RE, Financial) and Consol Energy Inc. (CNX, Financial).
Hawkins increased his position in News Corp by 5.2%, raising his total number of shares to 25,285,898, representing a 12.7% stake in the company. News Corp’s share price jumped almost 14% in the past several days, beginning after it reported analyst-beating financial results.
Hawkins became a News Corp owner in third quarter 2013, when the price averaged $16 a share. On Monday, the stock trades around $17.02 a share.
For its second quarter of fiscal 2014, reported Feb. 6, News Corp saw revenues decline 4% year over year due primarily to lower advertising revenue. EBITDA was up 9% to $327 million, driven by improvement in its Digital Real Estate and Book Publishing segments and fewer costs associated with the phone-tapping scandal at its News of the World publication, among other factors.
The company’s net income was $150 million, compared to $1.399 billion the previous year, which included a $1.3 billion gain on an acquisition. Adjusted EPS were flat from the previous year, at $0.31. Its cash and cash equivalents store grew to $2.91 billion from $2.38 billion at June 30, 2013.
Formerly the publishing arm of what is now Twenty-First Century Fox (FOXA, Financial), News Corp began trading as an independent company in mid-June. The business of the company includes news and information services, digital real estate services, book publishing, TV distribution in Australia and digital education.
It has a P/B ratio of 0.8 and P/S ratio close to a one-year low at 1.14.
Hawkins commented on News Corp in his semi-annual report:
“We purchased News Corp (NWS), another company we have owned previously. As the company split out the U.S. Fox entertainment business, we had the opportunity to own the remaining strongly financed, premier media assets around the world at an attractive discount.”
Everest Re Group Ltd. (RE, Financial)
Hawkins grew his position in Everest Re Group by 3.77%, bringing the total shares he owns to 4,158,249. The increased holding represents 8.7% of Everest Re’s shares outstanding. The company’s shares have declined 10% in the past three months, and trade around $140.53 a share on Monday.
Hawkins has held shares in Everest Re since prior to 2009, and was trimming the position every quarter from the second of 2013 to the third of 2013, when the price was trending upward. By the fourth quarter, it achieved a historic high.
Hawkins’ holding history:
Everest Re Group Ltd. was established in 1999. The company, through its subsidiaries, provides reinsurance and insurance in the U.S. Everest Re Group has a market cap of $6.72 billion; its shares were traded with a P/E ratio of 7.40 and P/S ratio of 1.30. The dividend yield of Everest Re Group Ltd. stocks is 1.60%.
Hawkins commented on Everest Re in his second quarter 2013 letter:
“Bermuda-based reinsurer Everest RE (RE)'s 14% year-to-date (YTD) return made it a top performer in the first half. The company improved its earnings and operations, remained disciplined in its underwriting, and saw pricing strength in the half. Management also made significant repurchases of the undervalued stock.”
Consol Energy Inc. (CNX, Financial)
Last, Hawkins added a further 1.93% to his holding of Consol Energy Inc., enlarging the position to a total of 22,691,279 shares. This marks an abrupt change from his former trend of decreasing the position, which occurred from third quarter 2013 through third quarter 2013.
Consol Energy’s share price has risen by about 16% in the past six months, to close at $37.21 on Monday.
Consol Energy is a coal and natural gas company with an $8.53 billion market cap, supplying approximately 6.5% of America’s total coal electricity supply.
For the company’s fourth quarter, its earnings jumped to $738 million, or $3.20 per share, from $150 million, or 65 cents per share, in the prior-year period. Of the 2013’s fourth quarter earnings, $591 million derived from discontinued mine operations, which it announced it would sell in October. Consol’s sales declined to $825 million from $935 million the previous year.
Consol’s 10-year revenue and earnings history:
The company’s gas division achieved record quarterly production, up 16% quarter over quarter, and increased its 2014, 2015 and 2016 natural gas production guidance. It also plans to increase coal production by 5 million tons in 2014.
Consol has a P/E ratio near a 10-year high at 115.6 and P/S ratio near a two-year high at 1.63. Its P/B ratio is 2.1.
Hawkins commented on Consol in his third quarter commentary:
“Other strong performers in the quarter included Level 3, up 27%, and CONSOL Energy (CNX), up 25%. At Level 3, since taking over as CEO in April, Jeff Storey has implemented the necessary steps to grow top line and increase cash flow by reducing costs and focusing on higher margin enterprise customers. Brett Harvey, CEO at CONSOL indicated that management is exploring the sale of assets and could potentially split the company into various parts: natural gas, coal, and infrastructure. Even with meaningful recent stock gains, both companies remain among our most discounted names.”
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