Marty Whitman's Third Avenue Value Fund's Top Five Q3 Stocks

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Sep 29, 2014
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Martin Whitman’s fund, the Third Avenue Asset Management, made a relatively early release of his fund’s third quarter portfolio this week. While Whitman no longer manages the funds at Third Avenue, he continues to write the shareholder letter each quarter. Third Avenue focuses on valuing its stocks from the bottom up, focusing on the “creditworthiness,” the ability for the “issuer to grow net asset value (NAV)” and the stock’s price in relation to its NAV.

Over the duration of the third quarter the portfolio managers at Third Avenue bought two new stocks bringing the fund’s total to 37 stocks valued at $2.072 billion.

The following five companies represent the stocks that Third Avenue holds the largest stake in:

Covanta Holding Corp (CVA)

Third Avenue’s largest position is in Covanta Holding Corporation. The fund maintains a total of 5,956,007 shares of the company’s stock. Its position in Covanta represents 4.55% of the company’s shares outstanding and 5.9% of their total portfolio.

Third Avenue made no changes to his position in Covanta over the third quarter. The fund has held the same number of shares since fourth quarter 2013. Since Whitman’s initial buy in 2009, the fund has seen an average gain of 32%.

Whitman’s holding history as of the third quarter:

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Covanta Holdings is a developer, owner and operator of infrastructure for the conversion of waste to energy, as well as other waste disposal and renewable energy production businesses. It conducts all of its operations through subsidiaries which are engaged predominantly in the businesses of waste and energy services.

Covanta Holdings’ historical revenue and net income:

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The analysis on Covanta reports that the company’s operating margin is expanding, its dividend yield is near a 1-year high and its revenue per share has slowed down over the past year. The analysis also notes that the company’s price is near a 5-year high.

The Peter Lynch Chart suggests that Covanta Holdings is currently overvalued:

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Covanta Holdings has a market cap of $601.026 million. Its shares are currently trading at around $66.80 with a P/E ratio of 29.40, a P/S ratio of 1.10 and a P/B ratio of 3.25.

Bank of New York Mellon Corp (BK)

Third Avenue’s second largest position is in Bank of New York Mellon Corp. The guru holds on to a total of 3,034,813 shares, representing 0.27% of the company’s shares outstanding and 5.7% of his total portfolio.

During the third quarter the fund reduced its position -4.55% by selling a total of 144,537 shares of the company’s stock. They sold these shares at near an estimated average quarterly price of $38.90. Since then the price per share has dropped about -0.8%.

Third Avenue’s holding history as of the third quarter:

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The company is a global financial services company. Bank of New York Mellon provides a comprehensive array of services that enable institutions and individuals to manage and service their financial assets in more than 100 markets worldwide.

Bank of New York Mellon’s historical revenue and net income:

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The analysis on BK reports that the company’s dividend yield is at a two-year low, its price is nearing a three-year high, they have issued $3.2 billion of debt over the past three years and the company’s interest coverage is comfortable.

The Peter Lynch Chart suggests that the company is currently overvalued:

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Bank of New York Mellon Corp has a market cap of $44.06 billion. Its shares are currently trading at around $38.60 with a P/E ratio of 16.70, a P/S ratio of 2.96 and a P/B ratio of 1.20. The company holds a dividend yield of 1.64% and has had an annual average earnings growth of 6.40% over the past five years.

POSCO (PKX)

Third Avenue Asset Management also holds a 5.6% stake in POSCO. The guru fund owns a total of 1,432,345 shares of POSCO, representing 0.45% of the company’s shares outstanding.

Over the third quarter Whitman’s fund cut their holdings -20.88% by selling a total of 378,087 shares. He sold these shares in the price range of $71.97 and $86.37 per share.

Third Avenue’s holding history as of the third quarter:

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POSCO is engaged in the manufacturing and distribution of steel rolled products and plates in the domestic and overseas markets. It manufactures and sells a line of steel products such as plates, wire rods, hot and cold rolled products and stainless steel products.

POSCO’s historical revenue and net income:

The analysis on POSCO reports that the company has a poor buyback record that it has issued KRW10.7 billion of debt over the past three years and its price has been in decline over the past year.

The Peter Lynch Chart suggests that the company is currently overvalued:

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POSCO has a market cap of $27.31 billion. Its shares are trading at around $78.16 with a P/E ratio of 18.40, a P/S ratio of 0.41 and a P/B ratio of 0.67. The dividend yield of POSCO stocks is 0.40%.

GuruFocus rated the company the business predictability rank of 5-star.

Cavco Industries (CVCO)

The guru fund’s fourth largest holding is in Cavco Industries where they hold on to 1,590,793 shares of the company’s stock. This position makes up for 5.5% of the fund’s total portfolio as well as 17.98% of the company’s shares outstanding.

Over the past quarter the Third Avenue portfolio managers cut their holdings -10.8%. They sold a total of 192,623 shares of the company’s stock. They sold these shares near the estimated average quarterly price of $74.09.

The fund’s holding history as of the close of the third quarter:

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Cavco Industries designs and produces factory-built homes, primarily distributed through a network of independent and company-owned retailers, planned community operators and residential developers.

Cavco Industries’ historical revenue and net income:

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The analysis on Cavco reports that the company’s cash flow is divergent from the company’s reported earnings, its revenue per share has been in decline over the past year and its Piotroski F-Score is high.

The Peter Lynch Chart suggests that the company is overvalued:

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Cavco Industries has a market cap of $601.026 million. Its shares are currently trading at around $66.80 with a P/E ratio of 29.40 and a P/S ratio 1.10.

Wheelock and Co. (HKSE:00020)

Third Avenue’s fifth largest holding is in the Hong Kong-based Wheelock and Co. The fund holds on to 21,351,000 shares of the company’s stock. Their position in Wheelock represents 1.05% of the company’s shares outstanding and 5.2% of the fund’s total portfolio.

During the third quarter Whitman cut his position -26.75% by selling a total of 7,797,000 shares. He sold these shares in the third quarter price range of HK32.35 to HK43.10. Since this sell, the price per share has decreased a slight -0.8%.

Third Avenue’s holding history as of the third quarter:

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Wheelock is an investment holding company. It operates through four segments: property investment, property development logistics and communications, and media and entertainment (CME). The company is headquartered in Hong Kong and is also traded in America and Germany.

Wheelock and Co.’s historical revenue and net income:

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The analysis on Wheelock and Co. reports that the revenue has been in decline over the past year, the price is nearing a 10-year high and the dividend yield is at a five-year high.

The Peter Lynch Chart suggests that the company is currently undervalued:

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Wheelock and Co. has a market cap of HK78.02 billion. Its shares are currently trading at around HK38.40 with a P/E ratio of 4.60, a P/S ratio of 2.22 and a P/B ratio of 0.30. The company had an annual average earnings growth of 24.20% over the past 10 years.

GuruFocus rated Wheelock the business predictability rank of 3.5-star.

Check out the Third Avenue Value Fund’s complete third quarter holdings here.

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