David Winters Reduces Position in Google in Q3

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Nov 21, 2014
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David Winters (Trades, Portfolio) formed Wintergreen Advisors in 2005 and has been the portfolio manager of the Wintergreen Fund (Trades, Portfolio) since then. In the third quarter, the fund held 13 stocks with a total value of $772 million.

The fund places 43.5% of its assets in consumer defensive stocks, followed by 21.4% in financial companies. In an interview with Barron’s in July, Winters said consumers are something the firm understands. A long-term result of wealth growth around the world is that consumers want more products.

“We like companies that have quite a bit of pricing power,” Winters said. “Not only can they grow their volumes; they can raise their prices, and consumers will enthusiastically continue to buy.”

In the third quarter, Winters purchased two new holdings to the portfolio, added to the fund’s positions in two companies, and reduced the position in two.

New buys

Winters purchased 254,997 shares of Lorillard Inc. (LO, Financial) at an average price of $60.60 per share. He had previously held 237,590 shares in the third quarter of 2013 before selling out the following quarter.

Lorillard manufactures and sells cigarettes under the brand names Newport, Kent, True, Maverick, and Old Gold. The company produces cigarettes for both the premium and discount segments of the market at its Greensboro, North Carolina facility.

The following graph depicts the company’s net income in relation to revenue.

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The current dividend yield is 3.9%, which is close to the five-year low; however, the five-year growth rate is 15.7%, which is higher than 91% of the companies in the tobacco industry.

Winters also purchased 46,504 shares of H.B. Fuller Company (FUL, Financial) at an average price of $45.65 per share.

H.B. Fuller manufactures and markets adhesives, sealants, paints, and other specialty chemical products.

The company’s free cash flow growth has been negative over the past five years at -13.9%.

Its dividend yield is 1.1%, and the five-year growth rate is 9.2%.

Adds

Winters added 93,342 shares to his stake in Union Pacific Corp (UNP, Financial) for a total of 291,762 shares. The fund has held shares in the company since the second quarter of 2013.

The main operating company is Union Pacific Railroad Company, which links 23 states and plays a critical role in the global supply chain. Its business mix includes agricultural products, chemicals, coal, and industrial products.

The stock has been up 44% since the beginning of the year, and may be overvalued when compared to the Peter Lynch earnings line. However, the DCF model projects a 22% margin of safety.

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Union Pacific is rated a perfect five-stars by GuruFocus for business predictability. The operating margin has been expanding steadily, and recorded at 33.9% in FY 2013.

Winters also added 78,568 shares in Franklin Resources (BEN, Financial) at an average price of $56.04 per share.

Franklin Resources is a global investment management company with offices in 35 countries and clients in more than 150 countries. According to the DCF model, the company has a margin of safety of 5%. Franklin Resources is also slightly undervalued when comparing the price to the Peter Lynch earnings line.

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The company has been steadily paying off its long-term debt for the past three fiscal years. Net income has also risen, recording at $2.4 billion in FY 2014.

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Reduced

Winters sold 259,299 shares of MasterCard (MA, Financial) at an average price of $76.24 per share, leaving a total of 474,944 shares. Since 2011, Winters has sold shares at a large profit — the average price of shares sold is $76.86 compared to shares bought at $27.22.

The Peter Lynch chart indicates the stock may be overvalued.

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The current dividend yield is 0.5%, but the five-year growth rate is 46.9%, higher than 95% percent of companies in the credit services industry.

GuruFocus rates MasterCard’s financial strength as 9/10, and its profitability and growth as 7.10.

Winters also sold 5,018 shares of Google (GOOG, Financial) (GOOGL, Financial) — 2,509 shares in each class of the stock.

Google split the stock in April, with the Class A shares trading under the new GOOGL ticker, and Class C shares trading under the GOOG ticker. Each Class A share will be counted as one vote, while the Class C shares are non-voting. The move allowed founders Larry Page and Sergey Brin to retain more control since Google will mainly issue the Class C shares.

Google’s gross and operating margins have been decreasing over the past three years. In FY 2013, gross margin was 56.78%, while operating margin was 23.34%.