Guru Wallace Weitz (Trades, Portfolio), leader of Weitz Investment Management, released his third-quarter portfolio earlier this week, listing three new positions.
When picking stocks, the investor’s Omaha, Nebraska-based firm combines Benjamin Graham’s price sensitivity and insistence on margin of safety with a conviction that qualitative factors that allow the company to control its destiny can be more important than statistical values like book value and earnings.
Based on these criteria, Weitz established positions in LKQ Corp. (LKQ, Financial), Salesforce.com Inc. (CRM, Financial) and Expedia Group Inc. (EXPE, Financial) during the quarter.
LKQ
Weitz invested in 750,900 shares of LKQ, dedicating 0.97% of the equity portfolio to the holding. The stock traded for an average price of $27.34 per share during the quarter.
The Chicago-based company, which provides alternative and specialty auto parts, has a $10.78 billion market cap; its shares were trading around $35.11 on Thursday with a price-earnings ratio of 24.93, a price-book ratio of 2.25 and a price-sales ratio of 0.88.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
In a recent research note from Weitz’s firm, Jon Baker commented on the company’s transformation over the past two decades, as it has consolidated its North American business and expanded into Europe.
“The consolidation, or ‘rolling-up,’ of the North American business created great value for owners,” Baker said. “The long sought after European value creation remains the banana in the monkey trap for shareholders and management alike, but we believe there will be progress here over the coming years.”
GuruFocus rated LKQ’s financial strength 5 out of 10 on the back of sufficient interest coverage. The Altman Z-Score, however, indicates the company is under some financial pressure.
The company’s profitability fared much better, scoring a 9 out of 10 rating. Although the operating margin is in decline, it still outperforms more than half of its competitors. LKQ is also supported by moderately strong returns and consistent earnings and revenue growth. It also has a moderate Piotroski F-Score of 6, which indicates operations are stable, and a perfect business predictability rank of five out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 12.1% per annum over a 10-year period.
Of the gurus invested in LKQ, Charles de Vaulx (Trades, Portfolio) has the largest stake with 0.60% of outstanding shares. Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Paul Tudor Jones (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) are also shareholders.
Salesforce.com
Having previously exited a position in Salesforce.com in the second quarter of 2017, the guru entered a new 149,000-share holding. The trade expanded the equity portfolio by 0.86%. During the quarter, the stock traded for an average price of $152.09 per share.
The cloud-based software company, which is headquartered in San Francisco, has a market cap of $143.07 billion; its shares were trading around $163.02 on Thursday with a price-earnings ratio of 137.09, a price-book ratio of 7.56 and a price-sales ratio of 8.75.
According to the Peter Lynch chart, the stock is overvalued.
Salesforce’s financial strength was rated 6 out of 10 by GuruFocus, driven by adequate interest coverage and a robust Altman Z-Score of 5.93.
The company’s profitability scored a 5 out of 10 rating on the back of margins and returns that outperform at least half of industry peers. Salesforce also has steady earnings and revenue growth, a moderate Piotroski F-Score of 5 and a two-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 6% per year.
With 0.94% of outstanding shares, Spiros Segalas (Trades, Portfolio) is Salesforce’s largest guru shareholder. Other top guru investors include Frank Sands (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Steve Mandel (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Al Gore (Trades, Portfolio), Philippe Laffont (Trades, Portfolio), Daniel Loeb (Trades, Portfolio), Pioneer, PRIMECAP Management (Trades, Portfolio), Simons’ firm, David Tepper (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio) and Cohen.
Expedia
The investor picked up 54,000 shares of Expedia, allocating 0.30% of the equity portfolio to the position. Shares traded for an average price of $132.14 during the quarter.
The Bellevue, Washington-based online travel agency has a $13.81 billion market cap; its shares were trading around $94.83 on Thursday with a price-earnings ratio of 28.54, a price-book ratio of 3.43 and a price-sales ratio of 1.21.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated Expedia’s financial strength 5 out of 10. Although the company has sufficient interest coverage, the Altman Z-Score of 1.11 warns the company could be at risk of going bankrupt.
The company’s profitability fared better with an 8 out of 10 rating. While the operating margin is in decline, Expedia is supported by margins that outperform at least half of competitors, a high Piotroski F-Score of 8, which suggests operations are healthy, and a one-star business predictability rank. According to GuruFocus, companies with this rank see their stocks gain an average of 1.1% per year.
Simons’ firm has the largest stake in Expedia with 1.49% of outstanding shares. Pioneer, Ron Baron (Trades, Portfolio), Cohen, Louis Moore Bacon (Trades, Portfolio), Chris Davis (Trades, Portfolio), Jones, Lee Ainslie (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also have positions in the stock.
Additional trades and performance
During the quarter, Weitz also beefed up a number of positions, including ACI Worldwide Inc. (ACIW, Financial), Qurate Retail Inc. (QRTEA, Financial), Guidewire Software Inc. (GWRE, Financial), Charles Schwab Corp. (SCHW, Financial), Amazon.com Inc. (AMZN, Financial), Dollar Tree Inc. (DLTR, Financial) and Oracle Corp. (ORCL, Financial).
The guru’s $2.43 billion equity portfolio, which is made up of 69 stocks, is largely invested in the financial services and communication services sectors.
According to GuruFocus data, the Weitz Partners Fund posted a return of -11.5% in 2018, underperforming the S&P 500’s -4.57% return.
Disclosure: No positions.
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