tracking-wallace-weitz8217s-weitz-investment-management-portfolio-8211-q4-2018-update

Tracking Wallace Weitz’s Weitz Investment Management Portfolio – Q4 2018 Update

This article is part of a series that provides an ongoing analysis of the changes made to Wallace Weitz’s 13F portfolio on a quarterly basis. It is based on Weitz’s regulatory 13F Form filed on 02/14/2019. Please visit our Tracking Wallace Weitz’s Weitz Investment Management Portfolio article for an idea of his investment philosophy and our last update for the fund’s moves during Q3 2018.

This quarter, Weitz’s 13F portfolio value decreased ~11%, from $2.45B to $2.18B. The number of holdings increased from 79 to 82. The top three positions are at ~28%, while the top five holdings are at ~36% of the 13F assets. The largest stake by far is Berkshire Hathaway (BRK.A, BRK.B) at ~16% of the portfolio.

Weitz Investment Management’s equity funds are Weitz Partners Value Fund (WPVLX), Weitz Value Fund (WVALX), Weitz Partners III Opportunity Fund (WPOIX), and Weitz Hickory Fund (WEHIX). The flagship Weitz Partners Value Fund (1983 inception) has generated alpha, but the fund is behind the S&P 500 index over the last decade. The current cash allocation is 4.5%: they reduced their “hurdle rate” for assuming equity risk from 12% to 9% in Q3 2017 to allow reducing cash allocation to a target of less than 10% of the fund’s assets over time.

Stake Disposals

Praxair (PX) and Wells Fargo (WFC): These very small positions (less than ~1% of the portfolio each) were disposed this quarter. The Praxair disposal was due to the all-stock one-for-one merger with Linde plc that closed during the quarter.

New Stakes

Black Knight (BKI), Linde plc (LIN), and Stanley Black & Decker (SWK): These are the new positions this quarter. BKI is a 1.45% portfolio position established this quarter at prices between $43 and $52, and the stock currently trades at $52.60. The small 0.65% SWK stake was purchased at prices between $108 and $148, and it is now at $132. The Linde plc position came about due to the merger with Praxair. Weitz had ~170K shares of Praxair, for which they received the same number of Linde plc shares.

Stake Increases

Alphabet Inc. (GOOG, GOOGL): GOOG was a minutely small position first purchased in 2008. The current large (top-three) 4.73% of the 13F portfolio stake was built in 2010 and 2011 at a cost basis around $250. In recent activity, Q4 2015 saw a ~40% reduction at prices between $608 and $777. The three quarters through Q1 2017 had also seen a ~10% selling at prices between $692 and $836. The stock currently trades at $1186. The last few quarters have seen minor increases.

Laboratory Corp. of America Holdings (LH): LH is a large (top-five) ~4% very long-term stake. The bulk of the position was built in the 2008-2010 time frame at lower prices. The stock currently trades at ~$153. There was an ~8% selling in Q2 2018 at prices between $160 and $189. This quarter saw a ~12% stake increase at prices between $121 and $174.

Liberty Sirius (LSXMA, LSXMK): The 3.12% of the portfolio stake in Liberty Sirius stock came about as a result of Liberty Media’s recapitalization into three tracking stocks in April 2017. The position was reduced by around two-thirds since. The last three quarters had seen a combined ~17% trimming, while this quarter saw a marginal increase.

Charles Schwab (SCHW): SCHW is a 2.52% portfolio stake established last quarter at prices between $49 and $54, and the stock currently trades below that range at $45.30. For investors attempting to follow Weitz, SCHW is a good option to consider for further research. There was a ~60% stake increase this quarter at prices between $38 and $52.

Note: The Q3 2018 commentary had the following regarding SCHW: it is consistently able to achieve market share growth, as it is one of the businesses that share benefits of scale with its customers. Weitz conservatively estimates intrinsic value to be in the 60s.

CarMax Inc. (KMX) and Facebook (FB): These two stakes established in Q1 2018 were increased over the last three quarters. The 2.51% KMX position was purchased at a cost basis below $60 per share and increased by ~45% next quarter at prices between $59 and $80. The stock currently trades at $60.61. The last two quarters saw a ~47% increase at prices between $57 and $81. The 2.80% FB position was purchased at prices between $152 and $193, and increased by ~175% next quarter at prices between $155 and $202. There was another ~35% increase last quarter at prices between $160 and $218, and that was followed with a ~22% increase this quarter at prices between $124 and $162. The stock is now at $170. For investors attempting to follow, FB and KMX are good options to consider for further research.

Note: Their 3rd quarter commentary had the following on Facebook: although there are challenges, the digital properties (Facebook, WhatsApp, Instagram, and Messenger) are uniquely valuable - never have advertisers of all sizes been able to attain such a specific reach.

Colfax Corporation (CFX): CFX is a 1.75% of the 13F portfolio stake. The position was established in Q4 2015 at prices between $22 and $32, and increased by ~11% in Q1 2016 at prices between $19 and $30. The three quarters through Q1 2017 had seen a combined ~20% selling at prices between $26 and $41. There was another ~17% reduction in Q3 2017 at prices between $37 and $43. The pattern reversed in Q1 2018: an ~18% stake increase at prices between $31 and $42. The stock currently trades at $28.23. This quarter also saw a ~10% stake increase.

Texas Instruments (TXN): TXN is now a 1.72% of the portfolio stake. It was first purchased in 2010 in the mid-$20s price range. The majority of that position was eliminated in 2011 in the low-$30s price range. In 2012, the stake was built back up in the high-$20s price range. Weitz realized huge gains from this position during the 2014-2016 time frame. In recent activity, there was a ~6% trimming in Q4 2017, and that was followed with a ~22% selling next quarter at prices between $98 and $120. The stock is now at $107. There was a minor increase this quarter.

DXC Technology (DXC): DXC position was increased by a whopping ~750% in Q3 2017 at prices between $76 an $86. The stock is now well below that range at $65.32. Last three quarters have also seen a combined ~50% increase at prices between $50 and $96. The stake is at 1.64% of the portfolio.

Note: The buy thesis was on the idea that CEO Mike Lawrie achieved cost synergies while at CSC, and a similar playbook is planned for the integration of Hewlett Packard Enterprise (HPE) services business.

Mohawk Industries (MHK): MHK is a small 0.73% of the portfolio stake established in Q2 2018 at prices between $204 and $246, and increased by ~38% last quarter at prices between $170 and $225. There was another ~40% stake increase this quarter at prices between $111 and $174. The stock currently trades at ~$129.

Note: Their Q3 commentary had said they believed the margin of safety was attractive when the PPS was $170. Further, they believed there is undervaluation, as the market doesn’t seem to account for pricing that often lags cost increases.

Amazon.com (AMZN), Axalta Coating Systems (AXTA), Booking Holdings (BKNG), Danaher Corp. (DHR), Martin Marietta Materials (MLM), Marvell Technology (MRVL), Summit Materials (SUM), Transdigm Group (TDG), and Vulcan Materials Company (VMC): These very small positions (less than ~1.5% of the portfolio each) were increased this quarter.

Stake Decreases

Berkshire Hathaway: Berkshire Hathaway is a very long-term stake and the largest holding in the portfolio at ~16%. Q4 2016 saw a ~15% selling at prices between $214,520 and $249,711, and that was followed with a ~6% trimming the following quarter at prices between $238,100 and $266,013. Last quarter saw another ~18% selling at prices between $282,000 and $333,415, and that was followed with a ~7% trimming this quarter.

Note: Wallace Weitz is known to have owned Berkshire Hathaway stock continuously since 1976, riding it from around $300 per share to the current price of $305,350.

Liberty Broadband (LBRDK): LBRDK is a top-three ~7% of the 13F portfolio stake established in Q4 2014 as a result of the spin-off of Liberty Broadband from Liberty Media. Liberty Media shareholders received one share of LBRDA for every four shares of Liberty Media held. In Q1 2015, there was a ~60% increase at prices between $44.50 and $56.50. Q1 2016 saw another ~24% increase at prices between $44 and $59. The position had seen minor trimming since Q3 2016. It currently trades at $91.66. Last year saw a combined ~14% selling at prices between $69 and $97.

Note: Weitz believes Liberty Broadband offers a cheaper way to invest in Charter Communications’ (CHTR) strategy (integration of the Time Warner Cable and Bright House acquisitions to drive growth over the next few years).

Mastercard Inc. (MA): MA is a ~4% stake established in Q4 2014 at prices between $70 and $89. Q3 2015 and Q1 2016 saw a stake doubling at prices between $80 and $98. The following two quarters had also seen a ~20% further increase at prices between $87 and $102. The stock currently trades well above those ranges at ~$230. 2017 had seen a ~15% trimming, and that was followed with a one-third selling last year at prices between $152 and $223. Weitz is realizing gains.

Liberty Global PLC (LBTYK): Liberty Global is a long-term holding that has been in the portfolio for more than a decade. It is currently at 3.87% of the portfolio. 2017 had seen a ~12% trimming, and that was followed with a ~16% reduction last year at prices between $20 and $37. The stock is now at $25.06.

Visa Inc. (V): V was a minutely small stake as of Q3 2016. It is now a fairly large 3.83% position. The bulk of the buying happened in Q4 2016 at prices between $75 and $83.50. The stock is now at ~$154. There was a ~17% reduction last quarter at prices between $132 and $151, and that was followed with marginal selling this quarter.

Oracle Corporation (ORCL): ORCL is a 2.58% of the 13F portfolio stake. The original position was from Q4 2013, when around 1.75M shares were purchased at prices between $33 and $38. It was reduced by around one-third in Q4 2014 at prices between $37.50 and $46.50. Q4 2015 saw another ~70% reduction at prices between $36 and $41. There was an about-turn in Q3 2016: a ~150% increase at prices between $39 and $42. The following quarter also saw a ~20% increase at prices between $38 and $41. The stock currently trades at $53.05. Q1 2018 saw a ~13% increase at prices between $44.50 and $53. The last three quarters have seen only minor adjustments.

Allergan plc (AGN): AGN is a 2.35% of the portfolio position established in Q3 2015 at prices between $252 and $340. Q1 2016 saw a ~55% stake increase at prices between $266 and $313. The position was almost doubled in Q2 2016 at prices between $202 and $278. The stake had wavered since. The last two quarters saw the position sold down by ~40% at prices between $130 and $194. The stock currently trades at ~$150.

Redwood Trust Inc. (RWT): RWT is a 1.94% very long-term stake that has been in the portfolio for well over a decade. In recent activity, Q1 2016 saw a 16% increase at prices between $9 and $14, while the five quarters through Q3 2017 saw a one-third reduction at prices between $13.25 and $17.35. The stock currently trades at $15.69. The last five quarters have seen a roughly one-third reduction at prices between $14.50 and $17.50.

Note: Weitz has a 3.39% ownership stake in Redwood Trust.

Aon plc (AON): AON is a ~2% long-term stake from 2010 established in the high-$30s price range. The five quarters through Q4 2017 had seen a two-thirds reduction at prices between $107 and $146. It now trades at ~$169. There was a ~17% selling this quarter at prices between $137 and $166. Weitz is realizing huge long-term gains.

Qurate Retail Group (QRTEA) (previously Liberty Interactive): The original QRTEA position was from 2011 in the mid-teens price range. In recent activity, Q1 to Q3 2017 had seen a combined ~23% reduction in prices between $18.50 and $25, and that was followed with a ~50% selling over the next two quarters at prices between $21.50 and $29. The stock is currently at $17.38. There was a ~6% trimming this quarter.

Note: The prices quoted above are adjusted for the CommerceHub spin-off in July 2016.

Tupperware Brands (TUP): TUP is now a very small 0.22% portfolio stake. It was established in Q1 2018 at prices between $46 and $65.50, and increased by ~60% next quarter at prices between $40 and $49. There was a ~40% selling last quarter at prices between $31 and $43, and that was followed with a two-thirds further reduction this quarter at prices between $30 and $39. The stock is now at $26.86. Weitz realized losses.

Accenture PLC (ACN), Comcast Corporation (CMCSA), Discovery Communications (DISCA), Dollar Tree (DLTR), Thermo Fisher Scientific (TMO), Twenty-First Century Fox (FOX), and Wesco Aircraft Holdings (WAIR): These very small positions (less than ~1.5% of the portfolio each) were reduced this quarter.

Kept Steady

GCI Liberty (GLIBA): The 0.73% GLIBA stake came about as a result of the merger with Liberty Ventures in Q1 2018. Weitz had a 1.77% position in Liberty Ventures. The position saw a ~17% increase in Q2 2018, but was reduced by ~38% last quarter at prices between $45 and $51. The stock is now at $56.10.

Diageo plc (DEO), Intelligent Systems Corporation (INS), Liberty Global LiLac (LILAK), and Formula One Group (FWONA, OTCQB:FWONB): These very small (less than ~1% of the portfolio each) positions were kept steady this quarter.

Note: Weitz controls ~26% of Intelligent Systems Corporation.

Other very small (less than 0.5% of the portfolio each) positions in the portfolio include ACI Worldwide (ACIW), Anheuser-Busch Inbev (BUD), Apple Inc. (AAPL), Charter Communications, Compass Minerals (CMP), DowDuPont (DWDP), Equity Commonwealth (EQC), Fortune Brands (FBHS), Gardner Denver Holdings (GDI), Guidewire Software (GWRE), JPMorgan Chase (JPM), Liberty Braves (BATRK, BATRA), Liberty Expedia Holdings (LEXEA), Lions Gate Entertainment (LGF.A, LGF.B), Markel Corp. (MKL), Microsoft (MSFT), Mondelez International (MDLZ), Murphy USA (MUSA), Myers Industries (MYE), and Perspecta (PRSP). They also have minutely small positions in a bunch of index ETFs.

The spreadsheet below highlights changes to Weitz’s 13F stock holdings in Q4 2018:

Wallace Weitz - Weitz Investment Management - Q4 2018 13F Report Q/Q Comparison

Disclosure: I am/we are long DWDP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.