As you probably know, my new spiritual father is François Rochon from Giverny Capital.
I'm not totally in praise of Rochon because I don't agree with all his picks. Also, his portfolio's average ROE is a little low for me. But the guy don't seem to follow fads, which is good. And he mainly looks for business that don't face too much competition, which is a plus too. A medium ROE (15, 16, 17) is not very high compared to IBM or Gilead, but you won't get 10 new competitors over night with such a ROE. Think about it.
I've came to realize that Giverny has some high conviction picks among stocks that have a low PE ratio on an historical basis (but a higher PE that the market in many cases). For instance, Mohawk is historically cheap at around 18 times earnings. It may look pricey for many people, but the historical average is something like 25. Same thing for LKQ and Fortune Brands and Home Security. They're usually pricey stocks. These days, they're still pricey, but less than what we're used to. And that's something to think about: quality has a price. And it looks like quality stocks are rarely selling for less than 18-20 times earnings.
Let's take a look at the new update of Giverny Capital via Whale Whisdom (update: december 31th, 2016). Check the 15 top positions of the portfolio. Very few stocks are selling for less than 18-20 times earnings.
Berkshire Hathaway: 18,3%
Bank of the Ozarks: 10%
Carmax: 9,3%
Disney: 7,2%
LKQ: 6,7%
Ametek: 6,5%
M&T Bank: 5%
Wells Fargo: 4,8%
Union Pacific: 4,4%
Markel: 4,3%
Visa: 4,1%
O'Reilly Automotive: 3,8%
Mohawk: 3,5%
Alphabet (GOOG + GOOGL): 3,1%
Fortune Brands and Home Security: 2,8%
Over the last period, Giverny increased slightly it's stake in Carmax, LKQ, Markel, Mohawk, Fortune Brands and Home Security and Alphabet. I don't understand why Carmax represents 9,3% of the fund. I've written about that before, but I'm puzzled about a fund which gives such a high place to a cyclical stock for a company that's not growing that much. It's OK to own some cyclical companies, but 9,3% of the portfolio, really?
And a quick word on Mohawk. The last results were out last week and they were good. With a ROE of about 17-18, few investors get excited about that stock. Maybe some remember with pain how the stock got hurt during the crisis of 2008-2009. Yes, it was a bad period, but the stock has recovered in a beautiful way since then.
Who doesn't give a fuck about carpets? Almost everybody, including excited investors and entrepreneurs. That's one of the reasons I like that stock.
The stock on the Giverny Capital top 15 that would scare me would be carmax. Am I reading this right? 12.6 billion market cap and 11.8 billion in debt? Ouch.
RépondreSupprimerThe stocks on their list that I want to buy next Markel (some call it a smaller scale Berkshire) and Visa.
Most of these stocks are stocks with which you sleep well because things don't change that much for most of them. There's not a lot of technology and healthcare there.
SupprimerYeah, Visa is interesting but I've always prefered MasterCard.
And for the debt of Carmax, as someone told me before (probably Étienne Pouliot) the debt is related to the financing division. It's not a traditional debt.
SupprimerBut Debt is debt, like GM's financial wing, borrows at fed fund rate and lends it to car-buyers with a poor credit score. These deadbeats, would not be able to afford a car and fuck girls with it to begin with if not for the fed's free money and companies' willingness to lend. These policies boost short EPS but will come back to bite them later. GM and Ford are still quite leveraged compared to Audi, which is quite tanky. Apperantly car makers/dealers have not learnt their lessons from 08.
RépondreSupprimerAnd in my opinion I have doubt about the future economics of car dealership. Telsa can sell new cars without dealers and so can others, people go to dealership to look for old cars and check their value/pay someone to check. If one day Amazon could do all that for these sad losers, then car dealerships would become obsolete. Just a thought.
RépondreSupprimerCe commentaire a été supprimé par l'auteur.
RépondreSupprimerA link to a recent article about Amazon maybe going after the $50 billion auto parts industry:
RépondreSupprimerhttp://nypost.com/2017/01/22/amazons-next-frontier-to-conquer-auto-parts/
I like FBHS. Simple business, easy to understand. I am waiting for little better price entry point.
RépondreSupprimerGreat blog by the way...