has not yet released his fourth quarter portfolio, but his
fourth quarter letter
issued today provided insight into the value investor's
portfolio. The quarter capped off a strong year for Weitz, whose
Value Fund just trailed the S&P 500's 16% advance with a
13.2% return, and whose Partners Value outpaced it with a 17.9%
Weitz held a high level of cash at year-end (18% to 31% across
his funds), as too many stocks he wanted to buy were overvalued.
He entered 2013 prepared to wait patiently for more discounted
options, and expecting plenty of "seismic activity" in markets
and an economy that will "muddle through" by political
maneuvering. As a guard, he says: "The trick is to hold
portfolios of strong companies that can compound value over long
periods of time and to minimize
loss of capital in the down markets."
The stocks that contributed the most to Weitz's funds during the
fourth quarter 2012 were Redwood (
) Trust and Liberty Media (
Weitz first bought Redwood Trust, a dividend-focused financial
institution structured as a REIT, for his portfolio before 2008.
Its stock price that year plunged about 60%. Since then Weitz has
been trading the stock at its lower prices, mainly buying. He
last reported in the third quarter 2012 to owning 6,601,009
Over the past 12 months, Redwood Trust's stock has climbed
approximately 70%, to a price of $19.52 a share in afternoon
trading. This represents a 45% increase on Weitz's average
purchase price of $13.39 a share.
Financially, Redwood Trust has stumbled over the past five years.
Its revenue declined at an annual rate of 44.6%, and EBITDA at
55.6%. Both revenue and EBITDA per share have been growing since
over the past year, however.
Weitz commented in his fourth quarter letter that Redwood has
staged a furious comeback and is well-poised for 2013: "
Redwood has been diligently investing and building out
flexible loan platforms, and these efforts are paying off for the
company and its shareholders. Both the residential and commercial
businesses have clear momentum heading into 2013, and we think
Redwood remains squarely on its path, as they put it, to 'deliver
a growing stream of attractive, sustainable earnings and
The company has been focused in the last several years since the
global deleveraging began in 2008 on building out its residential
and commercial loan platforms to have steady sources of
investments and to generate fees. This took longer than expected,
but could be paying off now.
Redwood said in its third quarter shareholder letter that it
expects catalysts in the economy to provide a jolt to the private
loan market, such as: QE3, raised guarantee fees from the Federal
Housing Finance Agency for Agency-conforming loans, new mortgage
regulatory initiatives and the housing recovery.
Its third quarter results evinced improvements in its business.
The company reported earnings of $40 million, versus $20 million
in the second quarter of 2012, due to higher mortgage banking
income and gains from selling securities.
Book value also increased $0.88 from the second quarter to $12.88
per share, as the prices on the loans on its balance sheet
A dividend of $0.25 per share was paid in the fourth quarter, the
consecutive quarterly dividend payout. Improvements at its
business, earnings and cash flows enabled Redwood to raise the
dividend to $0.28 for 2013.
Redwood has a P/E of 17.1 and, both at three-year highs, a P/B of
1.25 and P/S of 6.23.
Weitz's other top achiever, Liberty Media, contributed 49% to the
fund's return for the year. Its offspring contributed as well:
Liberty Global (
) up 49%, Liberty Interactive (
) up 37%, Liberty Ventures (
) up 51% and Ascent Media up 22%.
Liberty Media Corp owns stakes in a number of media businesses,
such as SiriusXM, Barnes & Noble, Time Warner and Viacom.
In the third quarter the company increased revenue 3% to $555
million primarily due to an increase at Starz and ANLBC. Its
Starz business is preparing to be spun off from Liberty Media. It
also reported a net income improvement to $1.01 billion, from a
net loss of $43 million the previous year. Cash on its balance
sheet substantially declined to $1.17 billion from $1.94 billion
the previous year.
Liberty Media is increasing its ownership of SiriusXM (
) satellite radio to 49.2%, and intends to possess over 50% of
that company once it receives approval from the FCC.
Learn more about
's investments in his
. Also check out the Undervalued Stocks, Top Growth Companies and
High Yield stocks of Wallace Weitz.About GuruFocus: GuruFocus.com
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