Tom Russo
, a partner at Gardner Russo & Gardner, made additions to
several of his positions in the third quarter. The investor has
said previously that he buys only the largest holdings in the
company's $6.2 billion equity portfolio. Therefore, he increased
the size of his positions: Berkshire Hathaway (
BRK.B
), Wells Fargo & Co. (
WFC
), Nestle SA (
NSRGY
) and MasterCard Inc. (
MA
).
The companies most appealing to Russo currently are those in
Europe that have emerging market growth, invest sacrificially in
growth at the expense of short-term performance and have
valuations that fit his definition of "50-cent dollars."
Extremely long-term investing periods also characterize his
portfolio.
Berkshire Hathaway (
BRK.B
)
Russo purchased 129,705 shares of Berkshire Hathaway for $85 per
share on average in the third quarter, bringing his total holding
size to 2,012,001 shares. He has owned the position since before
2007 and has added to it each consecutive quarter since 2009.
Russo recently commented on the position in a
Bloomberg interview
in May:
"It's a 10% position. I think it's a very offensive position. The
shares are compressed in valuation because there's been so much
worry over the direction long term for Berkshire, and I think
they've put into place so many ways in which investors can win
going forward that it's an important position for us at around
10%."
According to Berkshire's third-quarter report released Nov. 2,
its operating earnings for the first nine months of the year were
$9.8 billion, increased year over year from $8.1 billion. Net
earnings increased year over year to $10.3 billion from $7.2
billion. Revenue increased year over year to $117.7 billion from
$105.7 billion.
In the Bloomberg interview, Russo expressed hope that Berkshire
would repurchase its shares, increasing his position size in the
company. Berkshire has not yet repurchased any shares, but
authorized a share repurchase program in September 2011 at prices
no higher than a 10% premium over its per-share book value.
Berkshire currently trades for $87 per share, which is close to
its three-year high, and has a P/S ratio of 1.9, a three-year
high. Its P/E ratio is 16.3 and P/B is 1.2.
BRK.B
data byGuruFocus.com
Wells Fargo & Co. (
WFC
)
Russo purchased 660,591 shares of Wells Fargo for $34 per share
on average in the third quarter, bringing his total ownership to
10,708,150 shares. The holding predates 2007, and he has been
adding to it each consecutive quarter since mid-2010.
Wells Fargo is a financial services company with $1.4 trillion in
assets and offices in more than 35 countries, and whose customers
are on in three households in the U.S.
In the third quarter, Wells Fargo achieved its sixth consecutive
quarter of record net income and EPS, which reached $4.9 billion,
or $0.88 per diluted common share, a year-over-year increase from
$4.1 billion, or $0.72 per share. Revenue was $21.2 billion,
almost flat year over year from $21.3 billion due to
approximately $300 million in increased noninterest income which
was more than offset by lower net interest income.
The bank's net interest income was $10.7 billion, a
year-over-year decline from $11 billion, driven primarily by
lower income from variable sources. The was more strongly
capitalized in the third quarter, with Tier 1 common equity at
10.06%, compared to 9.34% in the same period the previous year.
The P/E, P/B and P/S are 10.7, 1.1 and 2.1, respectively.
WFC data byGuruFocus.com
Nestle SA (
NSRGY
)
Russo increased his Nestle stake by 675,721, his greatest
expansion since he started the position in the first quarter of
2011, for approximately $61 per share on average. This quarter
his stake in the company reached 11,656,336 shares.
Nestle, a major global health and wellness company, aims for 5%
to 6% organic growth, improved trading operating profit margin
and underlying earnings per share in constant currencies and
improved capital efficiency.
Russo commented on his Nestle holding, which comprises more than
11% of his funds, at length at the October 2011 Value Investors
Conference:
"So in the case of Nestle the appeal is this brand portfolio, and
these brands are familiar, trusted and already ubiquitous
globally. When I visited our South African breweries operations
in the remotest part of Angola and you go to a village, which is
an extremely undeveloped part of the country, you will see any
number - you'll probably see Maggi will certainly be there;
Carnation will be there; depending on how advanced the country is
you'll have this milk product called NAN. But it's there, it's
available and what Nestle is waiting for as are the other global
companies that we have, is they're waiting for the company to
have migration and GDP from the left to the right, so as the
countries move up the scale in terms of development then they
have more money to spend, so you'll draw people out from
subsistence level living - where they're providing for their own
needs and nothing's really processed - to processed products
which Nestle can start participating in and then process branded
and then process branded with a higher price and higher prestige,
until the very far right upper corner where we become
aspirational.
But this process is under way in parts of the world that are
probably 2 and a half or 3 billion more in total numbers of
people than 20 years ago. And that's really what I try to tap
into through the global companies that we've invested in.
It's an interesting thing that consumer disposable income at the
start grows much faster than GDP, because what you're seeing in
the markets that are just developing is you're seeing people who
are coming into the workplace for the first time. And so in India
today there's still over 500 million people living outside of the
urban area. They're still largely in the age of subsistence
farming. But as GDP grows, they're pulled from that level of
existence into a monetized relationship with someone. That
someone today typically - from the parts of the world that we
trade in - is typically Chinese in some fashion or another. So if
it's in Africa today it's going to be some form of Chinese
company that's developing something in their great reach for
resources, and they'll build roads and they'll do any number of
things, and they'll bring people into the economy, and those
people with cash for the first time, start to have disposable
income."
Nestle's first nine months of 2012 met management's guidance and
included double-digit growth in emerging markets, where it is
expanding its routes to market and enhancing its product
offerings. Its continued growth momentum allowed it to confirm
its full-year outlook.
Organic growth at Nestle was 6.1% in the first nine months of
2012, with 2.9% being real internal growth and 3.2% being from
pricing, and grew in all of its global regions. Nestle expects
organic growth of 5% to 6%, improved margins and underlying
earnings per share, in the full year.
MasterCard Inc. (
MA
)
Russo purchased 43,945 shares of MasterCard for approximately
$432.50 per share in the third quarter, his largest purchase of
the stock since the second quarter of 2011. After establishing
the position in the third quarter of 2008, when it traded for
$234 per share, Russo added to it for each consecutive quarter.
Russo mentioned the appeal of MasterCard's European exposure in a
Barron's interview from June:
"Barron's:
Your portfolio looks like few others, with its exposure to
European companies. How did it get that way?
Russo:
The best way I've found to participate in the growth of
developing markets is through European companies whose brands
have been present but unaffordable in those markets, and whose
managements are willing to redeploy Western-market cash flows
into the expansion of those brands in the developing world, where
the tastes already exist, the preferences already exist, but
affordability hasn't.
Which companies meet this test?
A perfect example is Nestl�. Another is Philip Morris
International [ticker: PM]. In the spirits industry, it would be
Pernod Ricard, Diageo [DEO] and Brown-Forman. In beer, Heineken,
Anheuser-Busch InBev (
BUD
) SABMiller (
SBMRY
). And in payment systems, MasterCard (
MA
)."
In the third quarter, MasterCard's net revenue increased 5% year
over year to $1.9 billion, driven by increases in gross dollar
volume on a local currency basis, processed transactions and
cross-border volumes. Net income rose 8% to $772 million, and
earnings per share 10% to $6.17.
Emerging market growth was strong, and "continue to provide great
opportunities for growth," the company's president and CEO, Ajay
Banga, said in the company's third quarter release dated Oct. 31.
The company expended $216 million in the third quarter
repurchasing about half a million shares and has $1.1 billion
remaining under its most recent repurchase authorization valued
at $1.5 billion.
See more of Tom Russo's in his portfolio here. Also check out his
undervalued stocks, top growth companies and high yield
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