Back to Main

Marty Whitman's Third Avenue Management Buys 3 New Stocks

By: GuruFocus
Posted: 3/7/2013 5:54:00 PM
Referenced Stocks: AZN;INTC;IVSBY;NAV;NVDA

Third Avenue Management was founded in 1986 by Martin J. Whitman, a staunch buy-and-hold value investor who currently serves as chairman of the board and portfolio manager. In his letter for the quarter ended Jan. 31, 2013, his strategy for the year was straightforward: "Investing in the common stocks selling at substantial discounts from net asset values ( NAV ) of companies which are eminently credit-worthy seems to make very good sense in 2013. Such investments ought to work out satisfactorily over the long term almost regardless of the global economic outlook." Whitman's firm also pays particular attention to balance sheet strength.

The value of Third Avenue's portfolio containing 39 stocks is $2.29 billion, and its stop three sector weightings are ETF, options, preferred; real estate; and financial services.

Third Avenue this week announced their first quarter 2013 portfolio updates, which included positions in three new companies: Investor AB ( IVSBY ), Intel Corp. ( INTC ) and NVIDIA Corp. ( NVDA ).

Investor AB ( IVSBY )

Third Avenue purchased 2,082,456 million shares of Investor AB for $21 per share on average in the fourth quarter, giving the holding a 2.58% weighting in their portfolio. The company's stock has gained 37% in the last year.

With a $12.39 billion market cap, Sweden-based Investor is the leading owner of high quality Nordic-based international companies and then supports them in becoming best-in-class. Some of its core investments include AstraZeneca ( AZN ), Ericsson ( ERIC ) and Saab (SAA-B). Its aims square closely with Third Avenue's priorities: It has a strong financial position and seeks to build asset value, operate efficiently and steadily increase its dividend.

In 2012 Investor increased net asset value by 15% and delivered a 28% return to shareholders, beat the Stockholm market's ( SIXRX ) return of 16%, thereby outperforming the index over the past 3, 5, 10 and 20 years. The company was also positively impacted by Swedish Parliament decision in November to lower the corporate tax rate from 26.3% to 22%, effective Jan. 1, 2013.

GuruFocus notes that Investor's per-share revenue has been in decline over the past three years and that its payout ratio of 1.88% seems too high for the company. Investor currently has a P/E of 5.2%, P/B of 0.8 and P/S of 3.1, which is a three-year low.

Third Avenue received the Class B shares when they exchanged their class A shares with another investor, who they later found out was the Knut and Alice Wallenberg Foundation, owned by Investor's founding family. Class B shares have one-tenth the voting rights but greater liquidity, causing them to trade higher than the A shares. After the strong increase in stock price in 2012, Third Avenue felt the discount to NAV had narrowed. The sale increased the Wallenberg family's control of the company to slightly above 50%, according to Third Avenue's first quarter letter .

Intel Corp. ( INTC )

Third Avenue purchased 2,699,323 shares of Intel for approximately $21 per share, giving the position a 2.48% weighting in their portfolio.

The market price for Intel shares has dropped 19% in the past year, and trade for $21.89 on Thursday afternoon. Intel is a microprocessor and chipset designer and manufacturer, products that are used in products ranging from personal computers and tablets to smartphones and automobiles.

For full-year 2012 Intel reported revenue of $53.3 billion, down 1.2$ from 2011, and net income of $11 billion, or $2.13 per share, down 15% from $12.9 billion and down 11% from $2.39 per share, respectively.

The company just entered the market for smartphones and tablets in 2012 and "worked with our partners to reinvent the PC, and drove continued innovation and growth in the data center," Intel President and CEO Paul Otellini said in a statement.

For 2013, Intel is expecting revenue growth in the low single digits.

Third Avenue comments on its Intel purchase in its first quarter letter: "Intel ( INTC ) has built, over the years, a solid franchise in microprocessors ("IntelInside") for PCs and has continued to enhance it through its technological and manufacturing leadership. Less obvious to many is Intel's dominance in and profitability generated from the server market, where data center growth has been driven by demand for cloud infrastructure build outs. While Intel has struggled to capture share in the faster growing mobile markets versus the likes of Qualcomm, Apple, Samsung and others who utilize cheaper, lower power ARM-based designs (licensed from ARM Holdings plc, a British company), we believe there is substantial value in its core business. Over the longer term, there are a number of opportunities for growth: e.g., should an upgrade cycle be driven by Windows 8, should ultrabooks and/or other tablet hybrid computers takeoff, shouldPC growth in emerging markets accelerate. In the meantime, the stock pays a roughly 4.24% dividend; the Fund was able to acquire shares at around 4.6 times EBITDA and 10 times earnings."

NVIDIA Corp. ( NVDA )

Third Avenue purchased 2.15 million shares of NVIDIA Corp. for $12.43 per share on average, giving the holding a 1.15% weighting in their portfolio. NVIDIA's share price has dropped 17% over the past year.

With a $7.97 billion market cap, NVIDIA designs graphic chips for personal computers, and mobile processors for cell phones, tablets and auto infotainment systems, and other products to create visual effects.

In 2012 NVIDIA's revenue increased 7.1% year over year to a record $4.28 billion, and net income declined 3.2% to $562.5 million. Both revenue and EPS was up in the fourth quarter over the previous-year quarter. The company also garnered record margins and cash holdings, which reached $3.73 billion from $3.13 billion the previous year. NVIDIA has been growing its assets at 21.2% annually, which exceeds its revenue growth rate of 6.8% annually over the past three years.

The company began paying dividends in fiscal year 2013, and paid $0.075 per share in the fourth quarter, costing a total $46.9 million. It also repurchased $100 million worth of its stock, under a $1.14 billion repurchase authorization expiring in December 2014.

Third Avenue also commented on NVIDIA in its first quarter letter: "Our primary attractions to NVIDIA ( NVDA ) are its leading market position in graphics processors (GPUs) and, more recently, the strides it has taken to address the growing mobile computing market (tablets and smart phones). Its tablet and smart phone offerings are based on ARM designs for low power applications, enabling us, as investors, to benefit from growth in the adoption of ARM designs, but at much more attractive pricing than buying ARM shares directly. The GPU market is being driven by an increasing demand for graphics due to increasing digital content design (e.g., videos, commercials, 3-D interactive content, product design) and are used heavily in work stations and supercomputers, where high-end computing is used for design and simulation."

NVIDIA has a P/E of 15.6, P/B of 1.7 and P/S of 1.94.

See more of Third Avenue Management's first quarter investing activity in its portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Third Avenue Management.About GuruFocus: GuruFocus.com tracks the stocks picks and portfolio holdings of the world's best investors. This value investing site offers stock screeners and valuation tools. And publishes daily articles tracking the latest moves of the world's best investors. GuruFocus also provides promising stock ideas in 3 monthly newsletters sent to Premium Members .