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Wally Weitz Gives Rare Early Look at 4th Quarter Portfolio

Wallace Weitz ( Trades , Portfolio ), founder and chief investment officer of Weitz Investments, on Friday gave a rare mid-quarter update of some changes he made to a portfolio that he manages, the Partners III Opportunity Fund.

Weitz, whose investing follows in the footsteps of Benjamin Graham and Warren Buffett (Trades, Portfolio), bought one new position to date in the fourth quarter: Colfax Corp. He also eliminated five positions: Valeant Pharmaceuticals International Inc. ( VRX ), Endo International plc, Equity Commonwealth, Cumulus Media Inc. and Angie's List Inc. Usually, managers only disclose portfolio changes up to 45 days after the end of the quarter as required by the Securities and Exchange Commission.

"We believe the Fund's overall ratio of portfolio companies' stock prices to our estimates of underlying business values is in the range of 75% to 79%," Weitz Funds said in a statement.

Weitz had also previously announced the cutting loose of his firm's entire position in the embattled drug company Valeant Pharmaceuticals Inc. ( VRX ) on Nov. 2.

"While we don't usually comment on the individual portfolio holdings intra-quarter," he said in a statement on his website, "we have received questions regarding Valeant Pharmaceuticals. Valeant was a very profitable investment for our funds over the past four years. As of September quarter-end we had significantly reduced our positions. Recent developments about the company's pharma relationships, pricing policies and business practices led us to sell our remaining shares in late October."

Before the fiasco in Valeant stock caused by a November short-seller report, he Partners III Opportunity Fund had delineated its thesis on the company in its third-quarter letter to investors:

"Despite a significant pullback in Valeant's stock during September, its shares remain among our top contributors through the first nine months of calendar year 2015. We took advantage of this strength over the course of the spring and summer to pare back Valeant's position size at levels that approached and briefly reached our base case estimate of intrinsic value," managers said.

"While drug price regulation has dominated headlines over the past several weeks, the likelihood of 'price controls' becoming a legislative reality appears low at present. The multi-year outlook for Valeant's core business remains attractive."

The firm's Valeant position, formerly its fifth largest at 630,155 shares, represented 3.5% of the portfolio and was valued at $112.4 million at third quarter-end. It also already represented a 12.08% reduction from the previous quarter.

Weitz had started buying Valeant in the third quarter of 2011, and through most of 2013 held more than 2 million shares. With the stock's astronomical growth, Weitz had a 182% total estimated gain on Valeant before the final fourth-quarter sell.

While Weitz co-manages three of the $5.2 billion company's funds, the Partners III Opportunity Fund is the only one he manages solo. Its strategy is described as "multi-cap alternative" in client materials and it has $905.8 million in managed assets as the firm's second largest equity fund.

Weitz also offer a little more color on the portfolio in his announcement of equity changes. Some of the biggest value categories of his holdings were small/cyclical, described as "solid companies, smaller than blue chips, which are also likely to have more cyclical businesses and more volatile stock prices," with an estimated price-to-value range of 60% and portfolio allocation of 18% of assets.

As he most undervalued group, he had "energy/turnaround" companies, or "businesses from the energy sector and challenged business that have opportunity for improvement. These he had given estimated price-to-value ranges of 50% to 60%, and they represented 7% of net assets.

The highest composition in the portfolio was "compounders/blue chip" companies, those with "very high-quality companies that have cyclical growth," at 90% to 100% of estimated price-to-value and making up 24% of assets.

Though Weitz made no mention of share amounts of the companies he bought and sold, below is a financial and valuation snapshot of them.

New Buy: Colfax Corp. ( CFX )

Colfax Corp. is an industrial and engineering company serving many sectors, including oil and gas. Year to date, its share price sunk almost 57%.

Colfax Corp. has a market cap of $2.77 billion; its shares were traded at around $22.26 with a P/E ratio of 13.65 and P/S ratio of 0.67. Colfax Corp. had an annual average earnings growth of 42.10% over the past five years.

Sells

Endo International Plc ( ENDP )

Endo International is a specialty pharmaceutical company based in Dublin, Ireland. Its shares fell 15.2% year to date.

Endo International Plc has a market cap of $13.85 billion; its shares were traded at around $61.16 with and P/S ratio of 3.22.

Equity Commonwealth ( EQC )

Equity Commonwealth, formerly CommonWealth REIT, is a Maryland real estate investment trust formed in 1986. Its share price gained 6.7% year to date.

Equity Commonwealth has a market cap of $3.46 billion; its shares were traded at around $27.38 with and P/S ratio of 4.51. The dividend yield of Equity Commonwealth stocks is 0.87%.

Cumulus Media Inc. ( CMLS )

Cumulus Media Inc. is a radio broadcasting company reaching 245 million people per week through its 454 stations. The company's share price declined 92.4% year to date.

Cumulus Media Inc. has a market cap of $75.18 million; its shares were traded at around $0.32 with and P/S ratio of 0.07.

Angie's List Inc. (ANGI)

Angie's List Inc. is a website with more than 3 million members that offers consumers reviews on local service providers. Its share price gained 45.6% year to date.

Angie's List Inc. has a market cap of $530.76 million; its shares were traded at around $9.07 with a P/E ratio of 47.21 and P/S ratio of 1.55.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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