Insider Monkey collates data relating to more than 700 hedge funds and their investments in diverse companies every quarter. In this article we will focus on two great value investors: Tom Gayner‘s Markel Gayner Asset Management and Tom Russo‘s Gardner Russo & Gardner. In the last round of 13F filings, both investors disclosed sizeable positions in some of the best value stocks, including Diageo plc (ADR) (NYSE:DEO), Anheuser Busch Inbev SA (ADR) (NYSE:BUD), Brown-Forman Corporation (NYSE:BF.B), and Visa Inc (NYSE:V). Let’s take a closer look at each one of these companies and see why value investors might be bullish on them.
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our back tests, which were conducted over the period between 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 144% over the last 32 months, which is more than 84 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Having understood that, let’s now consider the four stocks. First, we look at the two funds’ positions in Diageo plc (ADR) (NYSE:DEO). At the end of the first quarter of 2015, Markel Gayner Asset Management held 1.25 million shares valued at $137.99 million, representing up to 4.08% of its equity portfolio. On the other hand, Gardner Russo & Gardner held 9.08 million shares worth $250.77 million, equal to 2.25% of its portfolio, which makes it as the biggest shareholder out of the funds we track, leaving Markel Gayner Asset Management at the second position. The British producer of alcoholic beverages ranks is one of the industry leaders, but has been facing enormous pressure from investors to raise its sales and improve its profits. This has led to a possible agreement to sell its luxury Gleneagles hotel and a golf resort located in Scotland. If the hotel sale goes through, it could fetch the company close to $310 million, which will provide it with some cash to invest in corporate activities. Moreover, earlier this month there have been rumors about a possible takeover of Diageo plc (ADR) (NYSE:DEO). John Osterweis‘ Osterweis Capital Management and Mario Gabelli’s GAMCO Investors are two of the funds that had stakes in the stock at the end of the first quarter.