Mason Hawkins founded Southeastern Asset Management in 1975 and tends to invest for the long-term, not worried by the interim ups and downs of the markets. His firm remains employee-owned and manages roughly $32 billion in assets. In reviewing Southeastern’s most recent 13F – which reveals the majority of the firm’s publicly traded equity holdings – we have outlined its top five stock picks (check out the rest of Southeastern’s 13F portfolio).
Chesapeake Energy Corporation (NYSE:CHK) is Southeastern's top 13F holding, with 7.3% of the firm's 13F invested in the energy company. Over the next few years, Chesapeake hopes to transition from a gas producer to a liquids producer. As of the third quarter, Chesapeake had cut its gas rigs to 9 - compared to 75 in 2011, and now runs almost 100 liquid rigs. Chesapeake's 25/25 plan includes targeting debt reduction of 25% through 2013, but unfortunately, the oil and gas company is going in the opposite direction, having increased its long-term debt by 50% over the past year.
Chesapeake has built up a solid asset base, which in part accounts for its $15.7 billion in long-term debt, but the company is still burning cash on CapEx, having spent $9.4 billion through 3Q, which is well above its estimated $8.5 billion for the full year of 2012. Obviously, high debt levels and overly aggressive CapEx gives us reason for concern. For the time being, the oil and gas company is still paying its nine-cent quarterly dividend, which is a $240 million annual payout, but Chesapeake had only $140 million in cash as of 3Q. Billionaire Carl Icahn is alongside Southeastern in Chesapeake (check out Carl Icahn's big bets).
Loews Corporation (NYSE:L) is Southeastern's second largest 13F holding and is not your typical property and casualty insurance company, operating a number of other businesses, including a string of hotels. Per Loews' 3Q 13F (which they file since they own 90% of CNA Financial), the company's big investments include CNA, Boardwalk Pipeline Partners and Diamond Offshore Drilling. Aside from its majority stake in CNA, Loews' ownership of its subsidiaries include a 50% ownership of Diamond Offshore and 60% of Boardwalk Pipeline Partners.
The majority of the company's revenues - 70% for the first nine months of 2012 - come from CNA. Part of what will continue to put pressure on Loews is its vast exposure to the insurance market, where a low interest rate environment is putting pressure on investment income. With no perfect competitors it is tough to value Loews. On a P/E basis, it trades well above its insurance peers at 19x earnings, compared to Chubb (11x) and Travelers (10x). On a book value basis, Loews' stock trades at only $41.98 compared to its tangible book value of $50. Billionaire Jim Simons is one of Loews' top-name investors (check out Jim Simons' top picks).
What about the rest of Mason Hawkins' top picks?