David Winters´ Wintergreen Advisers: More Focused on Consumer Goods and Financial Companies; Cuts Exposure to Tobacco

Last Friday, David Winters’ Wintergreen Advisers filed its 13F form at the U.S. Securities and Exchange Commission, disclosing its long equity positions as of the end of the fourth quarter of 2013.

We have found that the most popular small cap stocks among hedge funds outperformed the market by 18 percentage points even though we started measuring the returns a couple of weeks after 13Fs have been made public. It can also be productive to treat individual 13Fs as free recommendations from fund managers- not necessarily to be followed, but to be considered briefly and then researched further if they seem appealing.

David Winters

In this article I will analyze the fund´s most interesting moves reported for Q4. This fundamentally-oriented fund holds market value of $904 million. Its investments are principally focused on the consumer goods and financial sectors.

Over Q4, the fund did not acquire any new stocks, but it increased its stakes in four of its preexisting holdings. It also reduced its position in four other companies and sold out three of them.

The fund´s largest position remained the same, although slightly reduced. I´m talking about Berkshire Hathaway Inc. (NYSE:BRK.B), which saw Wintergreen lessen its participation by 1%, to 1.22 million shares. This position, worth almost $140 million, comprises 16% of the fund’s fourth quarter equity portfolio. Warren Buffett’s famed conglomerate holding company has a market cap of $267 billion and boasts margins and returns way above its industry’s averages. Analysts expect the company to grow at industry average rates over the next five years, but still recommend buying its stock, mainly in account of its below-average valuation at 14 times the firm’s earnings. However, Warren Buffett’s ultimate departure is expected to put a cap on Berkshire’s returns longer term. One way or another, it looks to me like Mr. Winter sold some of this stock to make some cash, taking advantage of the slight price increase that the stock experienced over Q4.

Another interesting case is that of The Coca-Cola Company (NYSE:KO), the beverages king. By the end of Dec. 2013, the fund declared owning 2.48 million shares of the company, up 18% in relation to the previous quarter. This holding worth roughly $92 million comprises about 11% of the fund’s Q4 equity portfolio. Understanding this investment is not at all complicate: The Coca-Cola Company (NYSE:KO)’s global brands and distribution network will remain unrivaled for several years still. Although analysts expect it to deliver below-average long-term EPS growth rates, these are, for sure, sustainable and could be easily beat. Fundamentally, The Coca-Cola Company (NYSE:KO) also looks good: it boasts above-average margins and returns and pays out 3% of the current stock price in the form of quarterly dividends, making the wait for an upside worthwhile.

Back to sales, Wintergreen decided to substantially cut its exposure to tobacco over the fourth quarter of 2013. The fund sold out its stakes in two of the world-leading tobacco companies: Philip Morris International Inc. (NYSE:PM) and Lorillard Inc. (NYSE:LO). However, it maintained its stakes Reynolds American, Inc. (NYSE:RAI), which looks to me as the least attractive option of them all. However, these sales can be comprehended in terms of value: while Reynolds American, Inc. (NYSE:RAI)´s stock price was quite flat over the past year, Lorillard Inc. (NYSE:LO)´s price rose substantially, opening an alluring opportunity for sellers. On the other hand, Philip Morris International Inc. (NYSE:PM)´s price fell considerably, and the fund seems to have decided to sell its participation in the company before in continued to plunge; limited growth prospects and thin margins make it an unattractive pick from the fundamental point of view. In addition, the wider tobacco industry, as all of you already know, is experiencing a marked decline around the world, as people become conscious of the adverse effects of smoking.

Disclosure: Javier Hasse holds no position in any stocks mentioned

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