Martin Whitman’s Top Stock Picks

Martin Whitman is the founder of Third Avenue Management. Whitman stared his career on Wall Street by joining Shearson Hammill & Co as an analyst. Whitman was not interested in the short-term earnings and simple analysis on Wall Street. Whitman believes that underpriced companies can be found among those with strong balance sheets. Whitman was a Distinguished Management Fellow at Yale School of Management. The Whitman School of Management of Syracuse University is also named after him.

The Bank of New York Mellon Corporation (NYSE:BK)

Recently Whitman’s Third Avenue announced its latest holdings in a 13F filing. Let’s take a closer look at the most bullish bets of the fund and decide whether it makes sense for investors to imitate these stock picks.

Bank of New York Mellon Corp (BK): BK is one of the large positions in Whitman’s portfolio. At the end of last year, Third Avenue reported owning nearly $200 million worth of BK shares. BK is quite popular among hedge funds. At the end of the third quarter, there were 32 hedge funds with BK positions in their 13F portfolios. Jean-Marie Eveillard’s First Eagle Investment Management had over $300 million invested in BK. Warren Buffett was also bullish about BK. His Berkshire Hathaway reported to own $36 million worth of BK at the end of 2011.

We like BK as well. It offers a decent dividend yield of 2.36%, higher than the 2% for 10-year treasury bonds. The company also has expanding profit margins and reasonable valuations. BK has a forward P/E ratio of 8.80 and its EPS is expected to grow at an average of 13.26% per year over the next five years. So BK’s P/E ratio for 2014 is only 6.86, compared with 7.2 for State Street Corp (STT).

Keycorp (KEY): Whitman also had over $100 million invested in KEY at the end of last year. In addition to Whitman, another thirty-eight hedge fund managers were in favor of KEY too. For instance, Ken Griffin was the most bullish hedge fund manager about KEY. His Citadel Investment Group had $124 million invested in this stock. Cliff Asness, Israel Englander, and Steven Cohen were also bullish about KEY.

We think KEY is an attractive stock. Over the fourth quarter of 2011, the company experienced stronger-than-expected loan growth. Its loan growth was 13% from the fourth quarter of 2010 to the fourth quarter of 2011, versus 4% for the third quarter. We are optimistic about its loan growth in 2012 as the manufacturing sector in the mid-west has rebounded. KEY is also attractively valued. It has a forward P/E ratio of 10.15 and it is expected to grow at 8% annually in the next five years. Therefore, its P/E ratio for 2014 is 8.7. A few other money center banks are also trading at low multiples. For example US Bancorp (USB) has a forward P/E ratio of 10.02 an expected growth rate of 9.79%, which indicates that it has a 2014 P/E ratio of only 8.3.

A few other large positions in Whitman’s portfolio include Brookfield Asset Management (BAM), Forest City Enterprises Inc (FCE), Weyerhaeuser Company (WY), and Covanta Holding Corporation (CVA). These stocks look a bit overvalued though. Their forward P/E ratios are all above 20. Whitman reduced his stakes in these positions slightly over the fourth quarter last year. It may not be a good time to invest in these four stocks right now, but BK and KEY are good options. We expect these two stocks outperform the market over the next 12 months.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!