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 Click to see monthly returns in table format!

Lists

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

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!