Tweedy Browne, one of the most respected value investment funds in the world, was featured in the article “The Superinvestors of Graham-and-Doddsville,” written by Warren Buffett in 1984. As its investment philosophy derives from Benjamin Graham, value investors should follow Tweedy Browne’s moves closely.
In two previous articles, I have talked about its four biggest holdings: Johnson & Johnson (NYSE:JNJ), Cisco Systems, Inc. (NASDAQ:CSCO), Devon Energy Corp (NYSE:DVN) and ConocoPhillips (NYSE:COP). In this article, I will uncover two more stocks, each accounted for more than 5% of Tweedy Browne’s total portfolio. One is Baxter International Inc. (NYSE:BAX), a diversified healthcare company, and the other is Philip Morris International Inc. (NYSE:PM), the fastest growing global tobacco maker.
Baxter’s Business Snapshot
Baxter International is the manufacturer of products for patients with immune disorders, infectious diseases, kidney diseases and trauma, with two main business segments: BioScience and Medical Products. The company sells its products in more than 100 countries through independent distributors and drug wholesalers. In 2012, the majority of Baxter International Inc. (NYSE:BAX)’s revenue, more than $7.95 billion, or 56% of its total revenue, was generated from the Medical Products segment, while the BioScience segment generated nearly $6.24 billion in revenue. However, the BioScience segment contributed $2.3 billion in pre-tax income, much higher than the pre-tax income of $1.6 billion of the Medical Products segment.
A Cash Cow with Good Growth
I am quite impressed with Baxter’s operating performance in the past five years. Since 2008, Baxter has consistently generated increasing revenue, profits and cash flow. The revenue increased from $12.35 billion in 2008 to $14.19 billion in 2012, while the EPS grew from $3.16 to $4.18 in the same period. Its dividend followed the same trend, rising from $0.91 per share to $1.57 per share. In addition, the company operates with a strong balance sheet. As of December 2012, it had $6.94 billion in total stockholders’ equity, $3.27 billion in cash, and only $350 million in short-term debt and capital leases. The biggest liability item was pensions and other benefits–nearly $2.43 billion. Since 2008, it has invested nearly $3.7 billion to buy back its stocks from the market. The treasury stock has reached $7.6 billion as of December 2012.
Tweedy Browne owned more than 2.6 million shares in the company, with a total value of $173.6 million, representing 5.1% of its total portfolio at the end of 2012. The company is trading at $67.60 per share, with the total market cap of $37.15 billion. Baxter is valued at nearly 10 times EV/EBITDA.