In this piece, we will take a look at the 10 best stocks to buy today according to value investor David Abrams.
Mr. David Abrams is an American hedge fund investor in charge of the fund Abrams Capital Management. He is the fund’s chief executive officer and portfolio manager. Mr. Abrams has decades of experience working in the financial industry, and like some of his other peers, he was also employed in the hedge fund industry prior to creating his own firm in 1999.
Before starting his journey at Abrams Capital, the executive worked at the investment firm Baupost Group for ten years, after having joined the company in 1989. His investment firm practices what is dubbed as value investment in the financial world. This approach involves identifying an undervalued company, buying its shares, and holding on to them with the belief that the stock price will increase. The undervalued firms are often identified through financial models and mathematics, and their calculated stock price, which can incorporate future revenues and cash flows to a company, is then compared to the share price the stock is trading at in the market.
This strategy has served Abrams Capital well, with the fund having average returns of 15% from 1999 to 2014. It is also one of the few billion dollar funds in the industry, with a portfolio value of $4.5 billion as of the end of the third quarter of last year. When compared to its value at the end of Q3 2020, this marks an impressive 50% growth, indicating that investors are feeling more confident when compared to the year in which the ongoing pandemic disrupted global markets and economies.
Mr. Abrams’ hedge fund’s largest holdings are in Lithia Motors, Inc. (NYSE:LAD), Asbury Automotive Group, Inc. (NYSE:ABG), Meta Platforms, Inc. (NASDAQ:FB), and Alphabet Inc. (NASDAQ:GOOG). Cumulatively, the top holdings account for roughly 43% of the $4.5 billion portfolio. Unlike some other portfolios, Abrams Capital has invested in only a few companies, with stakes in 18 firms as of the end of the third quarter of last year.
David Abrams of Abrams Capital Management
Our Methodology
For picking out Mr. Abrams’ top stocks, we took a look at his firm’s 13-F filings for the third quarter of last year. This enabled us to identify the top stocks in his portfolio. In order to gain background for the selected companies, we looked at their quarterly earnings reports, analyst coverage, other large shareholders, investor letters, and hedge fund sentiment generated through Insider Monkey’s Q3 2021 survey of 867 funds.
10 Best Stocks to Buy Today According to Value Investor David Abrams
10. Energy Transfer LP (NYSE:ET)
Abrams Capital’s Stake Value: $211 million
Percentage of Abrams Capital’s 13F Portfolio: 4.62%
Number of Hedge Fund Holders: 29
Energy Transfer LP (NYSE:ET) is a natural gas storage and transportation provider headquartered in Dallas, Texas, United States. The company sells natural gas to industrial users, power providers, and local distribution companies.
Mr. Abrams’ hedge fund owned 22 million Energy Transfer LP (NYSE:ET) shares by the end of Q3 2021, in a stake that was worth $211 million and represented 4.62% of the hedge fund’s portfolio. An Insider Monkey survey of 867 funds for the same period revealed that 29 owned the gas company’s shares.
Energy Transfer LP (NYSE:ET)’s largest investor after Abrams Capital is David Tepper’s Appaloosa Management LP who owns 10 million shares worth $96 million.
For its third quarter, Energy Transfer LP (NYSE:ET) posted $16 billion in revenue and $0.20 for GAAP EPS, missing EPS estimates and beating those for revenue. Mizuho reduced the company’s price target to $36 from $39 in December 2021, outlining that business transformation by Energy Transfer LP (NYSE:ET) removes some earnings from its valuation model.
Miller Value Partners mentioned Energy Transfer LP (NYSE:ET) in its Q2 2021 investor letter stating that:
“Energy Transfer LP (ET)rose over the period along with the price of oil climbing 40.59% over the period. The company received positive news that the Dakota Access Pipeline project would not be shut down while the Environmental Impact Statement by the US Army Core of Engineers is drawn up. Energy Transfer reported strong 1Q results with revenue of $17B surpassing expectations for $11.8B with adjusted earnings before income, taxes, depreciation and amortization (EBITDA) hitting $5.04B ahead of consensus of $2.77B. The company raised full year adjusted EBITDA guidance to $12.9-13.3B from $10.6-11.0B previously, with the increase largely related to the benefits realized from Winter Storm Uri. The company paid down $3.7B in debt during the quarter, using strong cash f low to reduce leverage. The company also announced the issuance of $900M in 6.5% Series H perpetual preferreds with the company using the proceeds to repay debt and for general purposes.”
Energy Transfer LP (NYSE:ET) joins Asbury Automotive Group, Inc. (NYSE:ABG), Meta Platforms, Inc. (NASDAQ:FB), and Alphabet Inc. (NASDAQ:GOOG) in Mr. Abrams’ list of favorite stocks.
9. Teva Pharmaceutical Industries Limited (NYSE:TEVA)
Abrams Capital’s Stake Value: $234 million
Percentage of Abrams Capital’s 13F Portfolio: 5.1%
Number of Hedge Fund Holders: 22
Teva Pharmaceutical Industries Limited (NYSE:TEVA) is a pharmaceutical firm that manufactures and sells generic medicines, specialty products, and biopharmaceutical medicines in the United States and globally. The company is headquartered in Tel Aviv, Israel.
By the end of Q3 2021, Abrams Capital owned 24 million Teva Pharmaceutical Industries Limited (NYSE:TEVA) shares. These were worth $234 million and represented 5.1% of its portfolio. Insider Monkey’s third quarter 2021 survey of 867 hedge funds revealed that 22 owned the company’s shares.
Teva Pharmaceutical Industries Limited (NYSE:TEVA) reported $3.9 billion in revenue and $0.59 in EPS for its Q3, missing analyst estimates for both. The company’s stock was downgraded to Market Perform from Outperform by Raymond James in October 2021, who highlighted that the drugmaker is not performing according to modeled estimates.
Teva Pharmaceutical Industries Limited (NYSE:TEVA)’s largest investor is Warren Buffett’s Berkshire Hathaway who owns 42 million shares worth $416 million.
Value investor Abrams’ portfolio includes several growth names as of the end of September, including Asbury Automotive Group, Inc. (NYSE:ABG), Meta Platforms, Inc. (NASDAQ:FB), and Alphabet Inc. (NASDAQ:GOOG).
8. Willis Towers Watson Public Limited Company (NASDAQ:WLTW)
Abrams Capital’s Stake Value: $254 million
Percentage of Abrams Capital’s 13F Portfolio: 5.54%
Number of Hedge Fund Holders: 75
Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is a British company that provides its clients with brokerage services, advice about pension and retirement savings plans, consulting services to insurance companies, and employee benefit services among others.
For its fiscal Q3, Willis Towers Watson Public Limited Company (NASDAQ:WLTW) reported $1.73 in non-GAAP EPS and $2 billion in revenue, with a 4% annual revenue growth. Truist raised the company’s price target to $310 from $290 in October 2021 sharing that it was impressed by the earnings report and strong growth.
Abrams Capital owned 1 million Willis Towers Watson Public Limited Company (NASDAQ:WLTW) shares during the third quarter of last year, in a $254 million stake comprising 5.54% of its portfolio. During the same time period, 75 of the 867 hedge funds polled by Insider Monkey held stakes in the company.
Jean-Marie Eveillard’s First Eagle Investment Management is Willis Towers Watson Public Limited Company (NASDAQ:WLTW)’s largest investor through a $1 billion stake via 4.7 million shares.
In its Q3 2021 investor letter, Alluvial Capital Management mentioned Willis Towers Watson Public Limited Company (NASDAQ:WLTW). Here is what the fund said:
“The second position is much larger and was thrown into our hands by an unexpected turn of events. It is the stock of Willis Towers Watson. This is a British company with roots dating back to 1828. WLTW is the third-largest insurance broker in the world. This is a sector with which we are very familiar, as some time ago we held in our portfolio shares of its slightly larger competitor AON.
It was AON in fact that announced last spring it had agreed to merge with WLTW. In the merger, WLTW shareholders would have received AON shares. As is usually the case with such announcements, investors stepped in to conduct what is known as merger arbitrage. In this particular case, they bought WLTW shares and sold short AON shares in order to profit from the fact that the prices of the two stocks did not yet fully reflect the exchange ratio in the merger. Moreover, merger arbitrage commonly makes extensive use of leverage in order to increase profits.
This summer, however, AON and WLTW jointly announced that they were pulling out of the planned merger because they had not received approval from the US Department of Justice. The regulator had feared that in an already quite concentrated industry, a merger of the second- and third-largest players would restrict competition too much. The immediate reaction to this announcement was, of course, closing of positions from the merger arbitrage. This brought an immediate increase in the price of AON shares and decline in the price of WLTW shares. We saw this as an excellent buying opportunity in WLTW stock. (In addition, WLTW had received a USD 1 billion breakup fee from AON.) Because we knew the industry and the two companies well from earlier years, we were able to react immediately, and a new, very attractive investment appeared in Vltava Fund’s portfolio rather unexpectedly and quickly.
Insurance brokerage is a very good business. Simply put, insurance brokers are intermediaries who sell, find, or negotiate insurance on behalf of a client for a fee. They do not bear the insurance risk themselves and thereby do not risk their own capital. They live from commissions and the fact that this is a large and recurring business. Just to give you a sense of this, I will note, for example, that of the 500 companies in the Fortune Global 500 list, more than 90% are clients of WLTW. The entire industry is very concentrated and has relatively high barriers to entry. WLTW is the third-largest global player, has very high free cash flow, low capital investment requirements, and a very valuable client base. The business as a whole also provides some long-term inflation protection, as the speed at which the volume of total premiums grows follows the speed at which the economy and asset prices grow in nominal terms. I have to say we are very happy that circumstances have passed this investment on to us.”
7. TransDigm Group Incorporated (NYSE:TDG)
Abrams Capital’s Stake Value: $336 million
Percentage of Abrams Capital’s 13F Portfolio: 7.34%
Number of Hedge Fund Holders: 63
TransDigm Group Incorporated (NYSE:TDG) sells and designs aircraft components and subsystems for several categories such as airframe, cockpit, avionics, and others. It also provides products to other companies such as satellite firms.
TransDigm Group Incorporated (NYSE:TDG) brought $1.28 billion in revenue and $4.25 in non-GAAP EPS for its fourth quarter of fiscal 2021, missing revenue and beating EPS estimates. Susquehanna raised its price target to $708 from $680 in a November 2021 analyst note, worrying about demand recovery and supply chain problems plaguing the global economy.
Mr. Abrams’ hedge fund held 539,305 TransDigm Group Incorporated (NYSE:TDG) shares during the third quarter of last year in a stake that was worth $336 million and represented 7.34% of its portfolio. During the same time period, 63 of the 873 hedge funds polled by Insider Monkey owned the company’s shares.
TransDigm Group Incorporated (NYSE:TDG)’s largest shareholder is Chase Coleman and Feroz Dewan’s Tiger Global Management LLC, which owns 1.7 million shares for a stake of $1 billion.
Vulcan Value Partners, mentioned TransDigm Group Incorporated (NYSE:TDG) during its Q2 2021 investor letter which stated that:
“TransDigm Group Inc., another material contributor during the quarter, is an aerospace manufacturer providing highly engineered, niche components for use on commercial and military aircraft. The vast majority of the company’s profits come from aftermarket sales. Its business was impacted by the global pandemic; however, the company has been able to maintain margins despite strong revenue headwinds, and it continues to generate strong free cash flow.”
6. Change Healthcare Inc. (NASDAQ:CHNG)
Abrams Capital’s Stake Value: $355 million
Percentage of Abrams Capital’s 13F Portfolio: 7.75%
Number of Hedge Fund Holders: 50
Change Healthcare Inc. (NASDAQ:CHNG) is a data analytics services provider that targets the American healthcare industry. Its products allow customers to manage their revenue and workflow among other tasks.
Abrams Capital owned 16.9 million Change Healthcare Inc. (NASDAQ:CHNG) shares for a $355 million stake by the end of last year’s third quarter. A Q3 2021 Insider Monkey survey of 867 hedge funds revealed that 50 had stakes in the company.
For its fiscal Q2, Change Healthcare Inc. (NASDAQ:CHNG) reported $826 million in revenue and $0.35 in non-GAAP EPS missing analyst estimates for both. Piper Sandler kept the company’s price target at $25.75 in an August 2021 analyst note.
Change Healthcare Inc.’s (NASDAQ:CHNG) largest shareholder after David Abrams is Alec Litowitz and Ross Laser’s Magnetar Capital who holds 7 million shares worth $152 million.
Along with Asbury Automotive Group, Inc. (NYSE:ABG), Alphabet Inc. (NASDAQ:GOOG), and Meta Platforms, Inc. (NASDAQ:FB), Change Healthcare Inc. (NASDAQ:CHNG) is one of Mr. Abrams top stock picks.
5. AMERCO (NASDAQ:UHAL)
Abrams Capital’s Stake Value: $362 million
Percentage of Abrams Capital’s 13F Portfolio: 7.9%
Number of Hedge Fund Holders: 25
AMERCO (NASDAQ:UHAL) is a storage and transportation provider in the United States which deals with the general public. It allows customers to rent out trucks, trailers, and storage spaces. It also operates an online marketplace alongside providing other specialty equipment.
For its fiscal Q2, AMERCO (NASDAQ:UHAL) earned $1.67 billion in revenue and $20.9 in GAAP EPS, beating analyst estimates for both.
David Abrams’ Abrams Capital Management owned 561,258 AMERCO (NASDAQ:UHAL) shares during Q3 2021. These were worth $362 million and represented 7.9% of its portfolio. Insider Monkey’s third quarter of 2021 survey of 867 hedge funds revealed that 25 owned the company’s shares.
AMERCO (NASDAQ:UHAL)’s largest investor after Abrams Capital is Donald Yacktman’s Yacktman Asset Management who owns 444,927 shares worth $287 million.
Smead Capital Management mentioned AMERCO (NASDAQ:UHAL) in its Q2 2021 investor letter. It outlined that:
“AMERCO (UHAL) backed off from terrific 12-month performance. Let them know if you’d like to rent a vehicle to go to Los Angeles from Phoenix. It only costs $189 to go to LA, but it cost $1,200 to rent the same vehicle in LA and drive it to Phoenix. These results can be directly tied to holding shares which are heavily under-owned by most institutions and professionals. Many of our companies are under-followed or downright disrespected by the analysts which are paid to research them. We hope we are still in an era where stock picking can shine.”
4. Alphabet Inc. (NASDAQ:GOOG)
Abrams Capital’s Stake Value: $391 million
Percentage of Abrams Capital’s 13F Portfolio: 8.5%
Number of Hedge Fund Holders: 156
Alphabet Inc. (NASDAQ:GOOG) is Google’s holding company, as it owns not only the renowned search engine but also other companies and products such as YouTube and Google Cloud.
Mr. Abrams’ hedge fund had a stake of $391 million in Alphabet Inc. (NASDAQ:GOOG) during last year’s third quarter, which represented 8.5% of its portfolio and came courtesy of 146,440 shares. For the same time period, 156 out of 867 hedge funds also had a stake in the company according to Insider Monkey’s research.
For its fiscal Q3, Alphabet Inc. (NASDAQ:GOOG) earned $65 billion in revenue and $27.99 in GAAP EPS, beating analyst estimates for both. The company’s price target was raised to $3,200 from $3,000 by Morgan Stanley in a November 2021 analyst note, which shared optimism for the recovery in advertisement spending.
Alphabet Inc. (NASDAQ:GOOG)’s largest investor according to Insider Monkey’s research is Chris Hohn’s TCI Fund Management who owns 2.9 million shares worth $7.8 billion.
Giverny Capital mentioned Alphabet Inc. (NASDAQ:GOOG) in its Q3 2021 investor letter, stating that:
“During the quarter we trimmed two positions, (which includes) Alphabet, after significant run-ups. Alphabet remains our largest holding at a 9% weight. When it rose above a 10% weight in late July, we brought it down a bit. I won’t automatically trim a position when it reaches the 10% threshold, but Alphabet nearly doubled from the summer of 2020 to 2021 and it felt responsible to take some gains.”
3. Meta Platforms, Inc. (NASDAQ:FB)
Abrams Capital’s Stake Value: $408 million
Percentage of Abrams Capital’s 13F Portfolio: 8.9%
Number of Hedge Fund Holders: 248
Meta Platforms, Inc. (NASDAQ:FB) is the holding company for Facebook, WhatsApp, and Instagram. Facebook is the world’s largest social network, which has made its founder Mr. Mark Zuckerberg into the youngest billionaire in history.
For its fiscal Q3, Meta Platforms, Inc. (NASDAQ:FB) raked in $29 billion in revenue and $3.22 in GAAP EPS, beating estimates only for EPS. Its price target was increased to $425 from $416 in December 2021 by UBS, who shared optimism for growth in spending budgets for Facebook’s corporate customers. These budgets had crashed in the wake of the ongoing pandemic.
Abrams Capital owned 1.2 million Meta Platforms, Inc. (NASDAQ:FB) shares during the third quarter of last year. These were worth $408 million and made up for 8.9% of its portfolio. During the same time period, 248 of the 867 hedge funds polled by Insider Monkey held stakes in the company.
Ken Fisher’s Fisher Asset Management is Meta Platforms, Inc. (NASDAQ:FB) largest investor according to Insider Monkey’s research. It owns 7.5 million shares worth $2.5 billion.
Jefferies Group mentioned Meta Platforms, Inc. (NASDAQ:FB) in its Q3 2021 investor letter. It stated that:
“While still early, FB is in the process of building the platforms that will ultimately support the development of the Metaverse. We look at FB’s position through the lens of 4 current investment initiatives: 1) Oculus VR hardware, 2) Smart glasses, 3) Augmented Reality lenses, and 4) “Horizon Workrooms”
Oculus Virtual Reality hardware: Since acquiring Oculus in 2014 ($2B deal), FB has been focused on developing best-in-class hardware and complementary software & services to support VR experiences. The Oculus Quest 2 is FB’s newest VR headset; it retails at $299 and allows users to play games, try fitness classes, play sports, and watch concerts in virtual environments. Most importantly, Quest 2 is linked to users’ Facebook accounts, which means users can seamlessly connect with friends in virtual environments to play games or spend time together. We believe one of FB’s biggest differentiators in VR is its large array of non-gaming experiences that were designed for Oculus. For instance, users can explore extreme terrain in National Geographic Explore VR, join virtual fitness classes, or simulate being a chef. As FB’s hardware continues to improve and becomes less cumbersome, we would expect a flywheel of greater developer and user adoption of VR…”
2. Asbury Automotive Group, Inc. (NYSE:ABG)
Abrams Capital’s Stake Value: $416 million
Percentage of Abrams Capital’s 13F Portfolio: 9.08%
Number of Hedge Fund Holders: 22
Asbury Automotive Group, Inc. (NYSE:ABG) is an American automotive retailer which sells new and old cars, alongside replacement and maintenance parts. It also provides collision recovery services in addition to finance and insurance for vehicles.
Abrams Capital’s stake in Asbury Automotive Group, Inc. (NYSE:ABG) for Q3 2021 equaled $416 million and came through 2 million shares, making it the company’s largest investor. It represented 9.08% of the fund’s portfolio. 22 of the 867 hedge funds owned the automotive group’s shares in the third quarter of last year according to Insider Monkey’s research.
Asbury Automotive Group, Inc. (NYSE:ABG)’s largest investor after Mr. Abrams is Lauren Taylor Wolfe’s Impactive Capital who owns 1 million shares worth $199 million.
For its fiscal Q3, Asbury Automotive Group, Inc. (NYSE:ABG) brought in $2.4 billion in revenue and $7.36 in non-GAAP EPS, pleasing Wall Street by beating analyst estimates for both.
However, Morgan Stanley lowered Asbury Automotive Group, Inc. (NYSE:ABG)’s price target to $180 from $205 in a December 2021 note which outlined that problems with legacy automakers might not bode well for the company in the future despite strong earnings.
1. Lithia Motors, Inc. (NYSE:LAD)
Abrams Capital’s Stake Value: $745 million
Percentage of Abrams Capital’s 13F Portfolio: 16.25%
Number of Hedge Fund Holders: 64
Lithia Motors, Inc. (NYSE:LAD) is an automotive retailer that sells new and old vehicles alongside providing financing, insurance, repair, and theft protection services. It is headquartered in Medford, Ohio, United States, and has hundreds of stores all over the country.
Lithia Motors, Inc. (NYSE:LAD) brought in $6.2 billion in revenue and $11.21 in non-GAAP EPS for its fiscal Q3 ending in September 2021. This allowed it to beat analyst estimates for both. Craig Hallum increased its price target for the retailer to $520 from $500 in July 2021, outlining that the recent earnings results beat all expectations.
Abrams Capital Management owned two million Lithia Motors, Inc. (NYSE:LAD) shares worth $745 million and constituting 16.25% of its portfolio as the third quarter of last year came to an end. Out of the 867 hedge funds polled by Insider Monkey for Q3 2021, 64 owned the company’s shares.
Lithia Motors, Inc. (NYSE:LAD)’s largest investor after Mr. Abrams is Andreas Halvorsen’s Viking Global who owns 803,472 shares worth $254 million.
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Disclosure: None. 10 Best Stocks to Buy Today According to Value Investor David Abrams is originally published on Insider Monkey.
