In this piece, we will take a look at Abrams Capital’s 13F portfolio and the ten best stocks to buy. If you want to skip our introduction to the value investor and the current stock market environment, then take a look at Abrams Capital 13F: 5 Best Stocks To Buy.
David Abrams is one of the few investors on Wall Street who has become rich following the value investing approach. This approach is quite common among hedge fund bosses and other investors, with billionaires Warren Buffett of Berkshire Hathaway and Seth Klarman of Baupost Group having become some of the richest people in the world courtesy of this approach. Value investing, for the uninitiated, involves calculating the true value of a stock and then buying it with the hopes that the share price will increase in the future to make a profit. As opposed to some other investing strategies, such as buying puts or calls, value investing is only for the patient since it requires an investor to buy and hold a stock often for years to let its share price appreciate.
Mr. Abrams’ hedge fund, Abrams Capital, is also quite young when we look at some other hedge funds. The fund was set up in 1999, and to this day, Mr. Abrams remains in charge. He is the chief executive officer and the portfolio manager for the fund, and according to Insider Monkey’s research, Abrams Capital had a $3 billion portfolio during the third quarter of this year. This marked a small $450 million drop over the second quarter, and annually, the portfolio has dropped by roughly $400 million.
Abrams Capital defines its investing strategy as being focused on the “long-term time horizon” and being “long-biased”. What this means is that the hedge fund does not engage in riskier and speculative investments. Naturally, this requires taking a longer look at its portfolio to see whether it has grown or shrunk. Well, during the third quarters of 2015, 2016, 2017, 2018, 2019, 2020, and 2021, Abrams Capital’s investment portfolio was worth $1.3 billion, $2 billion, $2.5 billion, $3.7 billion, $3.5 billion, $3.1 billion, and $4.5 billion, respectively. This indicates that Abrams Capital has been performing well over a long term horizon and has grown its portfolio in most years as it cashed in on existing investments to grow its portfolio, brought in new investor capital, and saw investment value grow on the back of strong stock market performance.
His value investing approach comes from the time that Mr. Abrams has spent in the financial industry. Before setting up Abrams Capital, he worked for Baupost Group – which, as we mentioned above, is one of the best examples of value investing. (For Baupost’s latest value investments, check out 12 Best Value Stocks To Buy Heading Into 2024 (Picked By Seth Klarman))Mr. Abrams’ firm is also one of the few in the hedge fund industry that does not rely on using leverage to finance its investments. What this means is that, unlike other hedge funds which use investor money to take out loans and then invest them to double or triple their exposure, Mr. Abrams likes to hold cash and keep his investments simple. This strategy has its benefits and drawbacks. On the former front, it protects Mr. Abrams from high interest rates and potential insolvency. However, it also limits the profit that Abrams Capital can make.
Shifting gears to focus on the stock market, right now, anything that anyone can talk about is the Federal Reserve. The Federal Reserve’s rapid interest rate hikes have depressed equities, and if it weren’t for the H1 2023 market surge on the back of hype surrounding artificial intelligence, then who knows where we’d be by now? The central bank’s future interest rate policy actions are still the primary focus on investors’ minds, and this path is based on inflation readings in the U.S.
On the inflationary front, November came with great news for investors This is because the Department of Labor’s Consumer Price Index (CPI), or the inflation data, for October showed that prices remained unchanged during October over September. Annually, the index jumped by 3.2% which undershot market estimates of 3.3% and provided stocks and investors some much needed respite. The annual inflation rate in the U.S., 3.2%, marked a substantial drop over September’s 3.7%, in a solid piece of evidence that the Fed’s aggressive interest rate hikes are finally, finally starting to bear fruit which hints that investors can finally start to look at a future where rates actually come down instead of going up.
Crucially, the Fed’s preferred inflation reading, namely the core figure, stood at 4% which was lower than expectations. This marked an all around solid set of figures, and the release proved to be great for both the stock market and the Treasury market. The latter has been particularly troubling lately, as bond yields have soared to historic levels on the fears of persistent interest rate hikes. After news of the inflation slowdown hit the wire, yields for two year bonds dropped to 4.872% and investors pared back their bets that additional hikes were possible. Fed futures priced in a 5% chance for any further hikes in the future, with this probability dropping from a rather high 28% that it had stood at before the October 2023 inflation data release.
But what about stocks? Well, the benchmark S&P 500 index was 1.7% an hour after opening as it fought back an earlier dip that came after Fed Chair Jerome Powell’s comments that the bank would increase interest rates if inflation did not slow down. The tech heavy NASDAQ 100 and NASDAQ Composite indexes were up by 1.95% and 2%, and the Dow Jones Industrial Average (DJIA) rose by a respectable 1.3%. Looking at the future, investors will eagerly watch purchasing price index data to see whether further cooling for consumers is in store, and if this is the case, then it is reasonable to expect the stock market to post further gains. The NASDAQ 100, NASDAQ Composite, S&P 500, and the DJIA went on to close the day 2.13%, 2.37%, 1.91%, and 1.43% higher.
With this backdrop, we thought to look at David Abrams’ top stock picks during the third quarter particularly since stock valuations have remained stressed due to high interest rates. As the economic climate might be shifting, value stocks might be the investments to focus on as they could soar to meet the fair value if Mr. Market is in a good mood. Some top David Abrams Q3 2023 stock picks are Asbury Automotive Group, Inc. (NYSE:ABG), Lithia Motors, Inc. (NYSE:LAD), and Alphabet Inc. (NASDAQ:GOOG).
David Abrams of Abrams Capital Management
Our Methodology
To compile our list of David Abrams’s top stock picks, we used Abrams Capital’s SEC filings for the third quarter of this year and picked out the firm’s top ten stocks.
Abrams Capital 13F: 10 Best Stocks To Buy
10. Camping World Holdings, Inc. (NYSE:CWH)
Abrams Capital’s Q3 2023 Investment: $104 million
Camping World Holdings, Inc. (NYSE:CWH) is a recreational vehicle (RV) retailer headquartered in Lincolnshire, Illinois. The firm is currently busy expanding its operational footprint in the U.S. and plans to add another RV dealership in Missouri to its portfolio in 2024. Camping World Holdings, Inc. (NYSE:CWH) also marks a strong start to our list of David Abrams’s top stock picks, as its shares are rated Strong Buy on average, with analysts having set an average share price target of $25.80.
During Q2 2023, 18 out of the 910 hedge funds part of Insider Monkey’s database had held a stake in Camping World Holdings, Inc. (NYSE:CWH). David Abrams’ Abrams Capital Management owned the biggest stake among these which was worth $153 million.
9. Tempur Sealy International, Inc. (NYSE:TPX)
Abrams Capital’s Q3 2023 Investment: $156 million
Tempur Sealy International, Inc. (NYSE:TPX) is a consumer cyclical firm that sells beds, mattresses, and other associated products. Despite an economy pressured by inflation, the firm has beaten analyst EPS estimates in three of its four latest quarters, and a diversified operations base saw it increase international revenues in Q3 even as it missed EPS estimates amidst slowing U.S. sales.
Insider Monkey dug through 910 hedge funds for their June quarter of 2023 shareholdings to discover that 39 had bought the firm’s shares. Tempur Sealy International, Inc. (NYSE:TPX)’s largest shareholder back then was Robert Joseph Caruso’s Select Equity Group as it owned $798 million worth of shares.
Along with Lithia Motors, Inc. (NYSE:LAD), Asbury Automotive Group, Inc. (NYSE:ABG), and Alphabet Inc. (NASDAQ:GOOG), Tempur Sealy International, Inc. (NYSE:TPX) is a top David Abrams stock pick.
8. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Abrams Capital’s Q3 2023 Investment: $168 million
Willis Towers Watson Public Limited Company (NASDAQ:WTW) is a financial services firm that provides brokerage, wealth management, and other services. It appears to be quite a favorable value stock, as not only did David Abrams maintain a $168 million stake in it during Q3 2023, but Seth Klarman’s Baupost Group had also invested in the company.
As of June 2023 end, 32 out of the 910 hedge funds profiled by Insider Monkey were Willis Towers Watson Public Limited Company (NASDAQ:WTW)’s investors. Out of these, the biggest investor was Jean-Marie Eveillard’s First Eagle Investment Management through its $1.1 billion investment.
7. U-Haul Holding Company (NYSE:UHAL)
Abrams Capital’s Q3 2023 Investment: $191 million
U-Haul Holding Company (NYSE:UHAL) is a self storage, transportation, and logistics products and services provider. While David Abrams had piled in $191 million in the firm during 2023’s September quarter, on average, the shares are rated Hold but analysts have priced in a $10 upside based on the average share price target.
In the prior quarter, 28 out of the 910 hedge funds tracked by Insider Monkey had bought the firm’s shares. U-Haul Holding Company (NYSE:UHAL)’s largest shareholder was Donald Yacktman’s Yacktman Asset Management as it owned 6.9 million shares that are worth $350 million.
6. Coupang, Inc. (NYSE:CPNG)
Abrams Capital’s Q3 2023 Investment: $191 million
Coupang, Inc. (NYSE:CPNG) is an American electric commerce firm that provides decoration, groceries, electronics, sports, and other general use products on its platform. A weakening U.S. consumer environment has hit the firm’s income statement as it has beaten analyst EPS estimates in only two out of its four latest quarters.
As of Q2 2023 end, 47 out of the 910 hedge funds profiled by Insider Monkey had held a stake in Coupang, Inc. (NYSE:CPNG). Lee Ainslie’s Maverick Capital owned the biggest stake among these which was worth $1.3 billion.
Asbury Automotive Group, Inc. (NYSE:ABG), Lithia Motors, Inc. (NYSE:LAD), Coupang, Inc. (NYSE:CPNG), and Alphabet Inc. (NASDAQ:GOOG) were on David Abrams’ Abrams Capital’s radar in Q3 2023.
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Disclosure: None. Abrams Capital 13F: 10 Best Stocks To Buy is originally published on Insider Monkey.