Insider Monkey collates data relating to more than 700 hedge funds and their investments in diverse companies every quarter. In this article we will focus on two great value investors: Tom Gayner‘s Markel Gayner Asset Management and Tom Russo‘s Gardner Russo & Gardner. In the last round of 13F filings, both investors disclosed sizeable positions in some of the best value stocks, including Diageo plc (ADR) (NYSE:DEO), Anheuser Busch Inbev SA (ADR) (NYSE:BUD), Brown-Forman Corporation (NYSE:BF.B), and Visa Inc (NYSE:V). Let’s take a closer look at each one of these companies and see why value investors might be bullish on them.
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our back tests, which were conducted over the period between 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 144% over the last 32 months, which is more than 84 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Having understood that, let’s now consider the four stocks. First, we look at the two funds’ positions in Diageo plc (ADR) (NYSE:DEO). At the end of the first quarter of 2015, Markel Gayner Asset Management held 1.25 million shares valued at $137.99 million, representing up to 4.08% of its equity portfolio. On the other hand, Gardner Russo & Gardner held 9.08 million shares worth $250.77 million, equal to 2.25% of its portfolio, which makes it as the biggest shareholder out of the funds we track, leaving Markel Gayner Asset Management at the second position. The British producer of alcoholic beverages ranks is one of the industry leaders, but has been facing enormous pressure from investors to raise its sales and improve its profits. This has led to a possible agreement to sell its luxury Gleneagles hotel and a golf resort located in Scotland. If the hotel sale goes through, it could fetch the company close to $310 million, which will provide it with some cash to invest in corporate activities. Moreover, earlier this month there have been rumors about a possible takeover of Diageo plc (ADR) (NYSE:DEO). John Osterweis‘ Osterweis Capital Management and Mario Gabelli’s GAMCO Investors are two of the funds that had stakes in the stock at the end of the first quarter.
In Anheuser Busch Inbev SA (ADR) (NYSE:BUD), Markel Gayner owns 425,000 shares valued at $51.81 million, while Gardner Russo holds 15,000 shares worth $1.83 million as of the end of March. The company is a Belgian-Brazilian firm that specializes in beverage and brewing, being the largest global brewer, controlling up to 25% of the global market share. Towards expanding its operations in the U.S., Anheuser Busch Inbev SA (ADR) (NYSE:BUD) recently announced that it will invest up to $1.5 billion in its U.S. operations. At the end of the first quarter of 2015, a total of 38 hedge funds out of the more than 700 that we track held positions in the stock. Eric W. Mandelblatt‘s Soroban Capital Partners came top with 5.84 million shares. Other funds that also had shares in the stock are billionaire James Dinan’s York Capital Management and Robert Rodriguez and Steven Romick’s First Pacific Advisors.
Markel Gayner Asset Management and Gardner Russo & Gardner both own stakes in Brown-Forman Corporation (NYSE:BF.B), with Gayner’s fund holding 421,500 shares valued at $38.26 million and Russo’s fund owning 2.81 million shares with a value of $254.84 million, emerging as the biggest shareholder out of the hedge funds we track. The spirits and wine producing company recently announced that it is investing up to $12 million to set up a production center in Spencer, Indiana. Owing to the job creation plans of the project, Indiana Economic Development Corporation granted the company a $350,000 incentive in conditional tax credits. The announcement came a few weeks after the company announced its purchase of all shares of Slane Castle Irish Whiskey Limited and a plan to invest an approximated $50 million towards the construction of a distillery and consumer experience to be situated on the historic Slane Castle Estate in County Meath, Ireland. At the end of the first quarter of 2015, up to 20 of the more than 700 hedge funds that we track were invested in the stock, including GAMCO Investors and billionaire Richard Chilton’s Chilton Investment Company.
Finally, let’s take a look at Visa Inc (NYSE:V), in which Markel Gayner Asset Management held 808,000 shares valued at $52.53 million and Gardner Russo & Gardner held 458,760 shares valued at $30.01 million. The financial services company recently announced an intention to team up with FireEye to co-develop tools and related services to help guard consumers against advanced cyber attacks. In another partnership for greater user experience, the company is teaming up with Verifone to integrate some of their services, Verifone’s point of sale gateway and Visa Inc (NYSE:V)’s CyberSource global merchant payment management platform, to accelerate Omni Commerce globally. The stock boasts an estimated 5-year annual growth of 18.03% and a PEG multiple of 1.67. During the first quarter, billionaire Ken Fisher‘s Fisher Asset Management upped his position in Visa Inc (NYSE:V) by more than 300% to 14.32 million shares, which makes it the largest shareholder among the funds we track.