Billionaire Mason Hawkins and His Team’s Thoughts on Alphabet, Level3 Communications Inc. (LVLT), More

They also think that Alphabet Inc (NASDAQ:GOOG) is undervalued and like the company in spite of the fact that the company does not pay any dividend. The fund bought the stock two years ago and appreciates its evolving business model. They think that the company will do well with increased mobile penetration, its growing share in the online advertising market, stock buybacks and capital allocation. Southeastern Asset Management also praised the top management of Alphabet Inc. (NASDAQ:GOOG) which thinks unconventionally and still own large part of the company’s equity. In its latest 13F filing, Southeastern reported holding around 1.08 million shares of Alphabet’s class C stock, valued at $951.81 million at the end of September.

Southeastern Asset Management explained their methodology for valuing Chesapeake Energy Corporation (NYSE:CHK) which is to use “lower of the futures strip pricing or the marginal cost” for natural gas. Marginal cost being higher than the futures strip makes them more optimistic about the stock. The team also talked about the company’s different securities and parts of the capital structure that Southeastern Asset Management has invested into. When there were rumours about Chesapeake Energy Corporation (NYSE:CHK) filing for bankruptcy in February, the debt with the closest maturity got “ridiculously priced”. This led Southeastern Asset Management to buy the bonds of the company which was cheaper than the stock.

The fund also bought the preference stock of Chesapeake Energy Corporation (NYSE:CHK). The fund thinks that Chesapeake Energy Corporation (NYSE:CHK) is in a good position to sell its non-core assets given its “fantastic land, undrilled locations”. Chesapeake Energy Corporation (NYSE:CHK) constituted 5.4% and 11.7% in Longleaf’s Partners Fund and Global Fund respectively, at the end of September.

The share price of Oci NV (AMS:OCI) has suffered from a fall in nitrogen prices over the last year and due to recent changes in tax rules. However, the demand and supply is expected to stabilise more towards late 2017. Southeastern Asset Management thinks the construction of any new plant by Oci NV (AMS:OCI) in the medium term looks highly improbable. The fund believes that OCI Partners’ LP (NYSE:OCIP) upcoming Iowa plant is the “most strategic fertilizer asset in the United States”. The company should benefit from higher free cash flow generation owing to “lower capex, full year earnings from Iowa plant, and methanol plant coming online late next year”. The fund is thus optimistic about their future returns in Oci NV (AMS:OCI) stock.

Southeastern Asset Management views CNH Global NV (NYSE:CNH) as well positioned compared to its closest competitor Deere & Company (NYSE:DE). According to the team, both companies are very close in terms of brand, distribution and product technology. The reason why Southeastern Asset Management prefers CNH Global NV (NYSE:CNH) is because of its cheap valuation.

The management is focused on achieving investment grade rating which will not only release excess capital but also improve its valuation and reported earnings. The company’s commercial truck and construction equipment business should also benefit from an increase in demand and with cost structure optimization. Southeastern Asset Management thinks highly of the promoters (John Elkann and his family) who have a 30% stake in CNH Global NV (NYSE:CNH). They are smart capital allocators with a focus on increasing the value per share.

Disclosure: None

Correction: An earlier version of this article incorrectly alluded that Southeastern Asset Management held shares of Centurylink Inc (NYSE:CTL) and misidentified Oci NV (AMS:OCI) as OCI Partners LP (NYSE:OCIP).