Steve Leonard of Pacifica Capital Investments doesn’t come from Wall Street, LaSalle Street or even Canary Wharf, but from the commercial real estate market of California. After spending 20 years selling commercial real estate, Leonard started the Pacifica fund in 1998 and has since then, consistently outperformed the S&P 500 by a weighted annualized return of 11.2% versus 3.6% for the S&P by investing in high-value, non-cyclical companies. Let’s look at the top five stocks that Leonard picked for his equity portfolio.
At the top spot is Goldman Sachs Group, Inc. (NYSE:GS). During the maelstrom on Wall Street in 2008 that claimed Bear Stearns, Lehman Brothers and Merrill Lynch, only Goldman Sachs Group, Inc. (NYSE:GS), JP Morgan Chase, and Morgan Stanley (NYSE:MS) (thanks to a $9 billion infusion from Mitsubishi Bank) emerged intact…almost.
Goldman Sachs restructured itself as bank holding company, providing it with an asset base to help fund its investment and lending operations. As a result, the more conservative Goldman Sachs Group, Inc. (NYSE:GS) has a balance sheet many Wall Street firms would envy; revenue is up 19% from 2011; net income jumped 68%, and the trailing price earnings ratio of 10.2x beats the rest of the sector at 25.5x. Compare this to Morgan Stanley (NYSE:MS) with a trailing price/earning ratio of 1111x and 17% drop in 2012 revenue.
At number two is Berkshire Hathaway (NYSE:BRK.B) at 18.53% of the total Pacifica portfolio. Synonymous with Warren Buffett, BRK.B, is actually the holding company for a number of diverse businesses such as insurance, construction, media and finance. Buffett is known for being debt-adverse, evident in the debt/equity ratio of his company of 0.3x. Over the past 3 years, revenue has grown consistently — up 13% in 2012 from 2011 – and net income is up 44% from 2011. Since the start of the year, BRK.B stock is up 13% to 105.56.
Third on the list of the top five is Starbucks Corp (NASDAQ:SBUX). Once know for only coffee, Starbucks Corp (NASDAQ:SBUX) has branched out to baked goods, tea and even fruit smoothies through recent acquisitions of La Boulange, Teavana and Evolution Fresh. As a result, Starbucks Corp (NASDAQ:SBUX) is expected to maintain its market dominance in this sector against competitors such as Green Mountain Coffee (GMCR), Dunkin Donuts (DNKN) and Jamba Juice (JMBA), all of which are just brewing in Starbucks Corp (NASDAQ:SBUX)’s wake.
Who’s the best of the rest?