Longview Asset Management, formerly known as Longview Management Group, is a Chicago-based investment fund managed by James Star which invests in publicly traded U.S. equities. The fund’s 13F filings generally show only a small number of positions, suggesting that the fund either has considerable positions which it does not need to disclose publicly or prefers to focus its attention on a small number of stocks. According to the 13F for the second quarter (research changes in Longview’s portfolio over time), here were the fund’s four positions at the end of June:
Talk about a confidence pick: 77% of Longview’s 13F portfolio was invested in General Dynamics Corporation (NYSE:GD), which provides combat vehicles, weapons systems, and shipbuilding capabilities to the U.S. military alongside its aerospace operations. The fund owned 33 million shares at the end of June, essentially unchanged from a year ago. General Dynamics is down 3% so far in 2012 against a rising market as investors worry about the impact of lower military spending on the company’s business. If spending cuts do not come to pass- and increasing unrest throughout the world has begun to put some pressure on Washington to maintain existing spending- the stock should rise accordingly. General Dynamics trades at only 10 times trailing earnings despite its $23 billion market capitalization and 3.1% dividend yield. Its forward P/E is 9 as the sell-side actually expects higher EPS for next year. Warren Buffett’s Berkshire Hathaway also owned shares of General Dynamics at the end of the second quarter, with the holding company’s 3.9 million shares being unchanged from the beginning of April (see more stocks in Warren Buffett’s portfolio). For comparison, larger aerospace and defense company The Boeing Company (NYSE:BA) has trailing and forward P/Es of 12 and a lower dividend yield at 2.5%. Of course, Boeing’s business has a good deal of concentration on aerospace.
The second largest position in Longview’s 13F portfolio, with 6.9 million shares, was a bit different from a defense contractor: $7.4 billion market cap pet supply retailer PetSmart Inc. (NASDAQ:PETM), which has broadened its service offerings into pet boarding houses and veterinary hospitals. PetSmart is quite defensive at a beta of 0.6- people spend roughly the same amount on their pets regardless of economic conditions- and pays a small dividend yield of 1% as the company focuses on growth. Earnings were up 28% last quarter compared to the same period a year ago, and the company currently trades at 23 times trailing earnings. It’s not a value stock, but could be a candidate for growth-at-a-reasonable-price status.
The fund initiated a position of 2.8 million shares in Polypore International Inc. (NYSE:PPO) between April and June. Polypore is a $1.6 billion market cap developer and manufacturer of specialized membranes that are used in batteries and high-tech filtration systems. Polypore has been slipping recently- its earnings last quarter were down 31% from the same quarter last year, and revenue was down as well. The stock price has dropped 41% since a year ago. Generation Investment Management, managed by David Blood and Al Gore, more than doubled its own stake in Polypore during the second quarter to a total of 1.3 million shares.
Thermon Group Holdings Inc (NYSE:THR) was the last of Longview’s stock picks according to the 13F. Star and his team maintained a position of 2.8 million shares of the provider of heating and heat tracing cables. Thermon Group has beaten earnings expectations for each of the last four quarters, with analyst consensus for the fiscal year ending in March 2014 implying a fairly reasonable forward P/E of 19 (the company trades at 33 times trailing earnings). If the sell-side is correct- or if they are once again underestimating Thermon Group’s prospects- it could end up being a potential growth stock.