Value Investor Gayner’s Top Stock Picks For Q4

Markel Corporation (NYSE:MKL) is a Virginia-based financial holding and insurance company. It invests its ‘float’ in the equity markets through its subsidiary Markel Gayner Asset Management just like Warren Buffett‘s Berkshire Hathaway Inc. (NYSE:BRK.A). Thomas Gayner has been heading Markel Gayner Asset Management since 1990 and since 2004 has also served as the Chief Investment Officer (CIO) of Markel Corporation (NYSE:MKL). The company recently submitted its 13F filing with the Securities and Exchange Commission (SEC) for the reporting quarter ending September 30. According to the filing Markel Corporation (NYSE:MKL)’s US equity portfolio at the end of September was worth nearly $3.8 billion, 5% less than the $4 billion that it was worth at the end of June. The filing also revealed that Markel Corporation had a fairly low quarter over quarter turnover in its equity portfolio of just 9.09% and its top 10 holdings accounted for 42.48% value of its equity portfolio at the end of September. In this article we are going to take a closer look and analyze the fund’s top six equity holdings at the end of the third quarter.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 48% gain) over the last 37 months (see more details here).

#6 Brookfield Asset Management Inc (NYSE:BAM)

Shares Owned by Markel Corporation (as of September 30): 5.018 million shares

Value of Holding (as of September 30): $157.792 Million

Markel Corporation added an additional 18,000 shares of Toronto-based alternative asset management firm Brookfield Asset Management Inc (NYSE:BAM) during the third quarter. Although shares of Brookfield Asset Management Inc (NYSE:BAM) recovered from the decline, they suffered due to the volatility of the third quarter in October, they still trade flat for the year. On November 6, the company reported better than expected fiscal 2015 third quarter results. While the Street had expected the company to report EPS of $0.45 on revenue of $4.70 billion, Brookfield Asset Management reported EPS of $0.48 on revenue of $5.06 billion. Glenn Greenberg‘s Brave Warrior Capital was one of the hedge funds that initiated a stake in the company during the second quarter; it held 5.44 million shares of Brookfield Asset Management, as of June 30.

#5 Walt Disney Co (NYSE:DIS)

Shares Owned by Markel Corporation (as of September 30): 1.57 million shares

Value of Holding (as of September 30): $161.016 Million

The stock of Walt Disney Co (NYSE:DIS) had a fantastic bull run during the first 7 months of the year and then suffered an over 20% decline during August. However, it has recouped most of the losses since then and currently trades with year-to-date gains of 23.71%. During the third quarter, Markel Corporation increased its stake in the company by 23,000 shares. For the third quarter of fiscal 2015, Walt Disney Co (NYSE:DIS) reported EPS of $1.14 on revenue of $13.51 billion on November 5. Analysts had expected the company to report EPS of $1.14 on revenue of $13.50 billion. On November 10, analysts at Credit Suisse reiterated their ‘Outperform’ rating on the stock, while upping their price target on it to $130 from $120. Ken Fisher‘s Fisher Asset Management is another shareholder of the company, with ownership of nearly 8.51 million shares as of September 30.

#4 Walgreens Boots Alliance Inc (NASDAQ:WBA)

Shares Owned by Markel Corporation (as of September 30): 2.135 million shares

Value of Holding (as of September 30): $177.418 Million

Walgreens Boots Alliance Inc (NASDAQ:WBA) continued to remain Markel Corporation’s fourth largest equity holding at the end of the third quarter with Markel not making any changes to its stake in the pharmacy major during that period. After a decent rally during the first quarter of the year, the stock of Walgreens Boots Alliance Inc (NASDAQ:WBA) has remained more or less range bound since then and currently trades with year-to-date gains of 7.38%. On October 27, the company announced that it would be acquiring smaller rival Rite Aid Corporation (NYSE:RAD) in a $9.4 billion deal. On October 28, Walgreens Boots Alliance declared its fourth quarter fiscal 2015 results, reporting EPS of $0.88 on revenue of $28.50 billion, compared to EPS of $0.81 on revenue of $28.45 billion it reported for the same quarter last year. Stephen Mandel‘s Lone Pine Capital more than doubles its stake in the company to nearly 5.2 million shares during the second quarter.

#3 Berkshire Hathaway Inc. (NYSE:BRK.B)

Shares Owned by Markel Corporation (as of September 30): 1.51 million shares

Value of Holding (as of September 30): $197.114 Million

#2 Berkshire Hathaway Inc. (NYSE:BRK.A)

Shares Owned by Markel Corporation (as of September 30): 1079 shares

Value of Holding (as of September 30): $210.664 Million

Although Markel Corporation kept its stake unchanged in Berkshire Hathaway Inc. (NYSE:BRK.B)’s class B stock during the third quarter, it added one more share of Berkshire Hathaway Inc. (NYSE:BRK.A)’s class A stock during the same period. Both Berkshire Hathaway Inc. (NYSE:BRK.B) and Berkshire Hathaway Inc. (NYSE:BRK.A)’s stock have had a gradual decline this year and currently trade down more than 10% year-to-date. On November 6 the company reported better than expected third quarter results owing mostly to the $4.4 billion onetime windfall it received during the quarter from the Kraft Foods-H.J Heinz merger. While analysts had expected the company to report operating earnings of $2,760 per Class A equivalent share on revenue of $58.99 billion, Berkshire Hathaway reported operating earnings of $2,769 per Class A equivalent share on revenue of $61.12 billion. Whitney Tilson of Kase Capital is betting big on Berkshire, considering that its class A stock is currently trading below its intrinsic value (see more details).

#1 CarMax, Inc (NYSE:KMX)

Shares Owned by Markel Corporation (as of September 30): 4.91 Million shares

Value of Holding (as of September 30): $291.443 Million

Finally, even though its stock went down by more than 10% during the third quarter and Markel Corporation didn’t make any changes to its stake in it, CarMax, Inc (NYSE:KMX) still continued to remain Markel Corporation’s largest equity holding at the end of September. The continuous decline that shares of CarMax, Inc (NYSE:KMX) have suffered since April this year has resulted in it trading down more than 16% year-to-date. For the second quarter of fiscal 2016 the company reported EPS of $0.79 on revenue of $3.88 billion, compared to EPS of $0.70 on revenue of $3.60 billion that it reported for the same quarter last year. On September 25, analysts at Sterne Agee CRT reiterated their ‘Buy’ rating on the stock, but lowered their price target on it to $73 from $83. After Markel Corp, Gavin M. Abrams‘ Abrams Bison Investments was the largest shareholder of CarMax, Inc at the end of June among the hedge funds we cover; it owned slightly over 2.7 million shares of the company, as of June 30.

Disclosure: None