Top 10 Stock Picks of Martin Whitman’s Third Avenue Management

Published on June 23, 2022 at 12:43 pm by Ty Haqqi in Hedge Funds, News

In this article, we will be taking a look at the top 10 stock picks of Martin Whitman’s Third Avenue Management.

Martin Whitman was considered to be one of the most brilliant investors of his time, something confirmed by Forbes which gave tribute to Whitman in the following words:

No one dared to second-guess Marty. Whitman’s ability to out-think anyone has long been a fearsome thing. No one to this day can keep up with his lickety-split ability to read and analyze a company’s 10-K filing.

Whitman passed away in 2019 at the age of 93. However, Third Avenue Management has continued to flourish.

The firm, founded in 1990, has continued Whitman’s philosophy of studying the core fundamentals of companies, by conducting bottom-up research, in order to recommend companies which have stable financials and are good long term holds while simultaneously being undervalued, and thus have the potential to provide high returns. It is the successful implementation of this philosophy that the fund declined by only 0.44% in Q1, as opposed to the Russel 2000 Value Index, which in the same time period delivered returns of -2.4%. Meanwhile, even the S&P500 index was down 5.53% in the first quarter.

Photo by Chris Liverani on Unsplash

Shareholders appreciate big returns in any economy, but in a year where, according to CNBC, the risk of a recession is growing and inflation continues to rise to record levels all across the globe while the impact of the Russia Ukraine war only adds fuel to the fire, barely declining at all is an achievement of its own. Third Avenue management avoided going for expensive companies which have exorbitant expectations already built into their share price, which is why it was able to deliver consistent results.

Among its important holdings are Fidelity National Financial, Inc. (NYSE:FNF) and Old Republican International Holdings (NYSE:ORI). On the other hand, you won’t see many famous stocks which everyone is familiar with among the top stock picks of Martin Whitman’s Third Avenue Management such as Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG) or Amazon.com, Inc. (NASDAQ:AMZN) as according to the firm, such stocks already reflect the future growth in their stock prices.

Methodology

We used Third Avenue’s Q1 portfolio and picked the top 10 stocks.

10. AMERCO (NASDAQ:UHAL)

Third Avenue Management’s Stake Value: $26.074 million

Number of Hedge Fund Holders: 28

Amerco (NASDAQ:UHAL) is U-Haul’s parent company, which is the largest DIY company in North America. Despite year on year revenue increase of 26.37%, Amerco (NASDAQ:UHAL) has seen its share price fall by 36% YTD. While Amerco (NASDAQ:UHAL) has continued to increase the size of its fleet, it has admitted that it’s been unable to achieve its target due to manufacturing concerns and supply issues, which is a major issue across the world right now.

Third Avenue Management published its Real Estate Value Fund Q1 2022 investor letter and mentioned Amerco . Here is what it said:

“Held in the Fund since 2018, AMERCO is widely recognized as the leader in self-moving in North America through its U-Haul subsidiary where it has an unrivaled network with approximately 176,000 trucks, 126,000 trailers, and 46,000 towing devices available across more than 23,000 locations. What is not as widely recognized, in Fund Management’s opinion, is that the company’s forward thinking management team has also spent the last decade assembling one of the largest self-storage portfolios in North America-not only solidifying the “moat” around its core business but also creating substantial value in the process.

Due to these efforts, AMERCO owned and managed more than 73 million square feet of self-storage facilities at the end of the 2021, placing it as the third largest owner of such properties in the US. Notwithstanding, the company does not seem to get much (if any) recognition for this transformation. To wit, if one were to apply the implied price per square foot for AMERCO’s closest comparable on the self-storage side of the business (e.g., Life Storage), they would arrive at an implied value for its impossible-to-replicate self-moving business of basically $0- despite it generating more than $1.0 billion of operating profits per year more recently, implying $7-8 billion of value based upon comparables within the rental segment.”

9. Weyerhaeuser Company (NYSE:WY)

Third Avenue Management’s Stake Value: $29.055 million

Number of Hedge Fund Holders: 42

Weyerhaeuser Company (NYSE:WY) is a timberland company which owns more than 12.4 million acres of timberlands in just the US, with an additional 14 million acres licensed in Canada. In line with the overall market’s performance, Weyerhaeuser Company (NYSE:WY) stock price has declined over the past month, by more than 10%. However, recently the company did gain slightly while the overall market declined, giving hope to Weyerhaeuser Company’s (NYSE:WY) shareholders that better times may be on the horizon.

8. Comerica Incorporated (NYSE:CMA)

Third Avenue Management’s Stake Value: $29.952 million

Number of Hedge Fund Holders: 42

Comerica Incorporated (NYSE:CMA) is a financial services firm which has its headquarters in Texas, while maintaining retail banking operations in several states including Arizona, Michigan, Texas, Florida and California. Even though Comerica Incorporated (NYSE:CMA) is one of the few retail banking operations which didn’t have to consolidate its branches during the pandemic, it recently announced that it would be closing 5% of its branches, or 22 locations. Most of the branches being closed are in Michigan, and the company stated that this move was to reduce its footprint while offering more flexibility to its employees.

Meanwhile, Truist Financial analysts have reduced their target price of Comerica Incorporated (NYSE:CMA) to $98 from $103, while on March 24th, Citigroup, in a research report, initiated a coverage of shares, and issued a ‘Buy’ rating on the stock. If the share price does hit $98, that would mean a 30.95% upside from its latest close.

7. Rayonier Inc. (NYSE:RYN)

Third Avenue Management’s Stake Value: $31.349 million

Number of Hedge Fund Holders: 18

The top stock picks of Martin Whitman’s Third Avenue Management do seem to focus on timberland, as Rayonier Inc. (NYSE:RYN) is another timberland company in the list. Some good news for its holders is that Rayonier Inc. (NYSE:RYN) increased dividend to $0.29 per share in its quarterly dividend announcement. Even though the stock has taken a beating in recent months, its fundamentals look strong enough to weather the storm and could emerge as a good pick. Currently, the Vanguard Group is the biggest owner of Rayonier Inc. (NYSE:RYN), with more than 14% of the total capital.

6. Lennar Corporation (NYSE:LEN)

Third Avenue Management’s Stake Value: $32.432 million

Number of Hedge Fund Holders: 61

Lennar Corporation (NYSE:LEN), a home construction company, and based on the number of homes sold, the second-largest such company in the US, is a hedge fund favorite, with 61 funds owning shares of the company as of Q1. According to CNN, institutional investors are the biggest owners of Lennar Corporation (NYSE:LEN), holding 94.36% of the total outstanding shares. Of these institutional investors, the biggest is unsurprisingly Vanguard, holding 10.85% of the total shares. Easily making the top stock picks of Martin Whitman’s Third Avenue Management, Lennar Corporation (NYSE:LEN) makes up 4.41% of the firm’s total portfolio.

5. Brookfield Asset Management Inc. (NYSE:BAM)

Third Avenue Management’s Stake Value: $38.569 million

Number of Hedge Fund Holders: 35

Brookfield Asset Management Inc. (NYSE:BAM) is one of the biggest alternative investment management companies in the world, and has more than $725 billion of assets under management (AUM) operated by more than 150,000 employees globally. The stock price of Brookfield Asset Management Inc. (NYSE:BAM) has nose dived over the past several months, and recently reached a new 52 week low, even as Brookfield Asset Management Inc. (NYSE:BAM) expands into Europe and is being touted as having double digit growth potential.

Saltlight Capital published its Q1 2022 investor letter and mentioned Brookfield Asset Management Inc. (NYSE:BAM). Here is what the fund said:

“During times like this, it is always helpful to remember what your portfolio is built with. One company that we’ve alluded to in the past is Brookfield Asset Management (NYSE:BAM). We’ve been invested in BAM across our various funds since 2019 and could not describe a more ‘resilient, indispensable and durable’ portfolio company. BAM is one of the largest alternative asset managers in the world, but it has some nuances that make it screen poorly (we’ll get into that). It started life as an industrial conglomerate called Brascan in Canada and so in line with general Canadian culture is understated and stays out of the limelight.

Bruce Flatt has been the CEO for over two decades and is the type of manager that we seek to partner with: honest, trustworthy, and extremely capable. We highly recommend watching these two videos: a Google talk in 2018 and this David Rubenstein interview to get a sense of Flatt. Importantly, BAM is not just about Flatt and his singular investing skills as many asset managers are. This is a widely scaled business. We’ve been impressed with the caliber of up-and-coming executives operating the individual businesses which give us confidence that the BAM culture will be retained for many decades to come…” (Click here to see the full text)

4. Prologis, Inc. (NYSE:PLD)

Third Avenue Management’s Stake Value: $39.115 million

Number of hedge fund holders: 38

Prologis, Inc. (NYSE:PLD) is a real estate investment trust which became the biggest industrial real estate company in the globe after its merger with AMB Property Corporation. Huge news has come about recently about Prologis, Inc. (NYSE:PLD) merging with Duke Realty, in what will be a deal worth $26 billion, which will be welcomed by Vanguard Group, the biggest shareholder of Prologis, Inc. (NYSE:PLD). Prologis, Inc. (NYSE:PLD) has also been a huge benefiter of the pandemic, which has seen its business reach new heights, and this massive deal will only cement its position as the biggest REIT in the world.

3. Tidewater Inc. (NYSE:TDW)

Third Avenue Management’s Stake Value: $45.783 million

Number of hedge fund holders: 14

Tidewater Inc. (NYSE:TDW) is a marine transportation company, where it uses its fleet to provide marine and vessel services to offshore wind and offshore petroleum companies. Tidewater Inc. (NYSE:TDW) has been an exception in a trying year for the stock market, delivering more than 100% growth YTD.

Third Avenue Management published its ‘Small-Cap Value Fund’ Q1 2022 investor letter. Here is what it said:

“Within the Fund, a rapid rise in oil prices benefitted the investment in oil services company, Tidewater (NYSE:TDW), which more than doubled in price last quarter. The time-arbitrage/special-situations bucket is predominantly comprised of energy services company Tidewater, and other out of favor, misunderstood companies such as Hamilton Beach Brands. All of these companies are cyclical and currently out of favor, but given their strong financial positions, Fund Management believes they have the luxury of time and capital to invest and grow until the clouds dissipate.”

2. Warrior Met Coal, Inc. (NYSE:HCC)

Third Avenue Management’s Stake Value: $49.457 million

Number of hedge fund holders: 31

Warrior Met Coal, Inc. (NYSE:HCC) is a steel industry supplier, with two underground mines located in Alabama. Blackrock (NYSE:BLK) is the biggest holder of Warrior Met Coal, Inc. (NYSE:HCC), followed by Vanguard Group Inc. Warrior Met Coal, Inc. (NYSE:HCC) has been a part of controversy in its recent past as more than a year ago, 1,100 members of the United Mine Workers of America went on strike against the company due to a lack of agreement on labor contract. The strike still continues.

Meanwhile, Warrior Met Coal, Inc. (NYSE:HCC) has been enticed by higher coal prices to not just restart development of a mine but also to pay a special dividend to its shareholders which has led to prices increasing and the stock is up 32.77% in the year. It has fully repaid the trust of being one of the top stock picks of Martin Whitman’s Third Avenue Management, and makes up 6.73 of the company’s total portfolio.

Horos Asset Management, which is an investment management firm, published its Q3 2021 invest letter. Here is what is said:

“In addition, we trimmed our stake in the U.S. company Warrior Met Coal (“Warrior”), following its excellent recent performance. The metallurgical coal producer, which is necessary to produce steel in blast furnaces, benefited during the quarter from the sharp rise in the price of this commodity. Specifically, the price of Warrior’s metallurgical coal, referenced to Australia’s Premium Low-Vol FOB Hard Coking Coal, rose by 100% in the quarter and is up 300% from the lows of the beginning of the year, when it was trading at around 100 dollars per tonne. The reason for the huge price increase can be found in the bottleneck that this industry is experiencing, due to a few factors. On the one hand, the recovery of economic activity after the worst of the pandemic ended and the extra boost given by the huge fiscal and monetary stimuli from governments globally and, on the other hand, the lack of investment in new supply in recent years due to the hangover from previous overcapacity, the poor situation of some players in the industry and, especially, the political and social agenda against climate change.

This rise in the price of metallurgical coal has seen Warrior’s share price appreciate by more than 70% from last summer’s lows, contributing significantly to our fund’s performance. However, the downside of the story is that Warrior has had the bulk of its employees on strike since April, which means that the company is not producing at one of its two mines and the other is not at 100% capacity, so it is not benefiting from the current positive dynamics like other players in the industry.”

1. Five Point Holdings, LLC (NYSE:FPH)

Third Avenue Management’s Stake Value: $53.462 million

Number of hedge fund holders: 31

Consisting of 7.28% of the firm’s total portfolio, Five Point Holdings, LLC (NYSE:FPH) is the top stock pick of Martin Whitman’s Third Avenue Management. Five Point Holdings, LLC (NYSE:FPH) is engaged in the ownership and development of mixed use development communities in the state of California.

Despite being the top stock pick of Martin Whitman’s Third Avenue Management, 2022 has not been very kind to Five Point Holdings, LLC (NYSE:FPH) which recently announced that it was laying off 20% of its total workforce while posting a $37 million loss. In fact, the recent years have seen Five Point Holdings, LLC (NYSE:FPH) fail to make a profit, which has resulted in its share price declining by 34% over the past 3 years. However, whether this means that Five Point Holdings, LLC (NYSE:FPH) is undervalued or underperforming remains to be seen, and maybe Third Avenue Management has sight of something that the wider market has failed to grasp.

You can also take a peek at 10 Penny Stocks Redditors are Buying in August and 10 Best Nickel Stocks to Buy Now.

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