In this article, we shall discuss how value investor David Abrams is holding onto these 10 stocks in 2022. To skip our detailed analysis of Abrams’ history, his investment strategy, and hedge fund performance, go directly and see Value Investor David Abrams is Holding Onto These 5 Stocks in 2022.
David Abrams currently serves as the founder and Chief Executive Officer of Abrams Capital Management, a Boston-based investment firm that manages public and private investments. Graduating from the University of Pennsylvania with a BA in history, Abrams worked for billionaire Seth Klarman’s Baupost Group for nearly a decade, before founding his own investment firm in 1999.
His Investment Strategy
Abrams is a staunch value investor, so much so that he tends to ignore the growth prospects associated with any given stock as long as the stock is trading at a discounted valuation. His investment strategy generally entails a fundamental, opportunistic, and value-oriented approach. Investments are unlevered, long-biased, and are made keeping the long-term horizon in mind. However, he has publicly stated that investors who have horizons up to 20 years or more are down a flawed path, maintaining that an investor should be able to asses the winning potential of a particular stock at around the 10-year mark.
According to a podcast interview he gave in 2017, Abrams explained that he follows three key principles in his investments. He focuses on the risks associated with the transaction before thinking about the rewards, he prioritizes absolute performance over relative performance, and he tends to invest bottom-up rather than top-down. Furthermore, Abrams, like Klarman, is convinced that in order to invest profitably, it is pertinent to avoid losses, which are at the crux of risk. In keeping with this, Abrams Capital has a five to seven year timeline on stocks. Abrams Capital has made investments across a diverse variety of asset types, market sectors, market cycles, and industries. This spectrum includes foreign equity and debt securities, distressed securities, and illiquid investments. It is for these reasons that Abrams is widely considered to be one of the most successful value investors in the world.
Hedge Fund Performance
On August 12, Abrams Capital Management filed their regulatory 13F Form with the SEC. In Q2 2022, Abrams’ 13F portfolio decreased from $4.28 billion to $3.72 billion, with the number of holdings remaining steady at 18. The top three stakes equal almost 38% of the portfolio, while the top five stakes equal 54%. Abrams Capital Management primarily holds stakes in the technology, finance, healthcare, industrial goods and services sectors. Since the fund’s founding in 1999, Abrams Capital has delivered approximately 15% to 20% returns on its primary funds, annually. The hedge fund has discretionary assets under management of $10.8 billion and a top ten holdings concentration of 81.77%. Some of the most prominent stocks in the Abrams Capital’s 13F portfolio include Lithia Motors Inc. (NYSE:LAD), Alphabet Inc. (NASDAQ:GOOG), and Change Healthcare Inc. (NASDAQ:CHNG).
David Abrams of Abrams Capital Management
Our Methodology
For this list, we have picked the top 10 stocks that value investor David Abrams is holding on to in 2022. The stocks have been chosen from Abrams’ 13F portfolio from Q2 2022, and have been ranked based on the stakes Abrams holds in each stock. Abrams Capital did not make any changes to its stakes in these companies in the second quarter of 2022.
10. Meta Platforms Inc. (NASDAQ:FB)
Abrams Capital Management’s Stake Value: $194.3M
Percentage of Abrams Capital Management’s 13F Portfolio: 5.22%
Number of Hedge Fund Holdings: 184
Meta Platforms Inc. (NASDAQ:FB) is an American multinational conglomerate company based in Menlo Park, California. The company parents social media platforms like Facebook and Instagram, and popular instant messaging service WhatsApp. As of the second quarter of 2022, Meta Platforms Inc. (NASDAQ:FB) posted an EPS of $2.46, trailing behind estimates of $2.59 by $0.13. Moreover, it generated a total revenue of $28.8 billion in Q2 2022.
Hedge fund sentiment around Meta Platforms Inc. (NASDAQ:FB) has declined in Q2 2022, with only 184 hedge funds long the stock, compared to 200 in Q1 2022. Ken Griffin’s Citadel Investment Group is the largest shareholder in the company as of Q2 2022, with stakes worth more than $3.36 billion. Abrams Capital owns more than 1.2 million shares in Meta Platforms (NASDAQ:FB), which are valued at more than $194.3 million, as of Q2 2022. This brings Meta Platforms Inc. (NASDAQ:FB) to make up for 5.22% of Abrams Capital’s 13F investment portfolio.
This is what Argosy Investors had to say about Meta Platforms Inc. (NASDAQ:FB) in their Q2 2022 investor letter, a copy of which can be obtained here:
“Meta Platforms, Inc. (NASDAQ:FB) is a great business that investors believe could be threatened by TikTok, saw Apple roll out an ad privacy measure that made users harder to track, and faces advertising headwinds as a result of a weakening economy and the belief that venture-backed start-ups were pumping money into Google and Facebook to show growth. Now that venture capitalists are pulling back as a result of the significant market declines among software and other venture-backed industries like Buy Now Pay Later, online gambling, and cryptocurrencies, companies are being forced to focus on profitability to survive. What this could mean for Meta (NASDAQ:FB) is companies could spend a lot less with them (and other forms of advertising) for a period of time (how long is the other big question). Are we in a dot-com bubble bursting phase that will take years to play out, or has most of the carnage already happened and we will soon see more venture capital dollars put to work? It’s hard to say, but at a 9x EV/EBITDA multiple and 16x 2023 earnings, some relatively severe outcomes are already built in.”
Therefore, like Lithia Motors Inc. (NYSE:LAD), Alphabet Inc. (NASDAQ:GOOG), and Change Healthcare Inc. (NASDAQ:CHNG), Meta Platforms Inc. (NASDAQ:FB) is a prominent stock that value investor David Abrams is holding on to in 2022.
9. AMERCO (NASDAQ:UHAL)
Abrams Capital Management’s Stake Value: $202.3M
Percentage of Abrams Capital Management’s 13F Portfolio: 5.43%
Number of Hedge Fund Holdings: 20
Headquartered in Reno, Nevada, AMERCO (NASDAQ:UHAL) is a holding company which, through its subsidiaries, provides services like truck and trailer rentals, self storage spaces, and insurance products. It also parents U-Haul, one of the largest DIY companies in the world. As of August 23, AMERCO (NASDAQ:UHAL) has seen a decline 20.62% year-to-date, and was able to generate a total revenue of almost $1.6 billion in the second quarter of 2022.
On August 18, AMERCO (NASDAQ:UHAL) announced a special cash dividend on its common stock of $0.5 per share. The dividend will be payable to holders of record on September 6, by September 20. Investor interest in the stock has seen a significant decline in Q2 2022, with 20 hedge funds having a cumulative stake of $754.8 million in Q2 2022. This was down from 29 hedge funds having stakes worth $937.7 million in Q1 2022. Abrams Capital is the second largest stakeholder in the company as of Q2 2022, owning 422,917 shares worth at around $202.3 million. This means that AMERCO (NASDAQ:UHAL) makes up for 5.43% of Abrams’ Q2 2022 investment portfolio. Other prominent hedge funds to have stakes in AMERCO (NASDAQ:UHAL) are Third Avenue Management and Citadel Investment Group.
Third Avenue Management, an investment management firm, mentioned AMERCO (NASDAQ:UHAL) in their Q1 2022 investor letter. This is what they said:
“Held in the Fund since 2018, AMERCO (NASDAQ:UHAL) 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 (NASDAQ:UHAL) 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 (NASDAQ:UHAL) 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.
This disconnect does not seem to be lost on Chairman and CEO Edward Shoen (who owns 42.7% of the company’s stock along with beneficiaries). In fact, in response to a question about the price-to-value discrepancy during the company’s most recent quarterly conference call, he remarked that “it’s a question that is regularly discussed at the board level” and that “hopefully we’ll have some news for you before the year is out.” In the meantime, AMERCO (NASDAQ:UHAL) is not only continuing to self-finance the expansion of its self-storage portfolio with more than 7 million square feet of projects in development, but the company is also expanding its “U-Box” offering as it gains further market share in the portable storage and moving segment.”
8. Kinder Morgan Inc. (NYSE:KMI)
Abrams Capital Management’s Stake Value: $209.1M
Percentage of Abrams Capital Management’s 13F Portfolio: 5.62%
Number of Hedge Fund Holdings: 41
Based in Houston, Texas, Kinder Morgan Inc. (NYSE:KMI) is one of the largest energy infrastructure companies in North America, owning and controlling oil and gas pipelines in the region. Investor interest around Kinder Morgan Inc. (NYSE:KMI) has increased slightly in Q2 2022, with 41 hedge funds mentioning the stock in their 13F portfolios for the quarter, compared to 40 hedge funds in the preceding quarter. William B. Gray’s Orbis Investment Management is the largest shareholder in the stock, as of Q2 2022. It has stake of more than 21.6 million shares worth almost $363.3 million, causing Kinder Morgan Inc. (NYSE:KMI) to make up for 2.92% of Orbis Investment’s 13F portfolio.
Abrams Capital Management is the third largest stakeholder in Kinder Morgan Inc. (NYSE:KMI), owning almost 12.5 million shares worth $209.1 million, as of Q2 2022. Kinder Morgan Inc. (NYSE:KMI) makes up for 5.62% of Abrams’ investment portfolio for the quarter, with Abrams neither increasing nor decreasing his hold over the stock. In Q2 2022, the company posted an EPS of $0.27, meeting estimates.
On August 16, Barclays analyst Theresa Chen raised the firm’s price target on Kinder Morgan Inc. (NYSE:KMI) to $21 from $20, maintaining an Equal Weight rating on the shares. In a research note, Chen noted that there are unique tailwinds within Kinder Morgan’s (NYSE:KMI) North American midstream and refining coverage. The analyst opines lest there is a severe economic shock in the near future, American refining fundamentals will continue to fare well.
Like Lithia Motors Inc. (NYSE:LAD), Alphabet Inc. (NASDAQ:GOOG), and Change Healthcare Inc. (NASDAQ:CHNG), Kinder Morgan Inc. (NYSE:KMI) is a profitable stock that value investor David Abrams is holding on to in 2022.
7. Willis Towers Watson Plc (NASDAQ:WLTW)
Abrams Capital Management’s Stake Value: $211M
Percentage of Abrams Capital Management’s 13F Portfolio: 5.67%
Number of Hedge Fund Holdings: 50
Headquartered in London, Willis Towers Watson (NASDAQ:WLTW) is a British-American multinational insurance advisor. It operates in more than 140 countries and employs more than 40,000 workers. As of Q2 2022, First Eagle Investment Management is the largest shareholder in the company, owning more than 4.8 million shares worth at around $953.4 million.
Hedge fund sentiment around Willis Towers Watson (NASDAQ:WLTW) has been favorable in Q2 2022, with 50 hedge funds long the stock, compared to 49 in the preceding quarter. As of the second quarter of 2022, Abrams Capital Management is the fifth largest stakeholder in Willis Towers Watson (NASDAQ:WLTW), owning more than a million shares valued at almost $211 million. Therefore, Willis Towers Watson (NASDAQ:WLTW) contributes 5.67% to Abrams Capital’s investment portfolio.
Artisan Partners mentioned Willis Towers Watson (NASDAQ:WLTW) in their Q4 2021 investor letter. This is what they said:
“During the quarter, we made meaningful new investments in two UK domiciled companies, (one of which is) Willis Towers Watson (WTW). Long-term investors will recognize Willis Towers Watson since it was in the portfolio from 2018 to early 2021. We exited that investment after WTW agreed to merge with Aon. Unfortunately for WTW and Aon, that proposed merger was rejected by the US Department of Justice in July 2021. In fact, there is significant market power in this industry, which is what makes it a great business. That market power is exerted not with the insurance brokers’ corporate customers, but with their suppliers (insurance underwriters). We were surprised at Aon’s attempted merger, and our concerns regarding antitrust approval encouraged us to sell.
WTW operates two businesses: insurance brokerage and HR consulting. Both are market-leading with attractive financial profiles and mostly recurring revenue streams. Despite these strengths, WTW operates with lower margins versus peers. The margin opportunity is most pronounced in the insurance brokerage business. Management has slowly increased the insurance brokerage margin over time, but a large gap remains with best-in-class peers like Marsh & McLennan and AJ Gallagher. Management presented a plan to increase the insurance brokerage business’s margins 5% by year-end 2024. This plan follows the outline other insurance brokers have previously used to increase their margins—giving us confidence the targets are achievable.
The merger’s demise brought a new and experienced CEO, a new CFO and a refreshed shareholder-aligned board of directors. In addition, the merger’s cancellation transformed the company’s financial
position. As part of the agreement, Aon paid WTW a $1 billion “break fee.” WTW also sold a re-insurance brokerage business for $3.25 billion along with the potential to earn $750 million through an earnout agreement. With the proceeds, WTW expects to repurchase approximately $4 billion of stock between the second half of 2021 and the end of 2022. With existing cash on hand and cash generation over the next three years, we estimate the company can return another $6 billion to shareholders through dividends and share repurchases representing over 20% of today’s market capitalization. We forecast earnings of approximately $20 per share in 2024—a price to earnings (P/E) ratio of 11.5X. We believe that valuation significantly undervalues this high-quality business.”
6. Energy Transfer Lp (NYSE:ET)
Abrams Capital Management’s Stake Value: $220.8M
Percentage of Abrams Capital Management’s 13F Portfolio: 5.93%
Number of Hedge Fund Holdings: 36
Energy Transfer (NYSE:ET) is an American company specializing in the transport of natural gas and propane pipelines, and it is based in Dallas, Texas. As of Q2 2022, Abrams Capital Management is the largest stakeholder in the company, owning more than 22.1 million shares worth at around $220.8 million. This means that Energy Transfer (NYSE:ET) constitutes 5.93% of Abrams Capital’s investment portfolio for Q2 2022.
On August 16, Barclays analyst Theresa Chen raised the firm’s price target on Energy Transfer (NYSE:ET) to $14 from $13, maintaining an Overweight rating on the shares. Chen believes the tailwinds within the company’s North American midstream and refining coverage are unique and temporary, and that the American refining fundamentals are projected to deliver great returns in 2022.
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Disclosure: none. Value Investor David Abrams is Holding Onto These 10 Stocks in 2022 is originally published on Insider Monkey.
