The Top 5 Holdings Of Buffett’s New Protégé

By Ryan C. Fuhrmann | September 20, 2011 AAA

On Tuesday, the news wires reported that Warren Buffett hired a second manager to help him run Berkshire Hathaway's investment portfolio. Berkshire announced that Ted Weschler would be joining the firm in early 2012. In the meantime, Weschler will be winding down his hedge fund Peninsula Capital Partners. To get a better feel for Weschler's investment style, based on filings with the Securities and Exchange Commission as of the end of the second quarter, these were his fund's five largest holdings.

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DirecTV
Satellite television provider DirecTV (NYSE:DTV) was Weschler's largest holding at approximately 26%, as of the end of June. The position has likely been handsomely profitable for investors as DirecTV has managed to post impressive growth, which has come despite an onslaught of competition from archrival Dish Network Corp (Nasdaq:DISH), cable television rivals and Internet-based programming. Over the past three years, sales are up nearly 12% annually while profits have jumped at an over 20% annual clip. Strong share price performance has pushed the trailing free cash flow multiple up to 13.5.

WR Grace
Specialty chemical provider W.R. Grace (NYSE:GRA) was the next largest holding at just more than 25%. W.R. Grace has seen more erratic sales growth over the past three years, which is likely a result of an uneven global economy and demand for chemicals that go into transportation fuels, sealants and coatings. But while industrial demand has been down and annual sales have declined nearly 5% over the past three years, profits are up an impressive 35% annual clip over this period. As a result of the stellar profit gains and looking at the stock chart, this has likely been Weschler's biggest winner. The free cash flow multiple has also increased and currently stands at close to 13.

DaVita
DaVita
(NYSE:DVA) runs dialysis centers throughout the U.S. and weighed in at about 19% of the portfolio. Operationally, DaVita has been only an average performer over the past three years, with annual sales growth of 7% and more modest earnings growth of 3.5%. However, as one might expect, its results were unaffected by the credit crisis as patients require dialysis services regardless of the economic climate. As a result, the share price performance has also been stable and the stock has outperformed the market by a wide margin over the past few years. The trailing free cash flow multiple currently stands at about 13.3.

Liberty Media
Another large media play listed in the quarterly filing was John Malone's Liberty Media. It listed class A shares, which are most likely holdings of Liberty Interactive (Nasdaq:LINTA). As with W.R. Grace, annual sales growth has been extremely modest at less than 5% annually over the past three years, but profits have zoomed forward at a nearly 28% annual clip. The stock has followed the strong trends at assets that include interests in QVC shopping, Expedia and SiriusXM (Nasdaq:SIRI). The free cash flow valuation also remains relatively low at below 10.

Valassis
Rounding out the top five holdings as of the end of June was marketing services firm Valassis Communications Inc. (NYSE:VCI). Valassis made up about nearly 8% of the portfolio and provides numerous marketing and advertising services, including direct mail campaigns and media placement services. Yet again, sales growth has been very modest at just over 1% over the past three years, but profits are up more than 83% annually over this time frame. The trailing free cash flow multiple is similar to that of Liberty Media at around 10.

The Bottom Line
Investors are still getting familiar with Weschler, but his picks and reported performance appear to be impressive. A Wall Street Journal article detailed performance relayed by a current investor with Weschler that a $100 investment on Jan 14, 2000 would have grown to $1,134 through last August. These holdings are good grounds for further research and those further interested in dissecting Weschler's recent stock picks. (For additional reading, take a look at What Is Warren Buffett's Investing Style?)

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