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A Winning Fund's Top Stock Picks

Posted: Mar 24, 2009 10:22 AM by Eric Fox

Tickers in this Article: NPPKF, DTV, LMDIA, YUM, DELL

It's no secret that the investing world exhibits a significant amount of herd-like behavior, an activity where individuals emulate more famous investors, follow the positions they own and use that knowledge in their own stock selection process.

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I am not a big fan of this method, but it is interesting to see what well-known value investors own; after all, if you are going to follow the herd, then at least make sure it is the one that will lead you to long-term success.

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Southeastern Asset Management is an investment firm located in Tennessee, with a value investing approach to stock selection. It is more known by the name Longleaf Partners, the brand name of its family of mutual funds. Its largest fund is called the Partners Fund, which has $5.1 billion in assets. This fund is concentrated and operates under the theory that it is better to know a lot about a few stocks than almost nothing about many stocks.

Let's review this firm's top four positions for its Partners Fund. One thing to remember is that because the fund only reports quarterly, this information is current as of the end of 2008.

Liberty Media Entertainment (Nasdaq:LMDIA) is the fund's largest position at 12.2% of assets. Liberty Media Entertainment owns a large stake in DIRECTV (Nasdaq:DTV), which provides direct-to-home TV services to millions of subscribers in the U.S. and internationally. The managers believe that the value of this asset, along with three other programming assets that Liberty Media Entertainment owns, makes the stock a great value.

Dell Computer (Nasdaq:DELL) is one of the largest personal computer makers in the world. It makes up 8.6% of Partners Fund's assets. Dell has never again seen the success that it enjoyed at the peak of the technology cycle in 2001, but after subtracting $5 per share in net cash, the stock sells at four times free cash flow on an after-tax basis. (Evaluate the past performance before investing. Learn how in Technology Sector Funds.)

The NipponKoa Insurance Company (Pink Sheets:NPPKF) is the third-largest position at 8.6%. The company is a Japanese life insurance company and recent consolidation in the industry makes the shares undervalued.

YUM Brands (NYSE:YUM) comprises 7.1% of assets at the end of 2008. YUM Brands is a restaurant owner and franchiser with about 36,000 locations globally. Brands owned include Kentucky Fried Chicken, Taco Bell and Pizza Hut. Longleaf did not comment directly on its holdings in this stock in its year-end shareholder letter, but in previous letters it extolled the company's dominance in China as a reason to invest.

Conclusion
The Longleaf Partners Fund, which is run by the renowned Southeastern Asset Management, is one of the more influential value investors in the market. As such, investors might find it interesting to monitor this fund's largest positions, to see where these top managers - and the fund's investors - are headed. (For related reading, see Digging Into Book Value.)

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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