There is no better source for investment ideas than quarterly Form 13F filings submitted to the Securities and Exchange Commission by some the best minds in investing. I have a list of a dozen or so names whose 13Fs are obligatory reading every quarter. These filings are required of investment managers with at $100 million worth of assets under management, and filers include Berkshire Hathaway's (BRK.B) Warren Buffett, Seth Klarman of Baupost Group, Bruce Berkowitz of Fairholme Capital, David Einhorn of Greenlight Capital, Mason Hawkins of Southeastern Asset Management and Mohnish Pabrai of the Pabrai Investment Fund.
All these investors have one thing in common: Their investment vehicles have significantly outperformed market indices over a multiyear period.
While all these value investors have taken separate paths to investment success, value is still value. So when I see that several of these names have added to or initiated a new position in DirecTV (DTV), I perk up and pay close attention. Value investors, by nature, are risk averse. When markets are as pleasant as they are now, digesting any bad macro news and still climbing higher, attention to risk should be of paramount importance. Despite that, Berkshire Hathaway nearly quadrupled its position in DirecTV and it's now a nearly $1 billion holding for Berkshire. DirecTV shares trade at a reasonable 14x earnings. In addition to Buffett, Southeastern Asset Management and Pabrai are also significant DTV investors.
Simply put, DirecTV has the ability to reach more homes via satellites than traditional cable companies do. Satellite is often cheaper and the programming catalog vastly deeper. For many Americans, television is a necessity. On top of that, DTV is huge in Latin America and the company continues to experience tremendous growth outside the U.S., where cable penetration rates are significantly lower.
Wells Fargo (WFC) is the bank of choice for all the top investors. At the rate he is going, you would think Warren Buffett wants to own the entire bank. WFC is Berkshire's second-largest holding after Coca-Cola (KO) and could take the top spot by year's end if Buffett continues buying. Berkowitz is big on Wells Fargo, as are Pabrai and John Paulson, who added to the stake in fourth quarter of 2011.
Seth Klarman and David Einhorn share very few similarities in investing style, yet both are exceptionally successful. And both own shares in of Hewlett-Packard (HPQ). This bet is nothing new for Einhorn, who holds many other large-cap tech names. But Klarman, not so much, until he decided to drop nearly $500 million into HPQ in 2011 after it ran into trouble -- a classic value move of buying during turmoil. Quite simply, HPQ is cheap and the company's ability to generate tons of free cash flow is the value catalyst. Simply giving HPQ a valuation multiple in line with peers such as Microsoft (MSFT) or Cisco (CSCO) would lead to a 25% to 30% rise in the stock price from current levels around $29.
The money that these investors plow into these stocks is significant. With uncertainty in the global economy, these companies all share a similar trait: They are high-quality businesses that offer a better-than-likely chance of quality growth in the current environment. Never discount the value of such growth in periods of uncertainty. In this economy, dependable growth is something Mr. Market will pay for.
