Be sure to check out our detailed stock analysis (click here). The multi-billion dollar fund manager Mason Hawkins has been the CEO of Southeastern Asset Management since 1975. Hawkins and Southeastern are value investors, looking for three things: "good business, good people, and a good price." Hawkins also believes in running a concentrated portfolio, generally owning less than 25 stocks. Outlined below are Southeastern's top-five stocks.
Southeastern's top pick continues to be Chesapeake Energy (NYSE: CHK), which makes up 8.2% of its 13F portfolio as of the end of the first quarter. Billionaire Carl Icahn is alongside Southeastern in Chesapeake in battling for change at the company (see other activists owning Chesapeake).
Some positive news out of Chesapeake's recent quarterly results includes plans to close its $1 billion Mississippi Lime during the 2Q and sell off some Eagle Ford assets. With $5 billion in expected cash flow and $9 billion in planned CapEx, the company is seeing a $4 billion deficit that is to be funded with $4 to $7 billion in asset sales.
Dell is the fund's second-largest holding, making up 7.8% of its portfolio. Dell has found itself in the middle of a battle between founder Michael Dell and billionaire Carl Icahn (see Icahn's latest moves). Southeastern has sided with Icahn. Michael Dell has offered to take the company private for $13.65 per share, which Icahn and Southeastern believe undervalues the company.
However, the company must still find a way to hedge the PC market decline. Part of this will come from breaking into the tablet and mobile-device market. However, struggles appear to be afoot over the interim, with recent quarterly earnings for the April-ended quarter missing EPS consensus by 40%.
In third was the diversified holding company Loews (NYSE: L), which is 7.4% of Southeastern's portfolio. The company owns almost a 90% stake in CNA Financial and also owns a sizable stake in Diamond Offshore Drilling and Boardwalk Pipeline Partners.
Although low interest rates are expected to keep investment income down at CNA, the rise in the oil and gas industry is expected to help counter a decline in revenue for Loews. The oil and gas drilling and storage industry should be driven higher by a higher U.S. GDP. S&P expects GDP to come in at 2.7% for 2013 and 3.1% for 2014.
The EIA also estimates that liquid fuels consumption decreased 2.1% in 2012, but will rebound by 0.4% in 2013. Loews is also trading just below book value, and with the company's solid prospects in the oil/gas industry it could easily be a buy for investors.
DirecTV (NASDAQ: DTV) comes in at fourth and makes up 7.3% of the fund's 13F. S&P expects DirecTV to add some 4 million subscribers in both 2013 and 2014, helping boost total U.S. customers to 20.4 million by 2014 end. Part of this will come from higher Latin America growth.
The Latin American segment saw the most growth across DirecTV's segments last quarter, with revenue up 22% year-over-year. Subscriber growth was up 31% at the end of 2012. DirecTV is trading cheaply at around 10 times forward earnings, compared to Dish Network's 17 times. DirecTV is also one of billionaire Warren Buffett's top picks (check out Buffett's portfolio).
FedEx (NYSE: FDX) is Southeastern's fifth-largest stock holding, right behind DirecTV and making up 7.3% of the 13F portfolio. FedEx is a bigger bet on the rebounding global economy, which should be boosted by the 2013 expected U.S. GDP growth.
Part of what FedEx hopes will separate it from competitors, including top competitor UPS, is its targets of 30% improvement in fuel efficiency of its fleet by 2020. Its other key program is to increase profitability, with a target to add $1.7 billion to operating income by fiscal year 2016.
FedEx is also boosting its international business by enhancing its existing routes and making strategic acquisitions. The company is building a new hub in Guangzhou, China, to serve 100 new Chinese cities within the next five years.
Don't be fooled
Southeastern is in a battle with Dell, fighting for a higher price, yet, the fund has a number of other big bets. This includes Chesapeake, its top bet. I believe that Chesapeake is executing its turnaround nicely, while the turnaround of Dell will be more interesting, but both are buys at current levels.
Meanwhile, I have a positive outlook for Hawkins' three other picks. Loews is an underappreciated play on insurance (stable cash flow business) and oil/gas (growing on the back of natural gas demand), while DirecTV is taking positive steps to hedge subscriber decline and FedEx is a nice bet on the global economy.