Akre Capital Management's investment approach to choosing the potential pick is based on a "three-legged stool":
1. Strong business with a sustainable competitive advantage; 2. Exceptional management team; 3. Pattern of disciplined reinvestment.
These three factors qualify companies to be among Akre's investment opportunities, and he refers to those companies as "compounding machines". Chuck differs from other asset managers in at least two important ways:
First, when he buys a security, he does not look on the exit point; He looks to compound the capital invested over a long term horizon.
Second, Chuck benefits from the opportunity created in Wall Street through what he calls: "beat by a penny, miss by a penny" syndrome. With a time frame ranged between five to ten years, he grab the opportunities created through quarterly "misses".
Akre Capital's Akre Focus Fund managed to outperform the S&P 500 Index by 3.5 percentage points annually between its inception in 2009 and March 2020. So, if you are an investor in a dumb passive index fund, you should consider investing in Akre's fund instead. As per the latest 13F filing, Akre owned 28 stocks spread mainly across the Consumer Discretionary, Industrial, Financials, and Technology sectors.
While Chuck Akre’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Keeping this in mind, let's take a look at the Chuck Akre's largest ten holdings for the last quarter. To be noted that no new investments were initiated during this quarter, nor any position was fully closed.
Akre’s 10th-largest holding is KKR & Co. Inc. (NYSE: KKR), a global investment company specializing in alternative investments. Akre allocates 4.03% of his portfolio to KKR being $596.27 million. He first bought 4.8 million shares during the first quarter of 2018 while its share price was trading at a level near $20, whereas now, he owns 14.73 million shares and the company's share price is trading above $47.
Since 2016, AUM and management fees grew at a compounded annual growth rate of 18% and 15% respectively. The company announced an increase in its annual dividend by $0.04 per share to reach $0.58. Here is what Greenhaven Road Capital said about KKR in its 2020 Q4 investor letter:
“In 2021, KKR will close on their purchase of General Atlantic insurance company, substantially increasing their permanent capital from 9% to 33% of AUM. 2021 should also see continued asset growth as they are in fundraising mode for their three largest strategies. Historically, KKR has been excluded from the S&P 500 for governance reasons but the company will likely make changes to qualify for inclusion, which would bring a large forced buyer to the stock. With its ballast of stable, locked-up management fees, KKR is designed to survive market fluctuations and economic cycles. The desire for pension funds and endowments to have a path to 8% returns in a zero-interest rate world should drive continued demand for KKR’s services. Quite frankly, I believe that 2022, 2023, and 2024 look rosy for KKR as well. “
The first time Akre initiated a position in SBA Communications Corporation (NASDAQ: SBAC) was in the first quarter of 2014. The position is currently the ninth-largest holding in the portfolio, valued at $ 695.45 million, representing 4.7% of the overall fund holdings. The position remained constant over the fourth quarter of 2020.
SBA Communications Corporation, founded in 1989, is a real estate investment trust. It owns and operates wireless infrastructure used by mobile carriers and wireless broadband providers in North, Central, South America, and South Africa.
The stock’s price increased by 17.1% in 2020. The company started paying dividends in 2019 and is currently paying $0.465 per share as a quarterly dividend (i.e., $1.86 yearly dividend). As per the company’s President and Chief Executive Officer Jeff Stoops, an increase in dividends is expected in 2021:
"Next quarter, in conjunction with the preparation of our 2021 outlook, we anticipate that our Board of Directors will be declaring a materially increased quarterly dividend, which as is becoming our practice, will remain the same on a quarterly basis through the course of the year."
SBAC seems to be a recession resistant stock. Here is what Baron Asset Fund said about SBAC last year:
“SBA Communications Corp., which owns and operates towers for wireless communications, contributed to performance because of its continued organic growth and its relative immunity from COVID-19 related economic disruption. In addition, the merger of two large wireless carriers, Sprint and T-Mobile, was upheld by the courts. This removed uncertainty around the pace at which the combined entity will invest in infrastructure to upgrade its network, benefiting SBA. We retain conviction in our investment because of the ongoing growth in demand for wireless voice, data, and video; the company’s strong competitive position; and its consistent ability to return capital to shareholders through share buybacks and a recently instituted dividend.”
8. CarMax, Inc. (NYSE: KMX)
Ranking 8th on Chuck Acre’s top 10 stock picks list is CarMax, Inc. (KMX: NYSE), a retailer of used vehicles in the United States. The company operates two main segments: CarMax Sales Operations which sells domestic, imported, and luxury vehicles, and CarMax Auto Finance which provides financing services.
Akre’s position in CarMax decreased by only 905 shares during the fourth quarter of 2020. The stake is valued at $706.49 million, constituting 4.77% of the portfolio.
During 2020, KMX shares showed a 7.74% price appreciation, and its price reached an all-time high level in 2021 at $128.53. The rally was attributed to positive data on current sales trends following negative year-over-year growth trends during the last two months of 2020.
CarMax reported a year-over-year increase in revenues of 8.1% during the third quarter of the fiscal year 2020 and its earnings per share increased by 36% compared to the same quarter of 2019 reaching $1.42. Here is why Giverny Capital thinks CarMax is a great investment:
“We’d note our largest holding Carmax continues to generate admirable performance that is heavily discounted by the market, which believes Internet-based competitors like Carvana and Vroom have superior business models for selling used cars. For its quarter ended August 31, Carmax reported 28% growth in earnings per share and solid unit growth, yet the stock declined after that announcement on concerns that its brick and mortar car lots may soon be obsolete. We’re confident in Carmax’s consumer proposition and in the viability of its omnichannel approach to selling cars, whereby it can serve customers in stores or online."
7. Roper Technologies, Inc. (NYSE: ROP)
As of the end of the fourth quarter, Akre held 1.91 million shares of Roper Technologies, the seventh-largest holding in his portfolio. The position decreased by only 638 shares during the quarter and represented 5.57% of the overall portfolio.
Roper Technologies, Inc. (NYSE: ROP) was incorporated in 1981. It is leading diversified technology company operating as a software designer and developer and provides engineered products and solutions for niche markets worldwide. It is considered a dividend aristocrat with growing dividends since 1993 and a current dividend yield of 0.59%.
Last quarter, the firm earned $1.51 billion, up 8% on a yearly basis. Roper's President and CEO considered that the company had a great 2020 with tremendous operational and capital deployment:
"Against the unprecedented backdrop of COVID, we meaningfully enhanced the quality of our enterprise. We saw solid growth in our software recurring revenue while investing for accelerated growth across the broader portfolio. In addition, we took advantage of attractive market conditions to successfully deploy $6 billion of capital toward high-quality software acquisitions. Importantly, our free cash flow grew 16% in 2020."
Andvari Associates is also bullish on ROP. Here is what they said recently:
“Another Andvari holding that made a significant acquisition last year is Roper Technologies. We’ve owned Roper since 2015 and it is a company laser-focused on compounding their cash flows. Their objective is to use their excess cash flows to acquire other businesses that improve Roper’s overall financial characteristics. Over the last two decades, Roper has evolved from a maker of industrial pumps to a conglomerate that owns dozens of high-tech and software businesses.
6. O'Reilly Automotive, Inc. (NASDAQ: ORLY)
O'Reilly Automotive, Inc. (NASDAQ: ORLY) shares witnessed a 10.28% appreciation in price during the last twelve months. Chuck Akre is the major shareholder of the company with 1.84 million shares valued at $832.61 million. About 5.63% of the fund's portfolio was allocated to ORLY, an automotive aftermarket parts and tools supplier in the United States.
Despite the 2020 disruptive business environment, O'Reilly Automotive was able to open 156 new stores successfully. For 2021, capital expenditure is expected to increase by $100 million reaching $650 million, and management is committed to a target of 165 to 175 new store openings.
During the fourth quarter, earnings per share increased by 27% registering $5.40 compared to $4.25 during the same quarter of 2019. As for the full fiscal year, earnings per share reached $23.53, increasing by 32% on a yearly basis. This result represents a record level of revenues and operating income since the company went public in 1993.
O'Reilly announced that its Board of Directors approved to increase its share repurchase program by $1.0 billion, reaching an aggregate amount of $15.75 billion. In fact, the company has repurchased 81.7 million shares under this buyback program since 2011, estimated at $14.57 billion. In 2020, 4.8 million shares were repurchased. Qualivian Investment Partners also likes ORLY. Here is what Aamer Khan said in an interview with Insider Monkey:
Oligopoly in a simple, understandable business which is less vulnerable to disruption (auto parts) and has a long growth runway. The small, independent local auto parts companies are ceding share to the national players who are consolidating the space, and O’Reilly is able to make value-creating acquisitions as well as organically growing store counts in states where it is underrepresented that have secularly increased its market share.
Click to continue reading and see Chuck Akre's Top 5 Stock Holdings.
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Disclosure: None. Chuck Akre's Top 10 Stock Holdings is originally published on Insider Monkey.
