Douglass Winthrop picks for 2008: Nestle, Legg Mason, Comcast, Markel

Posted Dec 16th 2007 11:10AM by Peter Cohan
Filed under: Berkshire Hathaway (BRK.A), Citigroup Inc. (C), Comcast Cl'A' (CMCSA)

Jay Winthrop of Douglass Winthrop Advisors LLC, a $250 million (assets under management) New York registered investment advisory firm, likes to buy stocks whose prices are so low that the odds of them benefiting from a positive surprise exceed those of losing from a negative one. Douglass Winthrop is ahead of the S&P year-to-date and has delivered "positive, tax-efficient results since inception in 2002." Through its 10% to 15% stock turnover, it offers investors lower expenses and taxes than its higher turnover "fast money" peers. As Winthrop summed it up: "Good things happen to cheap stocks."

Four stocks that he mentioned particularly caught my attention:

Nestle S A (OTC: NSRGY). Nestle has benefited from its investment in emerging markets -- giving it a strong brand and distribution presences in countries experiencing rapid growth. A significant share of its profits are generated in developing markets. And its core food business is cheap when its strategic investments are backed out. Nestle trades at a mere 13x to 14 x operating earnings -- which is lower than the value of stocks in its peer group. Finally, Nestle is capitalizing on the profitable and growing health and wellness trend.
Legg Mason (NYSE: LM). Legg Mason is a pre-eminent asset manager with $1 trillion under management. But its stock has declined due to temporary problems. Its Value Trust fund -- which had long outperformed the market under its manager Bill Miller -- has had two sub-par performing years in a row. And it's had troubles integrating a merger with Citigroup Inc.'s (NYSE: C) mutual fund unit. Winthrop also thinks Legg Mason has been hit by the overall decline in financials. However, he argues, Legg Mason trades at 1% of assets under management which is far below the 2% industry average. And its valuation is much less than that of newly public alternative investment managers.

Comcast (NASDAQ: CMCSA) is another stock that Winthrop believes to be trading at a low price. It's fallen from a January 2007 high of $29.39 to as low as $17.37 this year, during which time its business has grown. Investors fear competition from telephone companies, its high capital expenditures, and FCC intervention in its business. But it keeps increasing its cash flow and he believes its managers will ultimately return the money to investors through buybacks or dividends.
Markel Corp. (NYSE: MKL). Winthrop sees this specialty property casualty insurance company as undiscovered and reasonably valued. It has similar attributes to Berkshire Hathaway Inc. (NYSE: BRK.A). Specifically, while Winthrop thinks Markel is far less diversified, it pursues Berkshire's model of disciplined insurance underwriting and value-based investing. Markel takes on risks, such as insuring hunting lodges, that its competitors shun. As a result, Markel can charge higher prices and make more money. Winthrop also believes Markel does an excellent job of managing its investments.

I am particularly intrigued by his recommendations on Nestle and Markel. I think they're worth studying further to assess whether the stocks are likely to rise in light of their value and money flows.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in the other securities mentioned.

Tags: CMSA, Comcast, Douglass Winthrop, Jay Winthrop, Legg Mason, LM, Markel, MKL, Nestle, NSRGY

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Reader Comments (Page 1 of 1)

1-04-2008 @ 9:37PM

screwyou said...

COMCAST IS A CHICKEN THAT LAYS MUCH CASH BUT ONLY THE ROBERTS GET TO MAKE OMELETTES ALONG WITH SOME WHEELERS DEALERS AT THE BOARD... THE ROBERTS WANT THEIR OMLETTES ALSO IN THE GRAVE.....NO ONE IS QUALIFIED TO AN EMPLOYMENT CONTRACT FROM BEYOND THE GRAVE AND NO SALARY EITHER AS THE ROBERTS DEMANDED. SO WHAT IS THE F---K WITH COMCAST DIRECTORS HOW ABOUT TAKING THE F------G COMCAST TO THE GRAVE WITH HIM THIS SCUM. WHAT ABOUT THE GOD DAMN ANALYST AND INSTITUTIONAL INVESTORS LETTING IT HAPPEN.......SCREW COMCAST.......AND ALL THOSE RUNNING IT....