The Tweedy Browne (Trades, Portfolio) Global Value Fund recently disclosed its portfolio updates for the third quarter of 2021, which ended on Sept. 30.
The fund operates as part of New York-based value investing firm Tweedy, Browne Co. LLC. The portfolio managers aim to invest in a diverse range of companies in developing countries, with an emphasis on undervalued securities, in order to achieve long-term capital growth. Though it invests primarily in non-U.S. marketable equity securities, the fund does own shares of some U.S.-listed securities if the portfolio managers perceive an attractive enough growth opportunity.
During the quarter, the fund exchanged its U.S.-listed holdings for Hong Kong-listed stakes in Alibaba Group Holding Ltd. (BABA, Financial)(HKSE:09988, Financial) and Baidu Inc. (BIDU, Financial)(HKSE:09888, Financial). The top new buys for the quarter were Tencent Holdings Ltd. (HKSE:00700, Financial), FMC Corp (FMC, Financial) and NORMA Group SE (XTER:NOEJ, Financial).
Alibaba Group Holding
The fund sold out of its 799,670-share U.S.-listed position in Alibaba Group (BABA, Financial) (HKSE:09988, Financial) and picked up 6,397,360 shares of its Hong Kong listing, giving the company a 1.93% weight in the equity portfolio. During the quarter, shares traded for an average price of 177.96 Hong Kong dollars ($22.89).
Alibaba is a Chinese multinational conglomerate with holdings in e-commerce, retail, internet and technology assets, among many others. By volume, Alibaba is the largest e-commerce company in the world, with millions of merchants and hundreds of millions of users.
On Oct. 20, shares of Alibaba traded around HK$175.80 for a market cap of HK$3.57 trillion. According to the GuruFocus Value chart, the stock is significantly undervalued.
The company has a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 3.21 and Altman Z-Score of 4.48 show that the company should not have trouble making payments on its debt. The company has a three-year revenue per share growth rate of 38.2% and a three-year Ebitda per share growth rate of 16.8%.
Baidu
The fund also replaced its 1,596,655-share U.S.-listed stake in Baidu (BIDU, Financial) (HKSE:09888, Financial) with 4,349,576 shares of the company’s Hong Kong listing, giving the company a 1.36% weight in the equity portfolio. Shares traded for an average price of HK$160.35 during the quarter.
Baidu is a Chinese internet and technology giant that specializes in artificial intelligence, internet services, search engines and related products. It has access to the world’s largest domestic addressable population of internet users.
On Oct. 20, shares of Baidu traded around HK$177.10 for a market cap of HK$471.41 billion. According to the GF Value chart, the stock is fairly valued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. While the interest coverage ratio is low at 5.4, the Piotroski F-Score of 6 out of 9 indicates a stable financial situation. The operating margin of 13.39% and net margin of 20.99% are outperforming their respective industry medians.
Tencent Holdings
The fund established a new holding of 1,039,485 shares in Tencent Holdings (HKSE:00700, Financial), giving the company a 1.01% weight in the equity portfolio. During the quarter, shares traded for an average price of HK$487.84.
Tencent is a Chinese multinational technology conglomerate that operates through a wide variety of subsidiaries. Its subsidiaries mainly consist of various internet-related products and services as well as entertainment companies.
On Oct. 20, shares of Tencent traded around HK$509.50 for a market cap of HK$4.79 trillion. According to the GF Value chart, the stock is modestly undervalued.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 10 out of 10. The cash-debt ratio of 0.74 is lower than 85% of other companies in the industry, but the interest coverage ratio of 19.02 shows the company should be able to keep making payments on its debt. The return on invested capital is consistently higher than the weighted average cost of capital, meaning the company is creating value for shareholders.
FMC
The Fund picked up 550,642 shares of FMC (FMC, Financial), giving the company a 0.82% weight in the equity portfolio. Shares traded for an average price of $98.79 during the quarter.
Headquartered in Philadelphia, FMC is a chemical manufacturing company that got its start as an insecticide producer before later diversifying into other chemicals, biologics, precision agriculture and synthetic chemistry technology.
On Oct. 20, shares of FMC traded around $92.83 for a market cap of $11.94 billion. According to the GF Value chart, the stock is modestly undervalued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The Piotroski F-Score of 6 out of 9 and Altman Z-Score of 2.36 indicate the balance sheet is stable. The company has a three-year revenue per share growth rate of 23.5% and a three-year Ebitda per share growth rate of 57.7%.
NORMA Group
The fund established a holding worth 643,887 shares in NORMA Group (XTER:NOEJ, Financial), giving the company a 0.44% weight in the equity portfolio. During the quarter, shares traded for an average price of 42.27 euros ($49.25).
NORMA Group is a German manufacturer of machine joining components, including house couplings, clams and quick connectors. It sells its products mainly under the ABA, Norma and Gemi brand names, though it also has several regional brands.
On Oct. 20, shares of NORMA Group traded around 37.72 euros for a market cap of 1.19 billion euros. According to the Peter Lynch chart, the stock is trading above its intrinsic value after a dramatic plunge in earnings last year.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. The interest coverage ratio of 8.51 and Piotroski F-Score of 8 out of 9 indicate a very healthy financial situation. The ROIC has recently dropped below the WACC, showing that the company is struggling with profitability.
Portfolio overview
As of the quarter’s end, the fund held shares in 88 stocks valued at a total of $6.13 billion. The top holdings were Nestle SA (XSWX:NESN, Financial) with 5.23% of the equity portfolio, Diageo PLC (LSE:DGE, Financial) with 4.97% and CNH Industrial NV (CNHI, Financial) with 4.51%.
In terms of sector weighting, the firm was most invested in consumer defensive, financial services and industrials.
