The New York Times ran an interesting article in June that discussed the changing face of conglomerates and holding companies.
“Conglomerates Didn’t Die. They Look Like Amazon.” is Andrew Ross Sorkin’s attempt to put lipstick on a pig because, by most accounts, the massive Gulf & Western binge-buying holding company of the 1960s has gone the way of the Dodo bird.
“You look at companies that got really big in the world, the record is not very good,” Charlie Munger wrote several years ago about empire building by conglomerates and holding companies.
Sorkin believes that Amazon.com, Inc. (NASDAQ:AMZN) and the other tech-enabled conglomerates of today are just as inefficient when it comes to acquisitions and wasteful spending — the only difference is that investors are willing to let them make mistakes for a period of time before they lose patience.
Any business which amasses a huge laundry list of assets eventually becomes too difficult to manage, and that’s when the stock price goes into a free-fall.
Are there any holding company stocks to buy in today’s tech-driven business environment? I think so.
Here are my seven best buy-and-hold holding companies on Wall Street.
Best Buy-and-Hold “Holdings” Stocks to Buy: Berkshire Hathaway (BRK.A, BRK.B)
If you can only own one stock in the world and it’s got to be sufficiently diversified, well managed and generating a boatload of cash, it doesn’t take a genius to know you immediately answer is Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B), the world’s largest conglomerate.
“If I died tonight, the stock would go up tomorrow,” Warren Buffett said at Berkshire Hathaway’s 2017 annual meeting. “If for some reason it went down to a level that was attractive, I don’t think the board would be doing anything in the least reprehensible by buying it.”
I’ve always believed that if the company was sold off piece by piece in a responsible manner, there’s almost no chance that shareholders wouldn’t receive more than the share price.
A lot of analysts don’t agree with Buffett’s assessment, but I do. Keeping this holding company operating after his death will continue to deliver value for shareholders because sellers of successful businesses will continue to go to Berkshire Hathaway before anyone else. It’s great for a buy-and-hold investor.
It’s the conglomerate by which every other is judged.
Best Buy-and-Hold “Holdings” Stocks to Buy: Loews Corporation (L)
I’ve been a big fan of the Tisch family’s holding company for a long time. Back in 2013, I suggested that “If I could only own one stock for the next 20 years, Loews Corporation (NYSE:L) would be at the top of my list.”
In the four years since, it has flatlined as investments in the oil and gas industry soured as prices crashed in the subsequent years. Bad timing on my part, but I still would put Loews in the top 10 of any list of stocks to own for the next 20 years.
In late June I wrote that it might be better for the Tisch’s to take Loews private because as good as they are at finding value, the current market doesn’t appreciate the real intrinsic value of its oil and gas assets.
Loews created a new platform for investment in April when it acquired the Consolidated Container Company (CCC) for $1.2 billion. The company is a leader in the packaging industry, one that Loews considers is ripe for consolidation. CCC is generating strong cash flow; its management team is excited about the opportunity to grow its business “both organically and through acquisitions.”
It’s going to take some time, but you can be sure by the time Loews has built up CCC, its oil and gas assets will have generated a nice profit for the company.
If you’re a patient investor, Loews is the holding company for you.
Best Buy-and-Hold “Holdings” Stocks to Buy: Brookfield Asset Management (BAM)
Brookfield Asset Management Inc (NYSE:BAM) has the perfect stock symbol because everything it does, it does with gusto. Contrarian by nature, CEO Bruce Flatt has done a good job flying under the radar — until now.
In May, Brookfield’s CEO appeared on the cover of Forbes magazine discussing the investment formula that has delivered a 1,350% return for shareholders since taking the top job in 2002, more than seven times the return of the S&P 500.
Not technically a holding company but rather an alternative asset manager with more than $250 billion in assets under its watch, I included BAM in my list because Flatt and the rest of BAM’s employees own significant amounts of stock in each of its various publicly traded affiliates.
The reason people invest in Warren Buffett is that he eats his own cooking. So does Bruce Flatt. Brookfield is one company, whether you believe it’s a holding company or not, you want to own for the long run.
Best Buy-and-Hold “Holdings” Stocks to Buy: Leucadia National (LUK)
Leucadia National Corp. (NYSE:LUK) is a diversified holding company with a long history that has fallen on hard times in recent years but appears to be putting its stock in the spotlight once more.
Founded by two Harvard Business School graduates, Ian Cumming and Joseph Steinberg, in 1979, the duo’s 35-year partnership helped build a company that today has a near-$10 billion market cap with $10 billion in annual revenues and almost $200 million in operating profits.
One of its many holdings is a 50/50 partnership with Berkshire Hathaway called Berkadia Commercial Mortgage LLC that originates commercial real estate loans for multi-family investment properties. It’s not a big part of Leucadia National’s overall holdings, but it has generated almost $500 million in cash contributions since its founding in 2009.
More importantly, the long-standing partnership with Warren Buffett demonstrates what kind of company it truly is.
With Leucadia’s stock up 46.6% over the past 52 weeks and first-quarter earnings substantially better than a year ago, things are looking up for the holding company named after a California beach community just north of San Diego.
Best Buy-and-Hold “Holdings” Stocks to Buy: Seaboard Corp (SEB)
Kansas-based Seaboard Corp (NYSEMKT:SEB) is an interesting holding company to own for several reasons, but two stand out for me.
First, its stock is incredibly expensive, and I’m not talking about its valuation. Closing July 20 trading at $4,163.85, except for Berkshire Hathaway’s Class A shares, SEB has the highest share price of any company traded on an American stock exchange. One share of Seaboard is the equivalent of 24 Berkshire Hathaway Class B shares.
The second, and more vital, point relating to its business operations is the company’s 50% in Butterball LLC, the largest turkey business in the U.S. Its turkeys are synonymous with Thanksgiving. Last November, Stephen Colbert even worked the Butterball Turkey Talk Line, providing helpful turkey tips to callers.
Beyond turkey protein, Seaboard’s into pork (the third-largest pig producer in the U.S.), sugar, cargo shipping, commodity trading and milling, power generation, even jalapeño peppers.
It’s truly diversified, both regarding its products and services, but where it does business. The U.S. accounts for 22% of its $5.4 billion in revenue with the Caribbean, Central America, South America and Africa contributing 66% of its 2016 revenue — making it a global holding company that’s bound to keep growing.
However, it’s important to note that it generates a majority of its operating profits from its pork business which, like any commodity, is affected by hog prices so, its earnings can fluctuate greatly from year to year.
Best Buy-and-Hold “Holdings” Stocks to Buy: Compass Diversified Holdings (CODI)
The name says it all.
Compass Diversified Holdings (NYSE:CODI) is a small-cap holding company that owns a diversified portfolio of profitable middle market businesses that it helps grow to deliver consistent distributions to shareholders.
Like Brookfield, CODI is part private equity firm, part strategic acquirer, and part asset manager. Set up as a grantor trust and publicly traded partnership, it is neither a business development company (BDC) nor an REIT, and is not required to distribute a minimum amount of cash flow to shareholders.
The company’s business model allows it to take the long-term view with all of its investments.
CODI first came to my attention back in 2011 when it was looking to spin off one of the companies in its portfolio, StaffMark Holdings. The spinoff didn’t fly so it sold the company to a Japanese concern for $295 million.
I looked more closely at the company and what made it tick. Then, in 2013, it took another portfolio company, Fox Factory Holding Corp (NASDAQ:FOXF) public at $15 a share generating total proceeds of $525 million from Fox on an initial investment of $73 million.
After that, I was definitely a believer.
Since CODI went public in May 2006, it has delivered a total return of 196.7%, considerably higher than the S&P 500 at 120.2%. However, its performance goes in fits and starts, so if you buy into CODI you’ve got to have dry powder available for those times when it goes into a funk, like it’s doing so far in 2017.
Best Buy-and-Hold “Holdings” Stocks to Buy: BBX Capital (BBX)
BBX Capital Corp (NYSE:BBX) just recently made it onto the NYSE. Before that, it traded on OTCQX Best Market. Nothing against the over-the-counter market but it’s strictly Triple A in comparison. The migration to the big board is a BIG deal.
BBX has been on my radar for some time because of my fascination with vacation ownership. In the early 2000s, I really thought it was going to take off, and then the economic crisis hit and it all went south.
Well now it’s coming back and BBX subsidiary Bluegreen Vacations is in the middle of it. Bluegreen got into the timeshare business in 1994 and publicly traded for 27 years until it was acquired by BBX in 2013.
Bluegreen competes with a number of heavy hitters including Marriott Vacations Worldwide Corp (NYSE:VAC), a $3.1 billion market cap; while it has got its hands full, revenues have been growing by 9% annually since 2013 and adjusted EBITDA by 11% in the same period. I expect this growth to continue as consumers continue to pay for experiences.
In June, BBX announced it had acquired IT’SUGAR — the largest specialty candy retailer in the U.S. with 95 locations in 26 states — for $57 million. It will continue to be run by founder Jeff Rubin, who previously co-founded Dylan’s Candy Bar with Ralph Lauren’s daughter. This looks interesting.
It’s got some other holdings, so do your due diligence, but if you’ve got some speculative dollars to plunk down, BBX might just the buy-and-hold holding company for you.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.