Chuck Akre's Biggest Transactions for the 3rd Quarter

Chuck Akre (Trades, Portfolio)'s Akre Capital Management recently disclosed its portfolio updates for the third quarter of 2019. During the quarter, the firm established new holdings in Brookfield Asset Management Inc. (NYSE:BAM), Ollie's Bargain Outlet Holdings Inc. (NASDAQ:OLLI) and The Descartes Systems Group Inc. (NASDAQ:DSGX). It also sold out of Ubiquiti Inc. (NYSE:UI), TD Ameritrade Holding Corp. (NASDAQ:AMTD) and Diamond Hill Investment Group Inc. (NASDAQ:DHIL). Major additions to existing positions include Alarm.com Holdings Inc. (NASDAQ:ALRM), while major reductions include Enstar Group Ltd. (ESGR).


Akre Capital Management is an asset management firm founded in 1989 and headquartered in Middleburg, Virginia. Its strategy is centered on "disciplined investing," an approach that focuses on a small number of well-researched, quality businesses run by honest managers who reinvest their free cash flow wisely. The goal of the mutual fund is long-term capital appreciation.

As of the quarter's end, Akre's equity portfolio is valued at $10.14 billion. In total, the firm holds shares of 25 stocks, four of which are new this quarter, with a turnover rate of 3%. The top three holdings are American Tower Corp. (NYSE:AMT) at 15.67%, Mastercard Inc. (NYSE:MA) at 14.26% and Moody's Corp. (NYSE:MCO) at 11.47%. In terms of sector weighing, Akre Capital Management is most heavily invested in financial services and real estate.

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Brookfield Asset Management

During the quarter, Akre established a new stake of 5,324,225 shares in Brookfield Asset Management, impacting the equity portfolio by 2.79%. Shares were trading at an average of $50.74 throughout the period.

Brookfield is an alternative asset manager that takes a long-term investment approach towards high-quality assets and businesses in more than 30 countries worldwide. Its asset investments are primarily centered on commercial real estate, infrastructure and power plants, with a focus on reinvesting capital to improve asset quality. As of Nov. 18, the company has a market cap of $57.6 billion.

According to the Peter Lynch chart below, Brookfield's stock is currently trading at a fair price compared to the company's earnings.

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Brookfield has been steadily increasing its revenue the past several years, though its net income has been a bit spotty. It has a three-year revenue growth rate of 40.8% and a three-year Ebitda growth rate of 16.6%. The company has a price-earnings ratio of 15.3, a price-sales ratio of 0.84 and an operating margin of 15.09%.

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GuruFocus has granted Brookfield a financial strength score of 3 out of 10 and a profitability score of 8 out of 10. The company has been taking on increasing amounts of debt, as shown in the chart below. Its cash-debt ratio is 0.06, which is lower than 92.3% of companies in the asset management industry, and it has an interest coverage of 1.45.

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Ubiquiti

Akre's firm sold all 2,111,375 of its shares of Ubiquiti, impacting the equity portfolio by -2.82%. During the quarter, shares were trading at an average price of $120.86.

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Ubiquiti is a New York-based manufacturer of wireless data communication products and wireless broadband providers. Its products include mesh wi-fi system AmpliFi, software-defined networking (SDN) solution UniFi and an array of security cameras, gateways and switches. As of Nov. 18, the company has a market cap of $12.42 billion.

According to the Peter Lynch chart below, the company has become overvalued, even more so after it released the earnings report for its first quarter of fiscal 2020, which ended Sept. 30.

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For the quarter, Ubiquiti posted record revenues of $323.28 million, net income of $98.15 million and GAAP earnings per share of $1.43. Investors reacted strongly to the news, bidding the stock price up by 53.22% in the 10 days following the announcement. As of Nov. 18, the stock is trading at approximately $188.97 per share.

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Ubiquiti has a GuruFocus financial strength score of 5 out of 10 and a profitability score of 10 out of 10. Its currently has a price-earnings ratio of 40.25, a price-sales ratio of 11.23, a cash-debt ratio of 0.23 and an operating margin of 36.05%.

TD Ameritrade Holding

Akre Capital also sold out of its 3,350,000 shares of TD Ameritrade, impacting the portfolio by -1.7%. Shares traded at an average price of $47.89 during the quarter.

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The electronic broker offers an online trading platform for customers to trade financial assets such as stocks, futures contracts, exchange-traded funds, options and cryptocurrency. It also lends on margin and provides cash management services. The company boasts many commission-free online stocks, ETFs and options as part of its strategy to stay competitive with companies such as Charles Schwab (SCHW) in the increasingly streamlined online trading industry. As of Nov. 18, Ameritrade has a market cap of $22.19 billion.

After reaching a high of $62.99 in June of 2018, Ameritrade shares began correcting for overvaluation, reaching the undervalued range by early 2019. Recently, they have plunged even more sharply due to negative investor sentiment associated with the company's October 2019 decision to join the race to the bottom on trading fees.

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Although Charles Schwab has seen success with its no-commission trades, we will not know if the approach will be effective for Ameritrade until the next quarter's results are posted.

Ameritrade has a GuruFocus financial strength score of 4 out of 10 and a profitability score of 5 out of 10. It has a price-earnings ratio of 10.21, a price-sales ratio of 3.97, a cash-debt ratio of 0.79 and a dividend yield of 2.98%.

Disclosure: Author owns no shares in any of the stocks mentioned.

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This article first appeared on GuruFocus.