Sequoia Fund Inc. also known as Ruane, Cunniff & Goldfarb, got a recommendation from Warren Buffett when it opened decades ago. The value mutual fund has crushed the S&P500 since its inception. Some of the famous value investors leading the firm include; Richard T. Cunniff , Robert D. Goldfarb , and David Poppe.
Greg Alexander also commented during the meeting. Greg keeps a low profile, but Warren Buffett has called him one of best three investors alive. The fund had a meeting for its shareholders and just released some commentary, which we sum up below. This is part I of the 20 pages of the transcript (the link to the full presentation can be found below). We will post part II after the weekend.
Ruane, Cunniff & Goldfarb, also known as the Sequoia Fund (MUTF:SEQUX), prefer Valeant Pharmaceuticals Int (USA) (NYSE:VRX), which, despite being a pharmaceutical company, does not work like one. In general, pharma companies spent about 15 percent to 20 percent on R&D, while Valeant Pharmaceuticals Int (USA) (NYSE:VRX) last year, spent only about 3 percent of its sales on R&D. The rest of the money it utilized in acquiring whole companies and/or products and other assets. So it is a value investor in other companies and assets. Because of the company’s tax structure and a few other factors, it is able to cut costs by 35 percent of sales. It is able to generate much higher returns by acquiring other businesses in the pharmaceutical industry. What is special about Valeant Pharmaceuticals Int (USA) (NYSE:VRX) is that it can retain an amount, and reinvest it a rate of return of 15 percent to 20 percent, not many companies could do that.
About the auto part retailers, they said that the industry does not have many big players, which is true of the companies in pricing. Also they are profitable, because their business is not much price sensitive, but more dependent upon the supply of their products. These are reasons why Ruane, Cunniff & Goldfarb like this industry. regarding Advance Auto Parts, Inc. (NYSE:AAP), they said, its weak quarter earnings are the result of competition, but in the long term they have a bright prospect as their management team is very dynamic.
About Expeditors International of Washington (NASDAQ:EXPD), they said that it is a very well managed company, which has grown organically with very high margins. It has benefited a great deal from growth in global trade, but now the growth in trade has been reduced, and so has the growth of Expeditors International of Washington (NASDAQ:EXPD). It is losing on both air freight and ocean freight. Though Ruane, Cunniff & Goldfarb have sold their stakes, they still follow it closely.
About reducing their holdings in Berkshire Hathaway Inc. (BRK.A) (NYSE:BRK.B), they said that it could grow at the same pace it used to be, but still it has a good chance to grow intrinsic value of 10% a year. The stock is quite cheap and we are very comfortable with the position. At one point, shares of Berkshire Hathaway Inc. (BRK.A) (NYSE:BRK.B), made up over 20% of the mutual fund’s holdings.
Speaking about their foray in Precision Castparts Corp. (NYSE:PCP), they said, it is going to get millions in revenue with the increase in demand for The Boeing Company (NYSE:BA)’s aircraft. Even the recession will not have much effect on the revenues, as The Boeing Company (NYSE:BA) and Airbus have learned about controlling the cyclicality. They take many orders, so even if someone cancels or postpones their orders, there is always some client who is in need of the aircraft. The aerospace industry is good, even banks don’t hesitate in putting their money in it. Also, there is a huge aftermarket component for them, which helps the industry to raise prices every year.
In the oil & gas sector, Precision Drilling Corp ((NYSE:PDS) is a relatively newer player, but so far it has managed well. Its unique production capability, to make things that no one else in the world can make, is its strength. The same thing it applied in the pipe, it manufactures, which is unmatched in quality. Even if the oil prices fall, they won’t effect it much as “starting from such a low base, it offers a lot of value in its products that others cannot match.”
Discussing threats to Google Inc (NASDAQ:GOOG), they said “there are no viable competitors in search at the moment”, despite Bing being around since 2009. Though Google Inc (NASDAQ:GOOG) and Facebook (NASDAQ:FB) are in different businesses, they compete with each other in display and “in terms of technologies that could unseat Google Inc (NASDAQ:GOOG).” Ruane, Cunniff & Goldfarb consider Amazon.com, Inc. (NASDAQ:AMZN) as a potential threat, because of its unmatched reach, it can usurp search traffic. But apart from this, Google Inc (NASDAQ:GOOG) is one of the best business investments and will continue to be so.
Part II to follow. Link to foll transcript here.