3 Stocks Chuck Akre’s Firm, Chuck Royce See Value In

Legendary investors Chuck Akre (Trades, Portfolio) and Chuck Royce (Trades, Portfolio) have more than just their first names in common as their firms see long-term value in some of the same stocks.

Virginia-based Akre Capital Management takes a “three-legged stool” approach to stock picking, in which the portfolio managers look for companies that have a strong business model and good management teams that effectively reinvest free cash flow.

In comparison, Royce’s firm, which is headquartered in New York, specializes in small-cap companies. The portfolio management team picks stocks based on an active, bottom-up, risk-conscious and fundamental approach. They also search for value opportunities among companies trading at a discount to enterprise value.

Despite taking slightly different approaches to investing, Akre’s firm and Royce have several holdings in common as of the end of the fourth quarter of 2021.

The Aggregated Portfolio, a Premium GuruFocus feature based on 13F filings, found the two gurus both had positions in KKR & Co. Inc. (KKR, Financial), CarMax Inc. (KMX, Financial) and Berkshire Hathaway Inc.’s (BRK.B, Financial) Class B stock as of Dec. 31.

KKR & Co.

Both gurus left their positions in KKR & Co. (KKR, Financial) unchanged during the fourth quarter, with Akre’s firm holding 14.73 million shares, making it the sixth-largest position in the equity portfolio. Royce holds 34,458 shares. The gurus have a combined equity portfolio weight of 6.14% in the stock.

The New York-based alternative asset management company has a $34.47 billion market cap; its shares were trading around $58.31 on Monday with a price-earnings ratio of 7.96, a price-book ratio of 2.11 and a price-sales ratio of 2.27.

The GF Value Line currently suggests the stock is a possible value trap based on its historical ratios, past financial performance and future earnings projections. As such, potential investors should do thorough research before making a decision.

According to GuruFocus, Akre Capital has gained roughly 151.34% on its investment since the first quarter of 2018. Royce’s investment has climbed 62.48% since the third quarter of 2010.

Of the gurus invested in KKR, ValueAct Holdings LP (Trades, Portfolio) has the largest stake with 3.70% of its outstanding shares. Diamond Hill Capital (Trades, Portfolio), Bill Nygren (Trades, Portfolio), John Rogers (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and many other gurus also own the stock.

CarMax

In the fourth quarter, Akre’s firm upped its CarMax (KMX, Financial) stake by 2.55% to 7.30 million shares, making it the seventh-largest holding. Similarly, Royce increased his position 4.55% to 4,600 shares. They have a combined equity portfolio weight of 5.30% in the stock.

The used car retailer, which is headquartered in Richmond, Virginia, has a market cap of $15.55 billion; its shares were trading around $96.19 on Monday with a price-earnings ratio of 13.27, a price-book ratio of 3.05 and a price-sales ratio of 0.53.

According to the GF Value Line, the stock is a possible value trap currently.

GuruFocus estimates Akre Capital has gained 52.23% on its long-held investment, while Royce has accrued a return of 91.71% since the third quarter of 2016.

With a 4.51% stake, Akre’s firm has the largest position in CarMax. Other top guru investors include Ruane Cunniff (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), David Tepper (Trades, Portfolio), Rogers, Ray Dalio (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Ron Baron (Trades, Portfolio).

Berkshire Hathaway

During the quarter, Royce trimmed his Berkshire Hathaway (BRK.B, Financial) holding by 11.11% to 16,000 shares, while Akre’s firm left its position unchanged at 17,504 shares. Together, they have a combined portfolio weight of 0.07% in the stock.

The Omaha, Nebraska-based insurance conglomerate, which is led by Warren Buffett (Trades, Portfolio), has a $788.37 billion market cap; its Class B shares were trading around $356.64 on Monday with a price-earnings ratio of 9.03, a price-book ratio of 1.56 and a price-sales ratio of 2.29.

Based on the GF Value Line, the stock appears to be modestly overvalued currently.

GuruFocus data shows Akre’s firm has gained an estimated 16.79% on its investment so far. Royce’s investment has returned roughly 5.95% since the fourth quarter of 2019.

Bill Gates (Trades, Portfolio)’ foundation trust has the largest stake in Berkshire’s Class B stock with 1.51% of its outstanding shares. Diamond Hill, Tom Russo (Trades, Portfolio), Gayner, Hotchkis & Wiley and Chris Davis (Trades, Portfolio) also have significant positions in the stock.

Portfolio composition

Akre Capital’s $17.92 billion equity portfolio, which was composed of 24 stocks as of the end of the fourth quarter, was largely invested in the financial services sector.

Over half of Royce’s $13.38 billion equity portfolio, which was composed of 966 stocks for the same period, was invested in the industrials and technology sectors.

Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com.