Akre Capital Management Stocks Trading Below Intrinsic Value

in INVESTING IDEAS by

Dollar Tree, Inc. (NASDAQ: DLTR) and Berkshire Hathaway Inc. (NYSE: BRK.B) are among the top stocks that Chuck Akre owns which appear to have the most upside potential based on underlying fundamentals. Value investors may want to take a closer look at the names below.


Akre Capital Management’s Most Undervalued Holdings

To determine which stocks are trading below their intrinsic value, aka “fair value” I used the finbox.io Fair Value estimates. I also wanted to blend in some indication of which stocks might be ready to make a move up soon because they’re popular with Wall Street analysts.

I calculated an average using the finbox.io fair value upside and analyst upside to create a blended upside which I then used to rank the most undervalued holdings.

Here are the top stocks based on my calculations:

Akre Capital Management Most Undervalued Holdings
Ticker Name Upside (finbox.io) Upside (Analyst Target) Blend Upside
DLTR DOLLAR TREE INC 14.0% 23.2% 18.6%
BRK.B BERKSHIRE HATHAWAY INC DEL 6.6% 24.4% 15.5%
LKQ LKQ CORP -4.0% 34.5% 15.2%
BRK.A BERKSHIRE HATHAWAY INC DEL 3.8% 24.8% 14.3%
KMX CARMAX INC 3.9% 12.5% 8.2%
ALRM ALARM COM HLDGS INC -2.0% 18.3% 8.2%
LAMR LAMAR ADVERTISING CO 7.0% 3.1% 5.1%

Dollar Tree, Inc. (NASDAQ: DLTR) appears to be the most undervalued stock in the fund. The company has a blended upside of 18.6% relative to its current trading price. Value investors may want to take a deeper dive into the valuation of the company.

Berkshire Hathaway Inc. (NYSE: BRK.B) appears to be the second most undervalued stock in the portfolio. The company’s blended upside of 15.5% is very intriguing. With 15.2% margin of safety, LKQ Corporation (NASDAQ: LKQ) is the third most attractively priced security.

Other notable holdings with nice upside potential includes Berkshire Hathaway Inc. (NYSE: BRK.A), CarMax Inc (NYSE: KMX), Alarm.com Holdings, Inc. (NASDAQ: ALRM) and Lamar Advertising Company (NASDAQ: LAMR).


Why Follow Chuck Akre’s Portfolio?

Akre Capital prides itself on being extremely discerning when selecting stocks. The investment team obsesses over the quality of the people running a business and the rate of return. In a 2014 interview, Akre said he looks for companies that he thinks are ‘compounding machines.’ At the time the firm owned Mastercard Inc (NYSE: MA) and Visa Inc (NYSE: V) which he pointed out have margins of over 30%, which is around three times that of the average US company.

Akre and his colleagues also refer to what they call the ‘three-legged stool’ approach to finding compounding machines. The three requirements are exceptional people running the business, reinvestment acumen and opportunities for reinvestment. The last point is important because even if the management team is good at allocating capital, they can’t generate returns if there are no opportunities.

In 2015, Akre wrote an article in which he asserts that rate of return is the most important metric to use when evaluating an investment. He said that in most cases this can be measured by the growth in the book value of a share.

Akre capital often holds positions for over ten years. As long as a company is able to keep increasing its economic value, the firm will hold a stock. Although the firm is a long-term investor, Akre doesn’t attribute its success to ‘buy and hold’ investing, but to the quality of the companies they buy.

The ideas section of finbox.io tracks top investors and trending investment themes. You can get the latest data on the holdings discussed above at the Akre Capital Management page.

As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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