Over the past few months, a small Nebraska mutual fund has been quietly increasing its position in a select group of cable companies, including Adelphia Communications Corp., Liberty Media Group and Insight Communications Co.
According to documents filed with the Securities and Exchange Commission Feb. 2, Omaha, Neb.-based Wallace R. Weitz & Co. raised its stakes in Adelphia and Insight to more than 5 percent of outstanding shares.
According to SEC documents, Weitz owns 7.74 million Adelphia shares, or 5.1 percent of outstanding stock. Its Insight stake is 3.25 million shares, or 5.8 percent of Insight's outstanding stock.
Weitz's three mutual funds, led by Warren Buffet devotee Wallace Weitz, have been top performers during the past five years, with an average return of about 26 percent. Although its Hickory Fund had some rough going last year-it declined 17.2 percent, with large holdings in cable and telecom-Weitz's Value and Partners Value funds did well, appreciating by 19.6 percent and 21.9 percent, respectively. Hickory is bouncing back as well-it's up 13.1 percent so far this year.
Weitz Hickory portfolio manager Richard Lawson said his investment strategy was fairly simple: buy the stocks you believe are highly undervalued.
According to SEC documents, Weitz has nearly doubled its stake in Adelphia since June-from 3.9 million shares to 7.7 million shares. It has also raised its holdings in Insight more than twelvefold over the same time frame, from 259,800 shares to 3.2 million shares.
'A VALUATION CALL'
Lawson said two factors determine which companies Weitz funds invest in: an attractive price-to-value ratio and the perceived threat from competition.
"Adelphia was purely a valuation call," Lawson said. "The stock did relatively badly compared to most of the cable stocks, it was trading at a low multiple of cash flow and at a big discount to the estimates that I could see. It was more attractive on those measures than the other big cable stocks."
Adelphia has been a Weitz holding for a while, said Lawson, who did not rule out taking stakes in other cable companies.
"There are a number of managements in this industry that we really like," Lawson said. "It's partly driven by our perception of the companies. I don't have a lot of dislikes."
Although Lawson named Comcast as one company for whom he has a high regard, he said the stock's price is a little high for his taste right now.
"Our strategy varies, but by and large, if you feel you're buying a stock for less than half the private market value of the equity, it can be pretty interesting," Lawson said.
Across its three funds-which have a total of about $6 billion in assets-cable makes up about 8 percent of the Weitz portfolio, while media accounts for 6 percent. The balance consists mainly of investments in banking, financial-services and telecommunications companies.
Weitz, which has been ranked in the top 1 percent of mutual funds by Morningstar Inc., made a name for itself in the early 90s by investing in cable companies like Tele-Communications Inc. (purchased by AT&T), Century Communications Inc. (purchased by Adelphia), and MediaOne Group Inc. (purchased by AT&T).
In 1999, at the height of the cable boom, Weitz dumped most of his cable portfolio, taking the profits and plowing cash into financial-services and telecommunications stocks.
But as telecom and financial services stocks have declined, the Weitz funds have begun to revisit some older holdings, including Liberty Media Group Inc. The funds currently own about 15.6 million Liberty shares.
"Liberty Media is a stock we've owned for a long time and have been fans of," Lawson said. "About this time last year, I was selling Liberty because I thought it was relatively expensive. More recently we've been buying it because it appeared very cheap compared to its prospects and the underlying value of its assets."
Liberty Media shares have lost about half their value in the past year, from $30.06 per share on March 28, 2000 to $15.95 on Feb. 14.
Weitz Funds Cable Holdings
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Source: SEC documents