FOR DAVID WINTERS, a veteran value investor who learned his craft at the Mutual Series Funds, sound investing turns on three words: Do the work. That means spending an inordinate amount of time analyzing a company to get an edge against competing investors; sometimes taking an activist role to get a company to shape up; and poring over bankruptcy records to find overlooked companies.
Winters left the Mutual Series Funds in 2005 to launch his own firm, Wintergreen Advisers, which he heads. He also runs the large-cap-blend Wintergreen Fund (ticker: WGRNX), which takes a concentrated approach, and has a very low turnover.
Since its inception nearly five years ago, the fund's annualized return is 4.57%, versus 1.49% for Morningstar's world stock category.
Winters, 48, also relishes traveling great distances to see companies up close. He recently returned from a trip to Asia, for example; his global fund holds a number of Asian stocks. About 70% of the fund is invested in companies outside the United States.
Barron's caught up with Winters by telephone last week from his Mountain Lakes, N.J., office.
Barron's: The last time we interviewed you for a Q&A was in February 2008, before the market meltdown. That was a horrible period pretty much across the board, unless you held Treasuries. What were the lessons you took away from that experience?
Winters: The 2008-09 meltdown was worse than anything that I had seen in my career, and worse than almost anybody had ever seen. So what was good was that we had cash, and we were a buyer.
We certainly were unable to get the timing exactly right. But the real lesson that came through was that if you can buy quality companies and quality businesses that are really beaten up, it should be, over time, a hugely profitable strategy. So we like what we own. We added to some of our holdings such as British American Tobacco [BTI] and we bought some new names, such as Coca-Cola [KO] and McDonald's [MCD]. But this was clearly a time that was unprecedented, and one that I certainly hope none of us ever sees again.
Do any sectors look especially interesting these days?
We just got back from an extensive trip in greater China and Southeast Asia. We returned with a lot of enthusiasm for the businesses we've invested in and their management teams, for example, Jardine Matheson Holdings [JM.Singapore]. We've got basically 70% of our invested assets in companies outside the U.S.
Is that weighting greater than it has ever been?
Yes, it's greater than it has ever been, and a lot of it is in Asia or indirectly in Asia. There are a lot of really great opportunities, if people have the willingness to think over the longer term.
We think Asia's prospects in general are pretty good. Clearly, there are always going to be bumps. But we think the businesses we've invested in are very well positioned, with very good economics and with managements that are hugely motivated to capitalize on what is going on.
And a lot of the businesses we invest in, including Nestlé [NSRGY], have pricing power. So if you have got revenue growth combined with pricing power, good management and cheap stocks, that is very powerful.
You mentioned before that during the recent market meltdown, the fund held a lot of cash. What is your cash position now?
The cash position is materially lower than it was. It is about 10% today. We've been more or less a net buyer recently. What is just so striking is that you can buy great companies at the most reasonable prices I have ever seen. And most sentiment, especially in the West, is just not terribly upbeat. So you really don't have a lot of people who want to buy stocks today, which creates a lot of fat, slow pitches.
How do you see this market in terms of finding good opportunities?
You have really got to be selective, and it has to be about security selection. And you really have to pay attention to things like whether a business has multicurrency diversification in terms of its earnings, and does it have the ability to do well in almost any environment?
There are some of those companies in the U.S. We think there are a lot of them in Switzerland, which is one of our biggest country allocations, based on our bottom-up analysis, including Nestlé. As a result of our analysis, we've ended up having almost no investments in euro-denominated securities, because we found better things to do.
There are lots of opportunities, but it has to be more on a company-by-company basis, as opposed to where is the market going to be.
You've engaged in shareholder activism from time to time. Is there anything new on that front?
We continue to work on a small company called Consolidated-Tomoka Land [CTO]. We own about 26% of the equity. We've gotten them to improve their corporate governance. Now there is an independent chairman, and there are five new independent directors in the last year and a half or so.
They are a more a less real-estate development company, but real estate is a tough place these days. But at some point, that is going to change, and we think the company is very undervalued. We are just working away at trying to get them ready for when we do get a bounce.
Another area you've trolled for investments is bankruptcies. Are you finding anything interesting there?
We've looked very carefully, but we've been finding better opportunities elsewhere, because we come across these companies that have really good businesses at cheap valuations.
What's happened in the U.S. is that, with the difficult economics, it has become a lot more expensive to reorganize companies today, so there's less left over for the bond holders than was the case 10 or 20 years ago.
A lot of what's happening is that bankruptcies have become trading opportunities as opposed to really good long-term investment opportunities. We would love to do another [bankruptcy transaction], but we've got to find the one where we feel there's a lot of upside.
You don't turn over the portfolio very much—Morningstar lists the annual turnover at 11%—and it's pretty concentrated, with about half of the assets in the top 10 holdings.
What we've tried to do is find what we believe are really outstanding long-term investments. When we've studied people around the world who have really made a lot of money as investors or as business people, they thought of stocks as businesses. For the companies in which we have invested, we have done a tremendous amount of work on the underlying fundamentals and the people who run them.
We think it gives us a real advantage. We live in a world where people want to trade constantly, and there are some people who succeed at that for short periods of time. But the most successful business people in almost every country have owned a good business and stuck with it.
What would be a good example?
Our biggest holding is Jardine Matheson. It owns really good underlying companies, including a large stake in Mandarin Oriental International [MAND.Singapore].Barron's wrote recently about The Pantry [PTRY], which owns convenience stores in the Southeastern U.S.
One of the businesses inside Jardine Matheson is Dairy Farm International Holdings [DFI.Singapore], which is a very similar business to The Pantry, except it is in Southeast Asia.
Jardine's business is growing, and it is well run, and it would be very hard to replicate.
We just think the Jardine people are there to make money for us and themselves. What is so neat about the math is that it trades at a discount. Asset value has grown at 20% per annum for the last couple of years, and they buy back the stock. They've got a collection of very good businesses, and they work very hard to make everybody money. So we like their approach.
Where is Jardine based?
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It is incorporated in Bermuda and operates from Hong Kong. It has big business exposure in Hong Kong, Singapore and Indonesia. And it trades in Singapore.
What's the price/earnings multiple?
There are really two ways to look at this company. You can look at its price/earnings, which is probably 11 or 12 times. But we really look at Jardine as much on a net-asset-value basis, because it has some pieces that trade more on NAV than on P/E. So it probably trades at a 30% discount to NAV.
You've been a big fan of Wynn Resorts [WYNN]. Is that still the case?
Yes, we still own Wynn, which we like, but we've gravitated towards a Malaysian company called Genting Berhad [GENT.Malaysia]. We actually own two levels of the Genting Group. One of our holdings is Genting Malaysia [GENM.Malaysia], which has something like $1.7 billion in cash but for which you are paying six times earnings for the core business, which is a monopoly. By the way, they are looking at bidding on the slot machines at Aqueduct Race Track in New York.
Genting Berhad, which is the parent company, is becoming more global. They've got the gaming monopoly in Malaysia, a gaming duopoly in Singapore, and they have some other assets. They also have perhaps one of the best balance sheets in the business.
So it's essentially a gaming company?
It is on its way to becoming a pure entertainment company, with a big gaming presence.
Do you think the prospects for Wynn aren't as good relative to Genting's?
Wynn has done a great job. But their exposures are in the U.S. and Macau, and we know what has happened in the U.S and Macau, which has become a more competitive market. So we like where Genting has its assets. And we like that they want to become a global, diversified company. That is not from a press release; it is just from watching what they are doing.
The year-to-date return for Genting is barely positive. What's behind that?
I think analysts and investors in general are not willing to always give companies credit for progress that has been made. What we try to do is really do the work and see what is going on. We think the big opportunity today is that there is a disconnect between the stock price and corporate value, and there a lot of good things going on [at Genting].
Let's move on. Why do you hold Goldman Sachs Group [GS], which, to say the least, has come under fire lately?
We bought Goldman on the way down before Berkshire Hathaway got its preferred shares in late 2008. At the time, Goldman's asset-management business was worth more than the stock price, which meant that you got the investment bank and everything else for free. Obviously, the most recent news involving their Securities and Exchange Commission travails is concerning, but we ultimately think there will be a resolution.
They are really one of the only remaining investment banks, and it's on its way to having half of its revenue coming from outside the U.S. So you end up with a U.S. company, with U.S. disclosure, that is on its way to becoming a global bank.
The world will recover at some point, and there will be mergers and acquisitions. There will be a need for advice, and we are going to live in a world where companies feel confident enough to buy each other.
Let's move on. You've liked Coca-Cola Femsa [KOF], the bottler based in Mexico, for a long time. Is that still the case?
Yes, nothing has really changed. I think Coca-Cola Femsa's management is great. They've executed beautifully in Latin America, and the stock has gone up, and we still like it. It is just a wonderful long-term investment run by honest people. For what it is, it is not expensive, trading at about 14 times next year's earnings. It is one of the best ways to participate in Latin America.
How about one more pick?
Nestlé is essentially a collection of various assets, and they have a lot of great brands, including Kit Kat and Poland Spring. We like the idea of chocolate bars and pet food, among many other products.
If you strip out the cash and the free cash flow and L'Oréal [LRLCY], which they have a large stake in, Nestlé trades at about 12 times earnings. And they earn the money everywhere, offering currency diversification. That's important, as we are trying to reduce currency risk.
We use forward contracts on some currencies, like the British pound. But we like the idea of earnings streams of income, and you get paid to wait with a 3% dividend yield.
Thanks, David.
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