Is Graham Holdings (GHC) A Smart Long-Term Buy?


Longleaf Partners Fund, a Memphis-based fund under Southeastern Asset Management, published its “Longleaf Partners Small-Cap Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio quarterly return of 1.91% was recorded by the fund for the second quarter of 2021, taking year-to-date (YTD) returns to 13.88% while its benchmark, the Russell 2000 Index, by comparison returned 4.29% and 17.54% over the same periods. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Longleaf Partners Small-Cap Fund, the fund mentioned Graham Holdings Company (NYSE: GHC), and discussed its stance on the firm. Graham Holdings Company is a Virginia, United States-based conglomerate holding company, that currently has a $3.2 billion market capitalization. GHC delivered a 31.86% return since the beginning of the year, extending its 12-month returns to 68.78%. The stock closed at $640.41 per share on August 05, 2021.

Here is what Longleaf Partners Small-Cap Fund has to say about Graham Holdings Company in its Q2 2021 investor letter:

Graham Holdings (13%, 0.60%), the media, education and manufacturing conglomerate, was also a top contributor after its acquisition of Leaf Group in early April was well received by the market. Leaf Group is a smaller public company that is diversified across digital media and e-commerce. While we are generally wary of mergers and acquisitions, we think this deal can be a positive move that fits uniquely well with Graham’s existing assets. Graham was able to take advantage of a limited buyer universe, given Leaf’s size and disparate assets. Graham also reported a solid quarter that saw continued growth at the TV segment, with 8% YOY revenue growth without political advertising in either period.”

Based on our calculations, Graham Holdings Company (NYSE: GHC) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GHC was in 22 hedge fund portfolios at the end of the first quarter of 2021, compared to 26 funds in the fourth quarter of 2020. Graham Holdings Company (NYSE: GHC) delivered a -3.62% return in the past 3 months.

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Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.



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