Renowned value investor Edgar Wachenheim III's firm, Greenhaven Associates, has recently made some notable changes to its portfolio, increasing its stake in a bank and a crane maker while exiting an investment in an appliance maker.
Greenhaven Associates, which manages $9.4 billion of U.S.-traded securities, has disclosed its latest stock trades in a form filed with the Securities and Exchange Commission. The firm has bought up Citigroup stock and doubled its investment in Terex. On the other hand, it has sold all its shares of Whirlpool.
Citigroup stock ended 2023 with a 14% gain, outperforming the S&P 500 index's 24% rise. Greenhaven Associates, showing strong confidence in Citigroup's undervalued shares, bought an additional 2.9 million shares in the fourth quarter, bringing its total investment to 16.1 million shares.
Wachenheim emphasized his belief in Citigroup's management, stating that they are much better and stronger than their reputations suggest. He also commended the relatively new CEO, Jane Fraser, for doing an excellent job. Wachenheim's firm expects Citigroup's tangible book value to average $105-$110 in 2026, with the bank earning at least $11 a share assuming a normal economy. Hence, he sees great potential for investors to double their money over the next two years if the shares sell at book value and 10 times earnings.
At the end of Friday's trading session, Citigroup stock closed at $53.67, boasting a year-to-date gain of 4.3% compared to the S&P 500 index's 2.5% rise.
Funding the Citigroup Purchase
To finance the purchase of more Citigroup stock, Greenhaven Associates sold its shares of Whirlpool. Wachenheim explained that Whirlpool's balance sheet became too stretched after its acquisition of InSinkErator from Emerson for cash. Consequently, the firm decided to divest its entire holdings in Whirlpool, which slipped 14% in 2023.
Crane Maker Potential
Wachenheim expressed a positive outlook on Oshkosh, stating that it should benefit significantly from the anticipated increase in infrastructure spending in the U.S. over the coming years. As a company that generates a significant portion of its revenue from construction-related products, including aerial work platforms, concrete mixing trucks, and cranes, Oshkosh is poised for growth in this sector.
Greenhaven's Positive Outlook for Oshkosh and Terex
Greenhaven, a reputable investment firm, has expressed its optimistic stance on the potential earnings of Oshkosh in the coming years. They believe that by 2026, Oshkosh can achieve a remarkable $15-$16 per share. According to Greenhaven's analysis, considering the market trends, the stock should be valued at around 16 times that amount, which suggests a potential price ceiling of approximately $256.
In 2023, Oshkosh's stock experienced a notable 23% increase, almost matching the performance of the S&P 500. As a result, the stock reached a value of approximately $112 by the end of the year. Interestingly, Greenhaven chose to maintain its investment in Oshkosh, holding steady at 2.5 million shares from the end of the third quarter to the end of the fourth quarter.
However, Greenhaven took a different approach with Terex, a comparable company to Oshkosh. They acquired an additional 733,690 shares of Terex during the fourth quarter, resulting in a total holding of 1.5 million shares. Terex outperformed Oshkosh in the previous year with an impressive surge of 35%. This raises the question: Does the positive outlook for Oshkosh also apply to Terex?
In response to this query, Wachenheim, an influential voice from Greenhaven, stated that he holds a similar belief in Terex. He acknowledges that Terex is a reliable manufacturer of aerial work platforms under the Genie brand. Moreover, they also produce equipment designed for processing aggregates. Wachenheim argues that as infrastructure spending increases, demand for aggregates such as gravel, crushed stone, and sand (used in concrete and asphalt production) will rise significantly. Consequently, aggregate producers will require additional equipment, presenting an opportunity for Terex to capitalize on this growing demand.
Greenhaven predicts that Terex's earning power by 2026 will reach $9.00 or more per share. Following their valuation strategy, Greenhaven believes that Terex shares should be valued at a minimum of 12.5 times earnings. This implies that by 2026, Terex shares will be worth at least twice their current value. Based on this analysis, Greenhaven suggests that Terex shares could reach approximately $113 in the future. As of now, the stock stands at $61.50 at the end of the year, resulting in a year-to-date gain of 7.0%.
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