Buffett’s Pals at Sequoia Fund Own Less Berkshire, But Find Plenty of Winning Stocks

The Sequoia Fund Inc. is one of the hottest on Wall Street now, with so many investors clamoring to get in that its managers recently stopped selling shares through intermediaries. So unless you’re on a first name basis with Robert Goldfarb or David Poppe, shameless imitation might be the easiest way to tap into their talent.

The fund, long held in high esteem for its rare endorsement by Warren Buffett, gained fame recently by ending 2011 with a 13%+ gain when several equally prestigious funds marked 25%+ losses. Goldfarb and Poppe didn’t repeat their 2010 placement as Morningstar’s domestic fund managers of the year, but they were respectable contenders.

The Sequoia Fund looks like a Buffett portfolio with more imagination. In fact, Sequoia only recently stopped relying heavily on Berkshire’s (BRK.A) (BRK.B) success to fuel its own growth, as BusinessWeek recently noted. Goldfarb and Poppe reduced its Berkshire holdings in 2010 and funneled a lot of that money into companies that fit the Buffett strategy – well-managed, with long-term growth prospects – but not the behemoth size that drags on growth.

Last year, Sequoia still got a lot out of giant companies like MasterCard (MA) and International Business Machines (IBM), which returned 54% and 23% respectively. But it also found a lucrative niche in the less-than-gargantuan companies. Here’s a look at few of Sequoia’s lesser-knowns.

The Big Gainers

Valeant Pharmaceuticals International (VRX), the fund’s biggest holding, was also its best bet of 2011. Shares of the acquisition-happy generic company rose 65% during 2011.

Sequoia’s holding in Fastenal (FAST), a $13.77 billion market cap company that makes thousands of parts used in construction and industry, rose 46% in 2011. YCharts Pro gives Fastenal perfect scores for fundamentals, and the company has grown wildly in the past two years.

Fastenal Company Revenues TTM Chart

Fastenal Company Revenues TTM Chart by YCharts

O’Reilly Automotive (ORLY) rose 32% in 2011. The company has been reporting record revenues and earnings as it adds to its nearly 4,000-store auto parts empire. Sequoia also owns shares in Advanced Auto Parts (AAP), which has done well lately.

Fastenal Company Stock Chart

Fastenal Company Stock Chart by YCharts

The Recent Picks

Ruane, Cunniff & Goldfarb Inc. has a few weeks left to show us its end-of-year picks, but their late summer purchases offer some insight into where they are optimistic.

Trimble Navigation (TRMB) sells sophisticated systems using GPS and related technology mainly to the agriculture, surveying and construction industries. At Sept. 30, Sequoia held about half a million shares in this mid-cap, which has hit a growth spurt.

Trimble Navigation Revenues TTM Chart

Trimble Navigation Revenues TTM Chart by YCharts

Some of Ruane Cunniff’s bigger recent adds were in the bigger companies. These including a big addition of shares in Corning (GLW), which makes HDTV screens, among other things, and Google (GOOG); both show up big in Sequoia’s Sept. 30 report.

Them That Brung ‘Em

It’s important to note that Sequoia hasn’t abandoned Buffett’s Berkshire. In fact, Ruane Cunniff added more than 22% to its Berkshire B-share holdings at Sept. 30, and total Berkshire holdings made up about 10.5% of Sequoia’s holdings. While those shares dragged down returns in 2011, most years, it’s not a bad bet at all.

S&P 500 Stock Chart

S&P 500 Stock Chart by YCharts

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.

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