Southeastern Asset Management is a Memphis-based deep-value firm founded in 1975 by O. Mason Hawkins to exploit the bargains left by the 1973-74 bear market. Its flagship Longleaf Partners Funds (launched 1987) invest employees' own money alongside clients'. Following Graham's discipline and its "Business, People, Price" framework, it runs concentrated books of 15-25 undervalued stocks held for the long term — famously closing funds to new investors when opportunities were scarce. CEO and Head of Research Ross Glotzbach now leads the firm, which publishes quarterly Longleaf fund commentaries and Research Perspectives notes.
This fund commentary says that despite recent losses, the manager sees this as a buying opportunity because the stocks they own are worth much more than their current prices. They divide holdings into two groups: one with temporary earnings issues but long-term value (like Mattel, which may be acquired; Rayonier, an irreplaceable asset hurt by interest rates), and another with solid businesses but stuck stock prices (like Abbott Labs, a new buy with good growth and dividends; Universal Music Group, a new buy with valuable music assets). The manager says now is not the time to give up.
One-sentence summary: The author firmly believes in the value strategy, arguing that the current portfolio's intrinsic value far exceeds its stock price performance, presenting a contrarian buying opportunity—not a time to give up. [Optimistic/Resolute]
The fund returned -2.41% for the quarter, significantly lagging the S&P 500 (+2.30%) and the Russell 1000 Value (+2.61%). Year-to-date, the return stands at -3.15%, while the two benchmarks have risen 12.75% and 19.27%, respectively. The author believes the current situation resembles 2000 (when value stocks were undervalued before a breakout) rather than 2022 (when a strategy adjustment was needed), with the core basis being that the value growth of portfolio holdings far outpaces stock price performance. The author states: "we believe that we are on the right track even if not all of our investments this year have had sufficient value per share growth. Our values have done materially better than the stock price scoreboard in 2026." The fund's P/V ratio is in the mid-50% range, cash stands at 6.4%, and it holds 18 stocks.
The author believes the market remains irrational, with high interest rates introducing a new macro uncertainty, but portfolio companies are financially robust enough to cope. Market sentiment favored contrarian value investing in July but turned unfavorable in September. The author notes that this year, stocks that "report wrong results" or "fail to align with the correct macro theme" have been penalized particularly harshly. Performance comparison: The fund's 3-year annualized return is 5.41%, far below the S&P 500's 22.89% and the Russell 1000 Value's 20.07%; however, since its inception in 1987, the annualized return is 8.93%, close to the benchmarks' 10.93% and 10.19%.
The author divides holdings into two categories, together accounting for about 70% of the portfolio, and believes the current environment offers a good contrarian buying opportunity.
Category One: Short-term earnings disappointments overly extrapolated by the market (dragging the portfolio by a few hundred basis points)
Category Two: Solid fundamentals but stock prices "stuck" or declining (contributing approximately 500-1000 basis points to the portfolio)
The author emphasizes that earnings multiples of holdings have declined by 10-20%, while earnings risk has further decreased, creating an abnormal but significant opportunity. For Category One stocks, sell-side 2026 earnings estimates were cut by 15-20% during the year, with stock prices performing even worse; however, the author's estimate of long-term profitability remains nearly flat. For Category Two stocks, 2026 earnings estimates actually grew slightly, yet stock prices were essentially flat, creating a divergence between earnings growth and stock price performance. The author estimates that the combined base return for both categories is roughly mid-single-digit positive, which aligns more closely with the performance of non-AI parts of the stock market this year.
Performance comparison: Several stocks contributed significantly this quarter: Avantor's stock price rose over 50%, Regeneron exceeded expectations, and Abbott Labs started strong as a new position. Detractors included People Inc., MGM Resorts, Fortune Brands Innovations, Albertsons, Rayonier, and Mattel.
Avantor (added then reduced): Stock price surged over 50% in Q3 as the market regained confidence in its organic growth capabilities and CEO Emmanuel Ligner's turnaround plan. The VWR distribution business returned to organic growth in Q2, with Ligner guiding for accelerated organic growth ahead; the Bioprocessing business saw organic declines but improved orders. Ligner expects revenue growth by 2027, consistent with peers. Industry M&A resumed (Bio-Techne acquired at a healthy multiple), and mRNA cancer vaccine-related news boosted sentiment. The author states: "We trimmed our position as the stock approached our value."
Regeneron (hold/observe): Key drug Dupixent continues to exceed both the author's and the market's growth expectations. The company increased share buybacks in Q2 when the stock price was lower. Expectations of a renegotiated Dupixent profit-sharing agreement with partner Sanofi drove the stock price up; the deal was reached after the quarter-end, enhancing per-share value.
Abbott Labs (new position): Before this quarter, the stock price fell nearly 40% from last year's high to the Q2 purchase price (attributed by the author to the digestion period from the Exact Sciences acquisition and turbulence in the med-tech/infant nutrition sectors). The July earnings report showed the company on track to restore high-single-digit to low-double-digit EPS growth and a safe, growing dividend. The company began shedding unreasonable infant nutrition liabilities to protect downside risk. Additional upside comes from the possibility of historical spin-offs or sales of business units.
People Inc. and MGM Resorts (hold/observe): Both were detractors this quarter. People Inc. reported solid earnings early in the quarter, showing progress in simplifying the company; MGM's regional business posted record revenue, and Las Vegas revenue grew for the second consecutive quarter. However, at the end of the quarter, People Inc. withdrew its offer to acquire a majority stake in MGM, combined with weak recent trends in Las Vegas, causing MGM's stock to plunge well below the pre-offer level. The next day, rumors emerged that MGM was considering acquiring People Inc. The author believes a merger between the two companies could still be reasonable and accretive to per-share value, with the main issues revolving around the value and future of People Inc.'s assets beyond its MGM stake. The author states: "we remain engaged with both companies to help get to the right place."
Fortune Brands Innovations (added): The stock price in Q3 gave back gains from Q2 following the appointment of new CEO Jesse Singh. Singh lowered full-year earnings guidance due to external rising interest rates and internal supply chain issues (temporary use of expensive air freight), and reinvested tariff refunds into product development. The author praises both as correct long-term decisions. The position was reduced in Q2 and added to in late Q3.
Albertsons (hold/observe): Earnings were negatively interpreted by the market: same-store sales -0.8% (vs. expectations of -0.5%), and full-year EPS was cut by 20% due to additional investment spending. The CFO's departure was poorly communicated, and the conference call lacked clarity. The author's initial investment thesis was that EPS/FCF should be in the $2-2.50 range; even after the cut to $1.50-2 (the current re-estimated level), a 10x P/E remains acceptable (below the long-term average for supermarkets). The current stock price is below $12, and both scenarios are still achievable, but the market is in "show-me mode." The author believes that major shareholder Cerberus and several executives who bought shares after the price decline can improve operations and consider strategic options.
Rayonier (hold/observe): No major company news during the quarter; results met expectations, with continued buybacks and dividends. Short-term stock price is weighed down by interest rates and lumber prices. The author views this as a "long-term-irreplaceable asset," and the market has begun to narrow the valuation gap with peer Weyerhaeuser, consistent with expectations at the start of the year.
Mattel (hold/observe): In mid-September, management indicated that 2026 guidance would be more back-end loaded, causing the stock to decline. On September 29, CEO Ynon Kriez left to become co-CEO of Skydance, with Roger Lynch succeeding him. On October 1, the Wall Street Journal reported that Authentic Brands was interested in acquiring Mattel for over $20 per share, leading to a stock rebound. In October, pressure from major shareholder Ariel and rumors of interest from Zuru also emerged. The author states: "Mattel has been a material contributor to our returns this month," and continues to participate.
New position: The only new stock bought this quarter was Universal Music Group. The author considers it a high-quality business with valuable music assets and durable long-term profitability, having held it successfully multiple times when it was part of Vivendi. No positions were closed this quarter. The author states: "We continue to search for opportunities while staying true to our investment discipline," and is close to several potential new investments. The author notes that many economically sensitive stocks that have driven the S&P 500 over the past 15 months have begun to pull back, with some entering the watchlist.
Author's stance [optimistic/firm]: The author recalls that the opening of last year's letter was "While the last few months have been frustrating on a relative basis…" Now, it is far from frustrating; instead, there is renewed gratitude for investors' patience over the past 15 months. The author states: "Now is not the time," implying that this is a critical moment to hold positions.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Avantor | Reduce | Reduced position as share price nears valuation, acknowledging turnaround progress | Q3 stock price rose over 50%; CEO guided for accelerating organic growth |
| Fortune Brands Innovations | Add | New CEO making sound long-term decisions, added in late Q3 | Reduced in Q2, added in late Q3 |
| Abbott Labs | New Position | Strong growth business with owner-operator, downside risk manageable | Bought after stock fell nearly 40% from last year's high; expected to resume high-single-digit to low-double-digit EPS growth |
| Universal Music Group | New Position | High-quality business with valuable music assets and durable profitability | Only new buy this quarter; previously held successfully as part of Vivendi |
| Mattel | Hold & Watch | Acquisition likelihood rising, real value may exceed early-year estimates | Earnings reset early in the year caused sharp stock decline; multiple potential acquirers emerged after quarter-end (Authentic Brands offered $20+/share) |
| Rayonier | Hold & Watch | Long-term irreplaceable asset, market beginning to close valuation gap with peers | Short-term drag from interest rates and lumber prices; continuing buybacks and dividends |
| Albertsons | Hold & Watch | Earnings reset may be excessive; current price below $12 still acceptable | Same-store sales -0.8%, full-year EPS cut 20%; major shareholder Cerberus and executives buying |
| People Inc. / MGM Resorts | Hold & Watch | Merger still potentially reasonable and accretive to per-share value; maintaining contact with both companies | MGM plunged after People withdrew its takeover offer; next day, MGM reportedly considering acquiring People |
| Regeneron | Hold & Watch | Dupixent continues to exceed expectations, buybacks increased, profit-sharing deal negotiations add value | Increased buybacks in Q2; reached new profit-sharing agreement with Sanofi after quarter-end |
| EXOR | Hold & Watch | Balance sheet strongest in history, on track to return to 15%+ per-share value compound growth | Announced stock buybacks and asset sales |
| CNX | Hold & Watch | Per-share value compound growth rate exceeded 20% over the past 5+ years, and is sustainable | No specific data |
| Magnum Ice Cream | Hold & Watch | Greater strategic optionality after spin-off restrictions expire; sale rumors already circulating | Spin-off restrictions expire in December 2027 |