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March 31, 2015
Investment Style: Multi-Cap Value

Top Quarterly Contributors

Catamaran Corporation is a provider of pharmacy benefit management services and healthcare IT solutions to the healthcare benefit management industry. On March 30th, UnitedHealth Group announced a definitive agreement to purchase Catamaran for $61.50 per share in cash. While we find the Catamaran board’s timing interesting in light of the company’s future growth opportunities, the price is consistent with our valuation work.
ADT Corporation is engaged in providing monitored security, interactive home and business automation and related monitoring services in the United States and Canada. Management’s efforts to reduce overall costs and improve the quality of their new subscriber base, combined with improving customer attrition metrics, have driven better results at ADT, suggesting their business is more durable than skeptics believed. Furthermore, observers have begun to speculate how ADT could partner with other technology companies that feature DIY (Do-It-Yourself) home automation products to drive incremental business opportunities.

Top Quarterly Detractors

Twenty-First Century Fox is a diversified media and entertainment company. Shares declined during the first quarter as management reduced 2016 earnings guidance. Reported ratings across the industry have been consistently negative as viewers transition to additional, unmeasured distribution methods and alternative content. Furthermore, Fox’s international channel is pressured on a reporting basis by headwinds from the strengthening of the U.S. dollar. We added to our position as the stock price declined.
MRC Global along with its subsidiaries is an industrial distributor of pipe, valves and fittings and related products and services to the upstream, midstream and downstream energy industries. Global energy-related spending has fallen at an unprecedented rate during the first three months of 2015. We did not anticipate the depth of the present decline, nor the speed with which North American producers in particular would respond. As such, we were simply too early in buying MRC Global shares during the fourth quarter. At its present price, however, we believe MRC offers patient owners the potential for compelling returns over our three to five year investment horizon.

Top Fiscal Year Contributors

XO Group is a life stage media company. It serves its audience with information, products, and services during critical life stages: planning a wedding, sharing life as a couple for the first time, and planning for the birth of a first child. In early 2014 new management announced a period of heightened infrastructure investment. Since then, management has clearly articulated the company’s intended path and investors have shown confidence in their plan.
ADT Corporation After reporting disappointing earnings for the quarter ended December 31, 2013 (in January 2014) results have slowly but steadily improved as management’s actions to improve the quality of its new customers and lower overall costs have gained traction.
Valeant Pharmaceuticals International is a specialty pharmaceutical and medical device company that develops, manufactures, and markets a range of generic and branded generic pharmaceuticals, over-the-counter products and medical devices. During an eventful fiscal year, Valeant’s strong underlying business performance carried the day as the company battled Allergan’s aggressive negative public relations campaign. Valeant’s dermatology business performed well ahead of our expectations, driven by broad-based strength across its portfolio as well as the successful launch of fungal treatment Jublia. In February, Valeant announced a definitive agreement to acquire Salix Pharmaceuticals for slightly over $15 billion. We anticipate Salix earning attractive high teens returns for Valeant over time. The combination of healthy double-digit organic sales growth and falling acquisition-related cash restructuring expenditures drove a noticeable increase in excess cash generation, creating the capacity for the company’s aforementioned transaction with Salix.

Top Fiscal Year Detractors

Angie’s List operates a national local services consumer review service and marketplace. Angie’s List’s shares kept on a downward track for much of the past year as the lack of current earnings has increasingly tested investors’ resolve. Management has continued to focus on the acquisition of new consumer and corporate relationships. We continue to see a path to sustainably higher margins and positive reported earnings as a result.
Avon Products is a manufacturer and marketer of beauty and related products. Last year, investors became quite concerned by worse-than-expected results in the company’s North American business as well as missteps in Brazil, which is Avon’s top market. Later in the year Avon demonstrated some progress in its long turnaround, but worries over the transactional impact of the rapid rise of the U.S. dollar against the Brazilian Real and the Russian Ruble erased the positives from the operational improvement.
MRC Global This quarter’s performance was significant, as described above, and therefore detracted from the fiscal year returns.

New Positions This Quarter

Swatch Group manufactures and sells finished watches, jewelry, watch movements and components. As fear over the dominance of the Apple Watch mounts, Swatch’s stock price has declined. We believe these fears are overdone. Despite current economic slowdowns in China and the Middle East we believe these markets will provide continued growth opportunities for Swatch’s luxury watches over the longer term.
Discovery Communications is a world-class provider of non-fiction, global pay-tv programming. Non-fiction content is a wonderful business. It is cheap to produce and portable across geographies positioned to benefit from the long-tailed wave of increasing pay-tv adoption outside the U.S. The company generally owns the full rights to its content, providing bargaining power as the distribution ecosystem evolves. From today’s prices, we think the stock’s return potential is adequate-to-exceptional with solid downside protection.
Core Laboratories is a service provider to the oil and gas industry that helps producers identify resource potential and enhance production of existing reservoirs. Core Labs is a business of the highest quality regardless of industry. While its business will suffer as a result of the fall in oil prices, Core’s wide moat will continue to exist.

Positions Eliminated This Quarter

World Fuel Services We closed the position to focus on names with greater discounts between stock price and our estimate of intrinsic value.
Disney We closed the position as the stock price exceeded our estimate of intrinsic value.
eBay We closed the position for a modest gain and focused on names with greater discounts between stock price and our estimate of intrinsic value.
Oracle We closed the position as the stock price approached our estimate of intrinsic value.
Omnicom We closed the position as the stock price approached our estimate of intrinsic value.
DIRECTV We have trimmed our DIRECTV position several times since the acquisition by AT&T was announced last May. We sold our remaining shares as the stock price approached our estimate of business value.
As of 3/31/2015: Catamaran Corporation comprised 6.4% of the Weitz Research Fund's net assets; ADT Corporation 4.5%; Twenty-First Century Fox 3.0%; MRC Global 3.0%; Valeant Pharmaceuticals International 3.8%; XO Group 2.0%; Angie’s List 5.7%; Avon Products 2.0%; Swatch Group 1.5%; Discovery Communications 1.5%; Core Laboratories 1.4%; World Fuel Services 0.0%; Disney 0.0%; Oracle 0.0%; eBay 0.0%; Omnicom 0.0%; DIRECTV 0.0%.
Investors should consider carefully the investment objectives, risks, and charges and expenses of the Fund before investing. The Fund's Prospectus contains this and other information about the Fund and should be read carefully before investing. Portfolio composition is subject to change at any time and references to specific securities, industries, and sectors referenced in this letter are not recommendations to purchase or sell any particular security. Current and future portfolio holdings are subject to risk.
Weitz Securities, Inc. is the distributor of the Weitz Funds.