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Bruce Berkowitz Sells Out of All But One Pharmaceutical in His Focused Income Fund
Posted by: guruhl (IP Logged)
Date: October 28, 2011 04:56PM

Bruce Berkowitz, founder of the famed Fairholme Fund, added several pharmaceuticals to his Focused Income Fund in the first quarter of 2011. He then added more shares in the second quarter.

Though all four of the stocks’ share prices went up, he sold out of all but one of his pharmaceutical positions in his third quarter portfolio, released today. He eliminated GlaxoSmithKline (GSK), AstroZeneca (AZN) and Bristol-Myers Squibb (BMY), and kept Eli Lilly (LLY).

One of his other new third-quarter buys is Vodafone Group Plc (VOD), the world's largest international mobile communications firm. He bought 280,000 shares at about $26.38 per share.

GlaxosmithKline Plc (GSK)

GlaxoSmithKline is one of the world's research based pharmaceutical and healthcare companies and is committed to improving the quality of human life by enabling people to do more, feel better and live longer. GlaxoSmithKline Plc Ads has a market cap of $114.06 billion; its shares were traded at around $44.75 with a P/E ratio of 12.4 and P/S ratio of 2.5. The dividend yield of GlaxoSmithKline Plc Ads stocks is 4.9%. GlaxoSmithKline Plc Ads had an annual average earnings growth of 3.2% over the past 10 years.

In the third quarter, GlaxoSmithKline reported 3% higher revenue year over year. Pharmaceutical and vaccine sales increased 34% in Japan, 11% in emerging markets and 6% in Asia Pacific, but declined 1% in the U.S. and 5% in Europe.

Weak revenue growth was due in large part to a problem facing the entire industry – increased generic sales of its brand-name drugs. In the past four years, the company has lost £4 billion to generic competition. It hopes to offset the decline by focusing on its core drugs and expanding presence in emerging markets.

On its third quarter earnings call on Oct. 26, CEO Andrew Witty said, “We continue to increase the returns we give to our shareholders. Today, we have announced another 6% increase to the dividend to 0.17p per share, and we have increased our expectation for our 2011 share buyback program by GBP 300 million to GBP 2.3 billion pounds. Year-to-date, we have spent GBP 1.8 billion on share repurchases and in total have returned GBP 4.4 billion to our shareholders.”

Berkowitz sold his 190,000 shares of GSK in the third quarter at an average price of $42.38. He bought 160,000 in the first quarter of 2011 at an average price of $38.15, and 30,000 more in the second quarter at an average price of $42.03 per share.

AstraZeneca Plc (AZN)

AstraZeneca PLC is one of the top five pharmaceutical companies in the world based on sales and is a therapeutic leader in cardiovascular, gastrointestinal, oncology, anesthesia including pain management, central nervous system (CNS) and respiratory products. AstraZeneca Plc Ads has a market cap of $67.11 billion; its shares were traded at around $49.89 with a P/E ratio of 8.3 and P/S ratio of 2. The dividend yield of AstraZeneca Plc Ads stocks is 3.4%. AstraZeneca Plc Ads had an annual average earnings growth of 18.1% over the past 10 years. GuruFocus rated AstraZeneca Plc Ads the business predictability rank of 4.5-star.

AstraZeneca’s revenue for the nine months ended September 30 edged up to $24.9 billion from $24.7 billion the same period of 2010. It also ended the nine months with slightly less cash, at $9.62 billion from $9.68 billion. Revenue declined in the U.S. and Western Europe, and grew in Canada, Japan, Other Established ROW, Emerging Europe, China, Emerging Asia Pacific and Other Emerging Row.

The company is currently involved in significant litigation, predominantly to protect or extend its patents.

Berkowitz sold out his 155,000 shares in the company at about $46.58 per share. He had purchased 129,000 shares at about $47.67 in the first quarter and 26,000 shares in the second quarter at about $50.2 per share. The stock gained 6.67% year to date.

Bristol-Myers Squibb Co. (BMY)

Bristol-Myers Squibb Company is a global leader in the research and development of innovative lifesaving and life-enhancing treatments for heart disease; high blood pressure; stroke; diabetes; cancer; HIV/AIDS and other infectious diseases; depression, schizophrenia and other mental disorders; pain; and other conditions. Bristol-Myers Squibb Co. has a market cap of $56.27 billion; its shares were traded at around $32.99 with a P/E ratio of 15 and P/S ratio of 2.8. The dividend yield of Bristol-Myers Squibb Co. stocks is 4%. Bristol-Myers Squibb Co. had an annual average earnings growth of 15% over the past 5 years.

The company released its third quarter results on Thursday. It had a 2% increase in profit for the quarter, and 11% increase in revenue from the same quarter last year. Sales of its three best-selling drugs Plavix, Abilify, Reyataz and Sustiva increased 8%, 14%, 5% and 5% respectively. Two other drugs fell 29%, primarily due to generic competition. Three others will go off patent in spring of 2012.

Berkowitz sold all of his 277,000 shares of the company at about $29.22. He had purchased 237,000 shares in the first quarter of 2011 at about $25.91 per share, then added 40,000 shares in the second quarter at about $28.09 per share. The stock gained 21.2% year to date.

The only pharmaceutical stock that Berkowitz held on to was Eli Lilly (LLY). He purchased 171,000 shares of it in the first quarter of 2011 at about $34.79 per share, and added 30,000 shares in the second quarter at about $37.30 per share. The stock has advanced 9.25% year to date.

A look at the dividend may provide insight as to why he kept the company in his Focused Income Fund. Eli Lilly has a dividend yield of 5.1% and has paid $1.96 per share annually since 2009. Bristol-Myers Squibb has a dividend yield of 4% and has been decreasing its dividend for the last three years, paying $0.96 per share in 2010. GlaxoSmithKline pays a 4.9%dividend yield, and paid $2.04 in 2010 and $1.93 in 2009. Astrazeneca has the lowest dividend yield at 3.2% and paid a dividend of $2.41 last year.




Guru Discussed: Bruce Berkowitz: Current Portfolio, Stock Picks
Stocks Discussed: GSK, AZN, BMY, VOD, LLY,
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Re Bruce Berkowitz Sells Out of All But One Pharmaceutical in His Focused Income Fund
Posted by: shaved_head_and_balls (IP Logged)
Date: October 29, 2011 02:34AM

At this stage in the economic cycle, these drug companies will likely outperform his financial stocks. It will be interesting to see what the next leg down in the decade old bear market does to his high risk portfolio. I won't be surprised to see a 70-80% loss coming his way, just as happened to Bill Miller's main mutual fund as a result of ill-timed high-risk speculations in troubled companies.



Guru Discussed: Bruce Berkowitz: Current Portfolio, Stock Picks
Stocks Discussed: GSK, AZN, BMY, VOD, LLY,
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