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Best Mutual Fund Manager Edward Owens Buys 1 New Stock, Reports Holding Increases
Posted by: Holly LaFon (IP Logged)
Date: November 1, 2012 10:02PM
Edward Owens, manager of Vanguard’s $22.4 billion Health Care Fund (VGHCX), will retire at the end of the year, after outperforming every U.S. equity mutual fund since his fund’s inception in 1984. Owens’ fund returned 16 percent annually since 1984, compared to the S&P 500’s 11 percent annual return over the same period, according to Bloomberg. The third quarter continued Owen’s trend of making few changes to his health care portfolio. The value investor bought one new stock, Aglient Technologies Inc. (A) and made small increases to existing holdings, the largest of which are Teva Pharmaceuticals Industries (TEVA) and Green Mountain Coffee Roasters (GMCR).
“Owens said as growth in the health-care business has slowed, the opportunities once available to value investors such as himself, have diminished,” Bloomberg said of the fund.
Agilent Technologies (A)
Owens purchased 500,000 shares of Agilent Technologies for $38 per share on average in the third quarter. The holding comprised 0.087 percent of his portfolio at quarter-end.
Agilent Technologies produces the measurement industry’s broadest range of tools and expertise for electronic and bio-analytical measurement. With 20,000 employees, the company serves scientists, researchers and engineers in more than 100 countries. It began as a spin-off of Hewlett-Packard (HPQ) in 1999.
In Agilent’s third quarter results released Aug. 15, 2012, it reported that it fell short of its revenue and earnings per share (EPS) guidance due to “an environment of much slower growth resulting in deals taking longer to close and customers delaying their order deliveries,” Aglilent’s president and CEO, Bill Sullivan, said
Revenue was $1.72 billion, reflecting a 2 percent increase from revenue of $1.69 billion a year prior. Net income was $243 million, or $0.69 per share, which was a decline from net income of $330 million, or $0.92 per share, a year prior.
Weaker aerospace and defense, industrial, petrochemical, academic and government demand negatively impacted sales in the quarter. Government research and environmental markets declined on government budgetary concerns and lower government spending. The company experienced growth in revenues in communications – driven by wireless manufacturing – life sciences and the pharmaceutical market.
Total orders in the quarter declined 1 percent from the same period the previous year, with 3 percent of growth coming from its May acquisition of Dako, a cancer diagnostic company, the largest acquisition in Agilent’s history.
At quarter-end, Aglient had $950 million in cash on its balance sheet, which was an increase from the $860 in cash it had on its balance sheet a year prior. Long-term liabilities and debt stood at $1.8 billion, which was down from $3 billion a year prior.
On a longer-term basis, Agilent has six good signs in its fundamentals from GuruFocus: A Piotroski F-Score of 7 – indicating a very healthy situation – an expanding operating margin, a share price close to a one-year low, a P/E ratio close to a two-year low, a P/B ratio close to a three-year low and a P/S ratio close to a one-year low.
Teva Pharmaceuticals Industries (TEVA)
Owens made a 24.1 percent increase to his holding of Teva Pharmaceuticals, adding 1.7 million shares for $40 per share on average. The purchase marked the fourth time he has increased his Teva holding since he established it in the second quarter of 2011. His new total of owned shares at quarter-end was 8.75 million, equivalent to 1.6 percent of his portfolio.
Teva develops, produces and markets generic and proprietary branded drugs and has the largest product portfolio in the industry, with about 180 applications pending at the FDA. Its stock has increased 2 percent year to date.
The company released its third quarter results on Nov. 1, 2012. Its net revenue increased 14 percent year over year to $5 billion from $4.3. Its net loss was $79 million, or $0.09 per share, which was a decline from net income of $916 million, or $1.03 per share, the previous year. The decline was due to a $670 million provision for a loss contingency to pending patent litigation and impairment of $481 million, primarily related to in-process R&D.
Revenues in the U.S. increased 33 percent year over year, driven by its October 2011 acquisition of global biopharmaceutical company Cephalon and strong branded and generic revenues. European sales increased 1 percent due to Cephalon medicines and revenue from its leading medicine, Copaxone, after its take-back of marketing and distribution rights.
GuruFocus gives Teva three severe warning signs: Its operating margin has been in five-year decline at an average rate of 2.5 percent, its cash flow from operations has diverged severely from its net income which suggests it has activities affecting its cash flows, and its assets have grown faster than its revenue over the last three years, indicating the business’ efficiency may be in decline.
It also has three good signs: consistent per-share revenue growth, a three-year low P/E ratio and a one-year low P/B ratio.
Green Mountain Coffee Roasters (GMCR)
Owens’ third-largest increase was 12.75 percent, or 140,000 new shares to his Green Mountain Coffee Roasters holding, for $23 per share on average. The position was just initiated last quarter, with 1.1 million shares which he purchased for $31 on average. His total holding size at quarter end stood at 1.24 million shares, a 0.13 percent representation in his portfolio.
Green Mountain, Owens’ only food and beverage stock, is a specialty coffee maker that David Einhorn famously shorted and whose stock has fallen 41 percent year to date.
In addition to blasting the company in a presentation at the 2011 and 2012 Value Investors conference, Einhorn commented on GMCR in his recent third quarter letter, listing a number of allegations against it.
In the company’s third quarter results released Aug. 1, 2012, it announced that net sales increased 21 percent, GAAP net income increased 30 percent and diluted GAAP income per share increased 25 percent.
The company’s CEO, Lawrence J. Blanford, expects growth to slow as it becomes larger, though over the long term he expects an annual sales growth rate in the range of 15 percent to 20 percent and annual earnings growth in the mid-teens.
GMCR announced a $500 million share repurchase over the next two years on the strength of its free cash flow growth ability.
GuruFocus reports four severe warning signs for GMCR, for long-term declining gross margin, cash flow diverging from net income, asset growth higher than revenue growth and building-up inventory.
It also has two good signs: consistent per-share revenue growth and expanding operating margin.
see his portfolio. Also check out the undervalued stocks, top growth companies and high yield stocks of Edward Owens.
Guru Discussed: Edward Owens: Current Portfolio, Stock Picks
Stocks Discussed: VGHCX, A, TEVA, GMCR,