Julian Robertson's Biggest Q2 Moves: Buys Teva, Concho, AutoNavi; Adds Apple
Robertson pioneered the long-short strategy, having been quoted saying, "Our mandate is to find the 200 best companies in the world and invest in them, and find the 200 worst companies in the world and go short on them. If the 200 best don't do better than the 200 worst, you should probably be in another business." He has also been known to act on his highest conviction beliefs by committing a substantial amount of capital to those positions. In his second quarter portfolio update, Robertson bought Teva Pharmaceutical (TEVA), Concho Resources (CXO), AutoNavi Holdings (AMAP), and added to his shares of Apple (AAPL).
Teva Pharmaceutical Industries Ltd. (TEVA)
Robertson bought 364,400 shares of Teva at an average price of $48.68, impacting his portfolio by 4.71%. The price has since decreased by 19%. Teva Pharmaceuticals develops, manufactures, and markets generic pharmaceuticals. Teva sells its products to chains, wholesalers, distributors, hospitals, managed care entities, and government agencies. The company markets a variety of dosage forms, including both extended and immediate release tablets and capsules, creams, ointments, solutions, and suspensions. Key therapeutic areas are the analgesic, anti-infective, cardiovascular, CNS, dermatological, and anti-inflammatory categories.
According to Teva's second quarter report, quarterly net sales were $4.21 billion, up 11% over last year. Sales in North America represented half of total sales at $2.10 billion, down 15% over last year. This included generic and other sales in the U.S. down 40% due to a lack of new launches and diminished sales of key products from 2010. Offsetting the decreases in North America, sales in Europe grew 82% year-over-year (60% in local currencies), up to $1.48 billion. Growth in sales was primarily due to the acquisition of Ratiopharm, completed in August of last year, and sales were boosted in Germany, France, Spain, and Italy. Generics sales in Europe grew organically by 4%. Sales in the remaining international markets totaled $635 million, up 22% from last year (15% in local currencies), including 14% organic growth in Latin America as well as 11% organic growth in Russia. Teva also saw strong sales growth in all branded franchises: respiratory grew 9%, women's health grew 45%, Azilect grew 38%, Copaxone grew 24%, and API sales to third parties grew 12%.
Teva recorded net income of $576 million, down from last year's $797 million. Excluding legal charges connected to at-risk launches of generic drugs, amortization of purchased intangible assets, restructuring and acquisition expenses, and regulatory action costs, adjusted net income was $984 million for the quarter, slightly up over last year's $981 million. Adjusted gross profit margin was 57.3%, down from last year's 59.0% as a result of decreased high margin generic products, partially offset by increased branded products. Net R&D expenditures increased 12% to 5.8% of sales, slightly up from last year's 5.7% of sales. Cash flow from operations was a record $1.32 billion, up from last year's $954 million, while free cash flow was a record $897 million. The company also repurchased 2.0 million shares for approximately $95 million during the quarter.
Teva has a market cap of $36.2 billion. The stock trades with a P/E ratio of 8.7, a seven-year low. Its P/s ratio is 2.3, below its seven-year average, as quarterly sales per share have been trending upwards over the past five years. Its P/B ratio is 1.5, also a seven-year low, as book value per share reached a peak of $26.62 per share. The company has a strong balance sheet with a debt-to-equity ratio of .165. However, return on equity has been decreasing over the past twelve months as GAAP EPS has been decreasing. GuruFocus has awarded Teva a four-star predictability rating.
Concho Resources (CXO)
Since the fourth quarter of 2009, Concho's stock price has soared precipitously, going from an average of $21.50 to more than $100 in early 2011. In the second quarter of 2011, Robertson purchased 175,400 shares of Concho Resources at an average price of $94.82, impacting his portfolio by 4.32%. The price of Concho has since decreased by 13%.
Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development, exploitation and exploration of oil and natural gas properties. The Company's conventional operations are primarily focused in the Permian Basin of Southeast New Mexico and West Texas. In addition, the Company is involved in a number of unconventional emerging resource plays.
According to Concho's second quarter report, total operating revenues were $446 million, up 124% over last year's $199 million. This was a result of a 61% increase in production over last year, from 3.5 MMBoe to 5.6 MMBoe, as well as a 30% increase in the company's unhedged realized oil price and a 32% increase in the company's unhedged realized natural gas price in the quarter. Production expenses increased 8% per Boe as a result of increased commodity prices and subsequently increased oil and natural gas taxes. The company reported net income of $232.2 million, or $2.24 per diluted share, an increase over last year's net income of $124.2 million or $1.35 per diluted share. Excluding the company's unrealized mark-to-market gain on commodity and interest rate derivatives and their tax effects, adjusted net income was $113.2 million for the quarter, nearly doubling last year's adjusted net income of $57.9 million.
During the quarter, the company completed 127 wells that were drilled prior to the start of the quarter and commenced the drilling of 229 gross wells (196 operated). The company currently operates 36 drilling rigs, all of which are in the Permian Basin. During the quarter, the company's net production from the Bone Spring in the Delaware Basin increased 40% over last quarter. Concho estimates that its total proved reserves were 342.6 MMBoe, with 62% proved developed. This is a 6% increase from year-end 2010 total proved reserves of 323.5 MMBoe, with 57% proved developed.
Concho currently has a market cap of $8.6 billion. The stock trades with a P/E ratio of 29.2, with much of the valuation speculating on future growth prospects. Its P/S ratio is 6.2 as quarterly sales per share have been rising sharply since early 2009. Its P/B ratio is 3.2, roughly in line with a three-year median, as book value per share has also been rising in the past two years. The company's debt-to-equity ratio is .656. Free cash flow was a loss of $92.9 million as the company more than doubled capital expenditures year-over-year.
Autonavi Holdings Ltd. (AMAP)
Robertson bought 612,659 shares of Autonavi at an average price of $17.21, impacting his portfolio by 2.44%. The price has since decreased by 16%. The stock has been publicly traded since July 2010.
AutoNavi Holdings Limited is a provider of digital map content and navigation and location-based solutions in China. The Company's products and services have a wide range of applications including in-dash navigation systems, portable navigation devices, wireless and Internet location-based services, and public sector and enterprise applications. It provides aerial digital maps and 3-D modeling applications to government agencies and provides a nationwide digital map database to support the location-based services offered by China Mobile, a mobile operator.
According to AutoNavi's second quarter report, net revenues were $32.9 million, up 48.8% over last year's $22.1 million and up 29.6% over last quarter's $25.4 million. Across the company's three business segments, Automotive Navigation revenues were $22.9 million, up 37.3% year-over-year and 19.5% sequentially. This was due to an increased number of copies of digital map data licensed for in-dash navigation systems, directly related to the number of vehicles sold in China equipped with these systems. In the Mobile and Internet Location-Based Solutions business, revenue was $5.4 million up 112.6% over last year and 45.3% sequentially due to growth in pre-installation of the navigation solutions on mobile phones. In the Public Sector and Enterprise Applications business, revenues were $4.2 million, up 106.5% over last year and 74.8% sequentially due to progress on government projects during the quarter.
Cost of revenues increased to $9.3 million, up 24.5% year-over-year and 25.2% sequentially due to increased production costs related to government projects and an increase to salaries as a result of the company's data collection expansion. Gross margin increased to 71.7%, up over last year's 66.2% and last quarter's 70.8%. Operating expenses increased 77.2% over last year and 39.2% sequentially largely as a result of increased salaries in R&D, S&M, and G&A from increased personnel. Overall net income was $9.6 million, an increase of 53.8% over last year's $6.2 million, though down 9.8% from last quarter's $10.6 million as a result of increased share-based compensation expenses.
On 8/3/2011, AutoNavi began providing commercial enterprise customers with "newly enhanced location-based business intelligence (LBI) services," offering "integrated tools that allow for improved selection assistance for evaluating new store locations, asset tracking, investigating potential locations for sales promotion, identifying new market opportunities and analyzing consumer behavior as well as a variety of other location-relevant services for commercial enterprises."
AutoNavi has a market cap of $714 million. The stock trades with a P/E ratio of 23.2. Its P/S ratio is 6.5, and its P/B ratio is 2.8. The small cap company carries no debt on its balance sheets.
Apple Inc. (AAPL)
Robertson first bought 161,000 shares of Apple back in the fourth quarter of 2008 when the stock was traded at an average price of less than $95. As the price of the stock increased in each of the next four quarters to more than $200, Robertson began to sell off his shares, reducing his position by nearly half. However, Apple stock kept rising, prompting Robertson to add another 72,000 shares in early 2010. He sold 70,000 shares between mid 2010 and early 2011 at an average price of more than $300. In his most recent move, Robertson added another 25,200 shares of Apple at an average price of $337.60, impacting his portfolio by 2.27% and giving him 106,330 total shares of the company. The stock has since increased in price by 11%.
Apple Inc. designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Its core products include the Mac line of computers, iPhone smartphones, iPad tablets, and iPod music players. In addition to its online and retail stores, the company sells digital content and applications through its iTunes Store.
According to Apple's third quarter report for the period ended June 25, the company posted record quarterly revenue of $28.57 billion and record quarterly net income of $7.31 billion. Revenue increased by 82% over last year's $15.70 billion, and net income increased by 125% over last year's $3.25 billion. Overall, gross margin also increased in the quarter to 41.7%, up from last year's 39.1%, as a result of a more favorable sales mix towards products with higher gross margins, a weaker U.S. dollar, and lower manufacturing costs.
Driving the growth in revenue was a 179% increase in revenue from the iPad and related products and services. iPhone sales were similarly strong, increasing 150% in revenue. Total Mac net sales increased 16% over last year, with growth in both desktops and portables. The only product to report a year-over-year decrease in sales was the iPod, down 14%, though music related products and services saw sales increase by 29%.
Apple currently has a market cap of $350 billion. Its stock trades with a P/E ratio of 14.9, near its ten-year low. Its P/S ratio is 3.5, slightly above its ten-year average. Quarterly sales per share are at a historical high at $30.90 per share. Its P/B ratio is 5.0, below its five-year average and slightly below its ten-year average. Book value per share has grown exponentially over the past six years, now at a high of $74.98 per share. Apple carries no long-term debt on its balance sheet. Gross margin has been improving over the past five years, currently at 41.7%, and return on equity has also been trending upwards, currently at 42.2%. Apple has also generated consistent free cash flow over the past five years, and it generated $10.3 billion in free cash flow last quarter.
On 6/6/2011, Apple introduced its iCloud, a "breakthrough set of free new cloud services that work seamlessly with applications on your iPhone, iPad, iPod touch, Mac or PC to automatically and wirelessly store your content in iCloud and automatically and wirelessly push it to all your devices." The iCloud will be available in the fall concurrent with iOS 5.
On 7/20/2011, Apple announced the release of Mac OS X Lion, the eighth major release of the company's operating system. The new OS introduces more than 250 new features to the Mac. The company reported that over one million users bought the new OS on the first day of its release.
On 8/16/2011, Taiwanese smartphone maker HTC Corp. accused Apple of violating three patents covering smartphones and other technologies, the latest in an ongoing dispute between the two companies.
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