Julian Robertson's Top Portfolio Holdings: Apple, Amazon, Valeant
Robertson's largest position is Apple, coming in with a 9.56% portfolio weighting. He initiated his current position in Apple when he bought 161,000 shares back in the fourth quarter of 2008 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. During the second quarter, Robertson changed direction by adding another 25,200 shares of Apple at an average price of $337.60. He now owns 106,330 total shares of the company at a current price of $376.18.
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.
Apple made massive headlines yesterday when Steve Jobs resigned as CEO. Jobs co-founded Apple in 1976, developing the Apple II as a entrant in the personal computer market. After leaving the company for nearly a decade, Jobs returned in Apple in 1996, salvaging the company from near-bankruptcy to leave an incredible mark on technological innovation. Under Jobs' vision and leadership, Apple produced the iPod, the iPhone, and the iPad, all of which revolutionized their product markets and helped make Apple the most valuable technology company in the market. However, Jobs has dealt with multiple health issues over the years, most recently taking a leave of absence on January 17. His duties have been filled by Tim Cook, Apple's COO at the time, who now will serve as Jobs' successor as CEO. Jobs will take on the position of chairman, maintaining an active role in the company.
Despite the change at the helm, Apple shares only saw a slight drop in share price. Apple is still on target for its new releases in the near future. The iPhone continues to lead smartphone sales and it has been reported that Apple will begin selling the device to Sprint and T-Mobile mobile carriers. iPhone 5 is expected to launch this October, and the next generation iPad is still in Apple's pipelines. As well, Apple has large growth potential in China, as all four of Apple's Apple Stores in China are incredibly popular, with the fifth to be scheduled to open later in the year. Apple is in talks with China Mobile, the world's largest mobile carrier, to offer the iPhone 5, and China Telecom is also supposed to launch the iPhone 5 at year's end, furthering Apple's growth prospects.
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 14.8, 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.
Amazon.com Inc. (AMZN)
Robertson's second largest position is Amazon with a 7.86% portfolio weighting. Robertson bought 150,350 shares of Amazon in the first quarter of 2011 at an average price of $176.75. As shares rose to $191.69 in the second quarter, Robertson slightly reduced his position, selling off nearly 7,000 shares. He currently owns 143,355 shares of Amazon at a current price of $193.73.
Amazon.com, Inc. operates as an online retailer in North America and internationally. The company lists unique items in categories such as books, music, DVDs, videos, consumer electronics, toys, camera and photo items, software, computer and video games, tools and hardware, lawn and patio items, kitchen products, and wireless products. It also manufactures and sells the Kindle e-reader.
Amazon's second quarter results indicated that net sales increased to $9.91 billion, up 51% over last year's $6.57 billion or up 44% excluding favorable foreign exchange rates. Among Amazon's different segments, Worldwide Media sales grew 27% (20% excluding foreign exchange) and worldwide Electronics and Other General Merchandise sales grew 69% (62% excluding foreign exchange). However, operating income fell to its lowest in eight quarters at $201 million, down from last year's $270 million. Net income was also its lowest value in eight quarters at $191 million, down 8% from last year's net income of $207 million, and net margin was its lowest since 2007 at 1.9%.
During the quarter, the company launched MyHabit.com, a fashion site offering discounts off list prices of designer brands and free shipping in the U.S. Amazon began offering Kindle 3G with Special Offers, paying for Kindle's 3G connectivity in an attempt to offer further convenience to its customers. It also announced three enhancements to Amazon's Cloud Drive and Cloud Player, including unlimited music storage, free Amazon MP3 storage and Cloud Player for Web.
One of Amazon's biggest strengths is its extensive distribution network, enabling the company to deliver its products across the globe. It also earns money by granting third-party sellers access to its logistics and payment infrastructure, accounting for more than a third of all merchandise sold on Amazon. It has a strong debt-to-equity ratio of .274. And in certain states, Amazon is able to conduct business without paying a sales tax.
However, the company trades with a very high P/E ratio of 97.8, well above its five-year average. Its P/S ratio is 2.9, also above its five-year average. Its P/B ratio is 12.7, surprisingly below its five-year average. Recent legislation in California and Illinois have began to eliminate the friendly tax laws that Amazon is enjoying which may hurt sales. Return on equity has also decreased every year since 2005. The company reported its greatest loss in free cash flow in ten years at a loss of $3.8 billion.
Valeant Pharmaceuticals International Inc. (VRX)
Valeant is Robertson's third largest position at 6.71% of his portfolio. Robertson bought Valeant after the stock took a massive tumble, falling more than 50% in average price between the third and fourth quarter of 2010. He bought 600,000 shares at an average price of $27.13, then promptly sold 150,000 shares in the next quarter at an average price of $39.05 – a 44% return in three months. In his most recent move, Robertson added 32,600 more shares of Valeant at an average price of $51.71. He now owns 481,600 total shares of the company at the current price of $42.42.
Valeant Pharmaceuticals International, Inc. is a pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products primarily in the areas of neurology, dermatology and branded generics. The Company produces medicines that meet the special health problems of patients. Valeant's development pipeline strategy comprises both new compounds as well as product life cycle management. Its early and late-stage drug candidates have unique formulations and mechanisms of action including retigabine for the treatment of epilepsy and pain, taribavirin of the treatment of chronic hepatitis C, and several dermatology candidates for the treatment of rosacea, acne, and dermatological fungus.
Valeant's business strategy is to acquire older drugs for diseases not targeted by larger companies whilst maintaining a low tax base and minimal spending on marketing and R&D. According to Chief Executive J. Michael Pearson, "Our whole strategy is based on creating value for shareholders in areas that the large players in the industry aren't focused on." Since Pearson joined the company in 2008,Valeant has made about 30 deals to build up a drug portfolio that is centered around skin-related diseases and neurological conditions.
The company tries to create "incremental sales growth" by promoting drugs that have lost patent protection or are nearing patent expiration through its sales force. The idea is not for huge growth, but rather steady revenue that can be returned to investors through buybacks. The company also is active in acquiring companies "with difficulties we think we can fix," looking to slash R&D and marketing expenses to improve margins.
Valeant reported total revenue of $609.4 million in the second quarter, up from last year's $238.8 million. This included $40.0 million related to milestone payment for European launch of retigabine from GalxoSmithKline (GSK). Product sales were $530.0 million, up from last year's $231.2 million largely due to the acquisition of Valeant Pharmaceuticals International by Biovail Corporation completed September 2010 (in which Biovail was renamed Valeant Pharmaceuticals International, Inc.). Pro forma revenue growth for the combined company was approximately 27%. Pro forma organic revenue growth for the combined company, excluding foreign exchange and acquisitions, was approximately 4%. Cost of goods sold was $169.9 million, with gross margin improving to 71%, up over each of the past two quarters though down from last year's 73.3%. R&D expenses, true to the company's strategies, made up only 3% of revenue. Overall, net income was $56.4 million, up over last year's $34.0 million and last quarter's $6.5 million.
Valeant has made a slew of acquisitions over the past quarter. On 5/24/2011, Valeant agreed to acquire AB Sanitas for approximately €314 million to. Pearson stated that the acquisition will enable Valeant to "expand our European branded generics product portfolio with dermatology and hospital injectable compounds that have a strong track record of growth and profitability." The acquisition is expected to contribute over €100 million in revenue annually.
On 7/11/2011, Valeant agreed to acquire Dermik, a dermatology unit of Sanofi (SNY), for $425 million. Pearson stated "Dermik's assets, both in the medical and aesthetic therapeutic areas, provide us with exciting opportunities to leverage our combined portfolios in our current markets as well as options to expand Valeant's presence to other territories." Last year, annual revenues were approximately $240 million.
On 7/15/2011, Valeant agreed to acquire the Ortho Dermatologics division of Janssen Pharmaceuticals, Inc. for $345 million. In regards to the acquisition, Pearson stated "With the combination of this transaction and other recently announced transactions, Valeant is well on its way to being one of the leading companies in dermatology." Total revenue for the product portfolio acquired was $150 million in 2010.
Valeant has a market cap of $12.8 billion. The stock trades with a P/S ratio of 6.7, above its five-year average. Its P/B ratio of 2.7 is roughly in line with its five-year average. Its debt-to-equity ratio is .975, improving slightly over last quarter's ratio of 1.00.
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