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Ray Dalio’s Biggest Sells - L3 and Two Prior Top Holdings MSFT and CSC

March 01, 2012 | About:
Holly LaFon

Holly LaFon

277 followers
Bridgewater Associates has $125 billion in assets under management which makes it the world’s largest hedge fund. Superior returns in 2010 and 2011 also ranked it as the best-performing hedge fund both years. Ray Dalio, the mastermind behind it all, is an innovative thinker and global macro investor. He is also the newest guru GuruFocus tracks.

Dalio described his investing approach on Charlie Rose in October, “My job is that I just have to pretty much anticipate what's going to happen and be one step ahead.” Therefore, it’s interesting to see what stocks he did not want going into 2012.

His biggest sells in the fourth quarter were L3 Communications (LLL) and two of his prior top holdings – Computer Sciences Corp. (CSC) and Microsoft Corp. (MSFT).

Microsoft (MSFT)

As recently as the second quarter of 2012, Microsoft was the fifth-largest stock in Dalio’s portfolio. In the fourth quarter he reduced his position by 98.29%, selling 1,717,700 shares at an average price of $26. At the end of the fourth quarter he had 29,904 shares remaining. Since then, the stock price went up 23%.

Microsoft Corp has a market cap of $264.82 billion; its shares were traded at around $32.189 with a P/E ratio of 11.6 and P/S ratio of 3.8. The dividend yield of Microsoft Corp stocks is 2.5%. Microsoft Corp had an annual average earnings growth of 14.4% over the past 10 years. GuruFocus rated Microsoft Corp the business predictability rank of 4.5-star.

George Soros, whose title of most successful hedge fund manager Dalio just usurped, was the only GuruFocus guru to sell more Microsoft than Dalio in the fourth quarter – he completely sold out. Five other Gurus added to their positions.

Most value investors bought the stock on the strength of the company’s free cash flow which has been growing at a rate of 5.9 percent in the past ten years, strong balance sheet with $51.7 billion in cash and $21.8 billion in long-term liabilities and debt, and strikingly low P/E ratio:

MSFT pe,ps,pb Interactive Chart



Microsoft is still innovating. It is investing heavily in marketing to drive demand for its Windows phone, and on Thursday it released a beta version of its Windows 8 server operating system.

Computer Sciences Corp. (CSC)

Computer Sciences Corp. was Dalio’s fourth-largest holding in the third quarter. He reduced that holding by 96.17% in the fourth quarter, selling 1,581,746 shares at an average of $27 per share. In the fourth quarter, the stock dropped to its lowest point of the year, possibly why Dalio sold.

Computer Sciences Corp. offers a broad array of professional services to clients in the global commercial and government markets and specializes in the application of advanced and complex I/T to achieve its customers' strategic objectives. Computer Sciences has a market cap of $4.98 billion; its shares were traded at around $31.82 with a P/E ratio of 8.1 and P/S ratio of 0.3. The dividend yield of Computer Sciences stocks is 2.5%. Computer Sciences had an annual average earnings growth of 7.4% over the past 10 years. GuruFocus rated Computer Sciences the business predictability rank of 4.5-star.

Computer Sciences Corp.’s revenue, EBITDA and earnings had been declining for the past three years, but revenue increased marginally from $15.9 billion in 2010 to $16 billion in 2011. In 2011, the company had complications in its business with the U.S. Federal Government, which was having budget uncertainty, that affected revenue in its North American Public Sector unit and the divestiture of two of its business entities. It also had operating income and earnings per share declines due to accounting adjustments and a profit adjustment.

Dalio, as a global macro investor who predicts that wealthy nations are in decline, may have reduced his investment because too much of the company’s business (37 percent in 2011) comes from the North American public sector and the U.S. federal government is its largest customer.

L3 Communications Holdings Inc. (LLL)

Dalio completely sold his shares of L3 Communications Holdings Inc. in the fourth quarter. He sold 342,871 shares at an average of $67 per share. The quarter prior, he bought 342,871 shares at an average of $71 per share. The company’s stock dropped significantly mid-year and has remained relatively flat to date.

L-3 Communications Holdings is a merchant supplier of sophisticated secure communication systems and specialized communication products. L-3 Comm Holdings has a market cap of $7.02 billion; its shares were traded at around $69.59 with a P/E ratio of 7.9 and P/S ratio of 0.5. The dividend yield of L-3 Comm Holdings stocks is 2.6%. L-3 Comm Holdings had an annual average earnings growth of 15.3% over the past 10 years. GuruFocus rated L-3 Comm Holdings the business predictability rank of 3.5-star.

L3 Communications’s revenue declined slightly from 2009 to 2011, but net income has been increasing slightly. It lowered its fiscal year 2011 revenue guidance in October, and raised its EPS guidance. The U.S. Department of Defense is its largest end-market contributing 76% of 2010 revenue. With all of the uncertainty in the U.S. military budget and Dalio’s preference for emerging markets over developed markets, this likely factored into his decision to sell.

See Ray Dalio’s portfolio here and check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Ray Dalio.


Rating: 3.1/5 (11 votes)

Comments

The Science of Hitting
The Science of Hitting premium member - 2 years ago
Microsoft was a top 5 position?

1.7 million shares at $27/share = $46M, or less than 1/20th of 1% of $125B AUM...

Unless I'm missing something...
guruhl
Guruhl premium member - 2 years ago
Yes, it's not very straightforward. His equity portfolio is much smaller than his overall assets under management, as he has many investments in various asset classes. In addition to that, most of his portfolio was in the S&P and emerging markets ETFs. So, a position can be relatively minor compared to his overall assets and still be a 'top position.'

noblepaladin
Noblepaladin - 2 years ago


I think Bridgewater is more of a macro fund, so you'll see them making bets using ETFs and such. They are not really individual stock pickers.

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