Until the Valeant Pharmaceuticals (VRX, Financial) saga erupted in late October, largest shareholder Sequoia Fund was having, unlike many of its peers, a good year and decade.
Sequoia (SEQUX, Financial) returned 1.97% for the year through Sept. 30, compared to a 5.29% decline for the S&P 500. In five years it delivered an average annual total return of 15.5% versus 13.3% for the index, and 9.55% over the decade versus the index’s 6.8%. The fund has lost almost 19% in the past month, however, after a Citron short-seller report blasted its largest position, Valeant, worth more than a third of the portfolio, and stirred weeks of controversy regarding the company's accounting and business practices.
Valeant had driven much of the fund’s returns, its shares gaining roughly 483% over the five years through the end of September. Sequoia has not reported selling any of its Valeant shares to date, only increasing its stake by 5.3% to 35,900,026 shares, or 10.5% of the company, on Oct. 31.
The investment advisor and distributor of the value-oriented fund, Ruane Cunniff & Goldfarb, started nine other positions in the third quarter. Its portfolio, with 149 stocks valued at $19.5 billion, has a 39.9% healthcare sector allocation. Its second largest position, under Valeant, was Berkshire Hathaway (BRK.A, Financial), with a 9.4% portfolio weight.
The Sequoia Fund’s strategy is straightforward value investing – pursuing undervalued stocks and viewing shares as pieces of a business, managers wrote in their second quarter letter.
“Rather than try to guess what might happen next, we think it more prudent to own a portfolio of market-leading companies that earn high returns on capital, boast strong balance sheets and self-fund their growth. We try to invest alongside motivated and ethical management teams and to identify businesses with many years of growth ahead of them,” they said.
Of Ruane Cunniff’s nine new buys in the third quarter, these five topped the list by size: Allergan PLC (AGN, Financial), Time Warner Cable Inc. (TWC, Financial), Vipshop Holdings Ltd. (VIPS, Financial), Align Technology Inc. (ALGN, Financial) and Jumei International Holding Ltd. (JMEI, Financial).
Ruane Cunniff purchased 1,103,395 shares of new holding Allergan PLC in the third quarter, a 1.54% portfolio weight. The stock’s price averaged $307 per share for the quarter.
Allergan PLC, formerly known as Actavis PLC, was incorporated in Ireland on May 16, 2013. Allergan PLC has a market cap of $119.12 billion; its shares were traded at around $302.24 with a P/E ratio of 38.36 and P/S ratio of 5.18. The dividend yield of Allergan PLC stocks is 0.09%. Allergan PLC had an annual average earnings growth of 3.80% over the past five years.
Time Warner Cable Inc. (TWC, Financial)
Managers purchased 143,904 shares of Time Warner Cable Inc., a 0.13% portfolio weight. The company’s share price averaged $187 for the quarter.
Time Warner Cable Inc. was incorporated as a Delaware corporation on March 21, 2003. Time Warner Cable Inc. has a market cap of $52.31 billion; its shares were traded at around $184.72 with a P/E ratio of 27.62 and P/S ratio of 2.24. The dividend yield of Time Warner Cable Inc. stocks is 1.61%. Time Warner Cable Inc. had an annual average earnings growth of 10.90% over the past five years.
Vipshop Holdings Ltd. (VIPS, Financial)
Managers purchased 770,000 shares of Vipshop Holdings Ltd., a 0.07% portfolio weight. The company’s share price averaged $19.
Vipshop Holdings Ltd. was incorporated in the Cayman Islands on Aug. 27, 2010. Vipshop Holdings Ltd. has a market cap of $8.28 billion; its shares were traded at around $14.28 with a P/E ratio of 56.8 and P/S ratio of 1.76.
Align Technology Inc. (ALGN, Financial)
Managers purchased 70,747 shares of Align Technology Inc., a 0.02% portfolio weight. Its price averaged $60 per share for the quarter.
Align Technology Inc. was founded in March 1997 and incorporated in Delaware in April 1997. Align Technology Inc. has a market cap of $5.34 billion; its shares were traded at around $67.15 with a P/E ratio of 40.6 and P/S ratio of 6.73.
Jumei International Holding Ltd. (JMEI, Financial)
Managers purchased 365,337 shares of Jumei International Holding, a 0.02% portfolio weight. Its share price averaged $15 for the quarter.
Jumei International Holding Ltd. is an online retailer of beauty products. Jumei International Holding Ltd. has a market cap of $1.26 billion; its shares were traded at around $8.66 with a P/E ratio of 20.12 and P/S ratio of 1.5.
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