John Griffin (Trades, Portfolio), president of Blue Ridge Capital, previously worked with Julian Robertson (Trades, Portfolio) at Tiger Funds before founding Blue Ridge in 1996. The fund seeks absolute returns using a long/short equity approach that invests in companies with strong performance relative to their industry and shorts those with fundamental problems. Griffin usually takes long positions, a trend that continued during the third quarter of 2016. The guru took stakes in three companies and added to two others.
Griffin purchased 5,202,600 shares of Citigroup, increasing his portfolio by 2.91%. The global bank’s stock price averaged $45.49 during the third quarter.
As discussed in a previous article, several gurus, including Seth Klarman (Trades, Portfolio), axed their stake in Citigroup as the company shows low growth potential. However, the global bank still exhibits good three-year EBITDA growth and three-year earnings per share growth, both near a 10-year high and outperforming over 87% of competitors. Citigroup reported an 8% increase in book value per share and tangible book value per share from third-quarter 2015 to third-quarter 2016.
The president of Blue Ridge purchased 2.6 million shares of Nike, a global athletic footwear and apparel company. Nike’s stock price averaged $54.65 during the quarter.
With a financial strength rank of 8, Nike has a robust business operation. The company’s interest coverage outperforms 66% of global footwear and accessories companies, and its Altman Z-score of 8.68 suggests that Nike seldom faced distress. Additionally, the company’s return on invested capital significantly outperforms its WACC, implying high value creation.
The Oregon-based apparel company reported strong performance results in their fiscal first quarter of 2017, including a 9% increase in diluted earnings per share. Strong revenue growth and operating overhead leverage likely resulted in the high EPS growth. CEO Mark Parker further cherished the company’s strong first-quarter results through sports style innovation and strategic investments in their supply chain and customer connections. The strong earnings likely led to expanding operating margins and consistent per-share revenue growth, the former outperforming 84% of competitors. Nike also maintained a predictability rank of four stars.
Griffin purchased 558,300 shares of Allergan at an average price of $244.37, increasing his portfolio by 1.53%. The guru owns 1,259,200 shares as of Sept. 30.
Even though the company had negative operating margins, Allergan’s net margin or 83.91% outperforms 99% of global specialty and generic drug manufacturing companies. The high net margin is likely due to significantly high net income from discontinued operations, which is included in net income and excluded from operating income.
Allergan reported strong performance in the third quarter of 2016, including a 7.4% increase in adjusted revenue growth from third quarter 2015, accelerated share repurchase programs and the initiation of a cash dividend in 2017. Likely due to the strong revenue outlook, chief financial officer Maria Hilado purchased 1,422 shares in a near $300,000 transaction.
Goldman Sachs Group Inc. (GS, Financial)
The Blue Ridge Capital president bought 440,000 shares of Goldman Sachs at an average price of $162.57. Griffin increased his portfolio by 0.84% with this transaction.
The New York investment management company has strong profitability despite poor financial strength. Goldman’s operating margin outperforms just 66% of global capital markets and its return on invested capital slightly underperforms its WACC. Even though the company has a modest financial outlook, the company produced strong third-quarter earnings per share of $4.88, which outperforms the earnings for the prior year quarter and the quarter before. The company’s book value per share increased 2.6% during the most recent quarter. Most importantly, Goldman had the highest number of completed mergers and acquisitions worldwide for the year-to-date.
Dodge & Cox and Warren Buffett (Trades, Portfolio) own 15,287,200 and 10,959,519 shares of Goldman, the largest two stakes in the company. The former increased its Goldman position by 1.77%. Ken Heebner (Trades, Portfolio) also invested in the company by purchasing 255,000 new shares.
Amazon.com Inc. (AMZN, Financial)
Griffin added 18.92% to his Amazon position, purchasing 64,900 shares at an average price of $765.45.
As discussed in a previous article, Amazon presents high value potential to shareholders. The company has a five-star predictability rank, and its three-year revenue growth and three-year EBITDA growth both outperform over 91% of global specialty retail companies. Additionally, Amazon’s return on invested capital significantly outperforms its WACC.
See also
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Disclosure: I do not own stock in the companies mentioned in this article.
