The Vanguard Health Care Fund (Trades, Portfolio) established five new holdings in the final quarter of 2016. The holdings are ConvaTec Group PLC (LSE:CTEC, Financial), Ionis Pharmaceuticals Inc. (IONS, Financial), Samsung BioLogics Co. Ltd. (XKRX:207940, Financial), Shanghai Fosun Pharmaceutical Group Co. Ltd. (SHSE:600196, Financial) and Aspen Pharmacare Holdings Ltd. (JSE:APN, Financial).
The fund was established in May 1984. It is currently managed by Jean Hynes. The fund seeks long-term capital appreciation by investing in health care stocks. It finds quality stocks using fundamental research that focuses on strong balance sheets, good management and the potential for a company’s new products to produce above-average growth in revenue and earnings. Due to the manager’s contrarian style, the fund will purchase stocks after an adverse event causes a decline in share price.
The fund purchased 14,905,700 shares of ConvaTec for an average price of 2.39 pounds ($3.02) per share. The trade expanded the portfolio by 0.1%.
Headquartered in Reading, England, the company is an international medical products and technologies company that specializes in products for wound and skin care, ostomy care, continence and critical care and infusion devices. It was established as a division of E.R. Squibb & Sons (later Bristol-Myers Squibb (BMY, Financial)) in 1978 and was acquired by Nordic Capital and Avista Capital Partners in 2008. The company went public on the London Stock Exchange in October 2016. Valued at 4.4 billion pounds, it was the largest initial public offering for the year on that exchange, according to Bloomberg.
ConvaTec has a market cap of 4.8 billion pounds; its shares were trading around 2.46 pounds on Wednesday with a price-earnings (P/E) ratio of 16.6.
Vanguard is the only guru invested in the company since it is new to the market. It holds 0.76% of ConvaTec’s outstanding shares.
The fund purchased 772 thousand shares of Ionis Pharmaceuticals for an average price of $39.57 per share. The transaction had an impact of 0.09% on the portfolio.
Ionis is engaged in the development of antisense drugs, a form of therapy that involves strands of noncoding messenger RNA to treat genetic disorders or infections. The company has a market cap of $5.44 billion and an enterprise value of $5.2 billion. Its shares were trading around $44.67 on Wednesday with a price-book (P/B) ratio of 38.9 and a price-sales (P/S) ratio of 23.
The Peter Lynch chart below shows the stock is trading above its fair value.
GuruFocus ranked the company’s financial strength 5 of 10. It has a low Piotroski F-Score of 1 and an Altman Z-Score of 2.9, suggesting the company is in poor financial condition. The cash-debt ratio of 1.4 indicates the company is capable of covering its debt with cash on hand.
Ionis’ profitability and growth was ranked 4 of 10 by GuruFocus. While its operating margin and net margin are negative, they still outperform other companies in the global biotechnology industry. The return on assets (ROA) and return on capital (ROC) also outperform 58% and 59% of competitors. The return on equity (ROE), however, underperforms 81% of competitors.
Vanguard is the largest shareholder among the gurus with 0.64% of outstanding shares, which represents 0.09% of its total assets managed. Jim Simons (Trades, Portfolio) and Murray Stahl (Trades, Portfolio) also hold positions.
Vanguard bought 241,834 shares of Samsung BioLogics for an average price of 153,542.86 won ($132.70) per share. The trade expanded the portfolio by 0.7%.
Samsung BioLogics is the contract drug manufacturing unit of Samsung Group. It specializes in research, development and commercialization of biological health care products worldwide. The company went public in October 2016. It was recorded as South Korea’s largest IPO in six years after raking in 2.25 trillion won.
The company has an enterprise value of 657.4 billion won; its shares were trading around 161,000 won on Wednesday with a P/E ratio of 2.1 and a P/B ratio of 1.4.
Vanguard is the only shareholder among the gurus.
The fund bought 5,837,500 shares of Shanghai Fosun for an average price of 23.5 yuan ($3.42) per share. The transaction had an impact of 0.04% on the portfolio.
Shanghai Fosun is a Chinese pharmaceutical company that manufactures genetic medicines, traditional Chinese medicines, diagnostic products and medical instruments. It also provides technology, marketing and advertising services. The company has a market cap of 60.17 billion yuan and an enterprise value of 69.7 billion yuan. Its shares were trading around 24.92 yuan on Wednesday with a P/E ratio of 21.12, a P/B ratio of 3.1 and a P/S ratio of 4.1.
The Peter Lynch chart below indicates the stock is trading above its fair value.
GuruFocus ranked the company’s financial strength 5 of 10. The Piotroski F-Score of 6 and Altman Z-Score of 2.5 suggest the company is in stable business condition but does have some fiduciary stress. The company is creating value as it grows because its return on invested capital (ROIC) outperforms its weighted average cost of capital (WACC). The cash-debt ratio of 0.5 indicates the company is not able to cover outstanding debt with cash on hand.
The company’s profitability and growth was ranked 8 of 10 by GuruFocus. It has an operating margin of 24.5% and a net margin of 19.4%. The ROE and ROA outperform 73% and 68% of other companies in the global drug manufacturers - specialty and generic industry. Similarly, the ROC outperforms 90% of competitors.
The fund is the only guru invested in Shanghai Fosun. It holds 0.24% of the company’s outstanding shares.
Vanguard bought 867,480 shares of Aspen Pharmacare for an average price of 291.41 rand ($21.70) per share. The trade expanded the portfolio by 0.04%.
Aspen is a multinational South African holding company and the largest drug company in Africa. It supplies more than 650 generic medications. It also specializes in treatments for HIV, AIDS and tuberculosis. Founded over 160 years ago, the company says it is “committed to sustaining life and promoting health care through increasing access to its high-quality, affordable medicines and products.” The company went public in 1997.
It has a market cap of 140.4 billion rand; its shares were trading around 308 rand on Wednesday with a P/E ratio of 32.6 and a P/B ratio of 3.3.
Vanguard invests almost exclusively in health care stocks. It has a weight of 95.4% in the health care sector.
Disclosure: I do not own any stocks mentioned in the article.
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