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Sydnee Gatewood
Sydnee Gatewood
Articles (158) 

David Tepper Invests Heavily in Pharma in 4th Quarter

Guru gains 4 drug manufacturers, adds to Allergan

February 16, 2017 | About:

David Tepper (Trades, Portfolio), founder and president of Appaloosa Management, gained new holdings in pharmaceutical companies in the final quarter of 2016.

Tepper founded his firm in 1993. Over the course of his career, he has gained international recognition for producing some of the highest returns among Wall Street investors. As a distressed debt specialist, the guru generally invests in companies when they are trading at a cheap price and sells them when the price increases. His current portfolio is composed of 54 stocks, 21 of which are new holdings.

During the fourth quarter, he established positions in Teva Pharmaceutical Industries Ltd. (NYSE:TEVA), Pfizer Inc. (NYSE:PFE), Mylan NV (NASDAQ:MYL) and Bristol-Myers Squibb Co. (NYSE:BMY) as well as added to his Allergan PLC (NYSE:AGN) stake.

Tepper purchased 5,053,000 shares of Teva Pharmaceutical for an average price of $39.93 per share, expanding the portfolio by 3.3%. With this transaction, Teva became one of the guru’s top 10 holdings.

Teva produces generic pharmaceutical products, including Copaxone, Azilect and Provigil. The company has a market cap of $37.3 billion; its shares were trading around $36.77 on Thursday with a price-earnings (P/E) ratio of 525.3, a forward P/E of 7.8, a price-book (P/B) ratio of 1.1 and a price-sales (P/S) ratio of 1.6.

The Peter Lynch chart below shows the stock is trading above its fair value.

1487181063845.png

GuruFocus ranked the company’s financial strength 4 of 10 and its profitability and growth 6 of 10. The trailing 12-month dividend yield and forward dividend yield are 3.9%. Over the past five years, the dividend has grown at a rate of 9% per year.

Barrow, Hanley, Mewhinney & Strauss is Teva’s largest guru shareholder with 3.2% of outstanding shares. In total, 19 gurus hold the stock.

After previously selling out of Pfizer in second-quarter 2016, Tepper initiated a new stake of 4.81 million shares, giving it 2.7% portfolio space. He paid an average price of $32.18 per share. Pfizer also ranks among the guru’s top 10 holdings.

Pfizer produces a variety of well-known drugs, including Lipitor, Lyrica, Celebrex and Viagra. The biopharmaceutical company has a market cap of $203.4 billion; its shares were trading around $33.51 on Thursday with a P/E ratio of 28.8, a forward P/E ratio of 13.1, a P/B ratio of 3.2 and a P/S ratio of 3.9.

The Peter Lynch chart below shows the stock is trading above its fair value.

1487256732755.png

GuruFocus ranked Pfizer’s financial strength 6 of 10 and its profitability and growth 5 of 10. The trailing 12-month dividend yield is 3.6% and the forward dividend yield is 3.9%. Over the past five years, the dividend has grown at an average rate of 8.4% per year.

Barrow, Hanley, Mewhinney & Strauss is the company’s largest shareholder among the gurus with 0.7% of outstanding shares, representing 2.2% of its total assets managed. In total, 33 gurus hold the stock.

After previously selling out of Mylan in first-quarter 2016, Tepper established a new holding of 3,275,000 shares, expanding the portfolio 2.2%. He paid an average price of $37.16 per share.

Mylan produces over 2,700 generic and specialty pharmaceuticals, including EpiPens. The company has a market cap of $22.7 billion; its shares were trading around $42.01 on Thursday with a P/E ratio of 83.2, a forward P/E ratio of 7.8, a P/B ratio of 1.9 and a P/S ratio of 2.1.

The Peter Lynch chart below shows the stock is trading above its fair value.

1487257646666.png

GuruFocus ranked Mylan’s financial strength 4 of 10 and its profitability and growth 7 of 10. The company does not currently pay a dividend to holders of its common stock. The return on equity (ROE), return on assets (ROA) and return on capital (ROC) underperform 65%, 64% and 55% of its competitors. Over the past three years, the company has grown its revenue at a rate of 5.4% per year, its EBITDA at a rate of 5.2% per year and its EPS at a rate of 3.8% per year.

The Vanguard Health Care Fund (Trades, Portfolio) is the company’s largest shareholder among the gurus with 5.2% of its outstanding shares. This represents 2.6% of its total assets managed. In all, 11 gurus hold the stock.

The guru purchased 375,000 shares of Bristol-Myers Squibb for an average price of $54.67 per share, expanding the portfolio 0.4%.

Bristol-Myers focuses on producing products to treat patients with serious diseases. Its products include Avactam, Coumadin, Droxia, Plavix and Pravachol. The company has a market cap of $91.3 billion; its shares were trading around $54.62 on Thursday with a P/E ratio of 20.6, a forward P/E ratio of 18.9, a P/B ratio of 5.8 and a P/S ratio of 4.7.

The Peter Lynch chart below shows the stock is trading above its fair value.

1487258756361.png

GuruFocus ranked Bristol-Myers’ financial strength 7 of 10 and its profitability and growth 4 of 10. The trailing 12-month dividend yield is 2.8% and the forward dividend yield is 2.9%. Over the past five years, the dividend has grown at a rate of 2.8% per year.

Vanguard is also Bristol-Myers’ largest guru shareholder with 2.7% of its outstanding shares. This represents 7.1% of the fund’s total assets managed. In all, 23 gurus hold the stock.

Tepper increased his stake in Allergan by 249.8%, purchasing 3,043,906 shares for an average price of $207.16 per share. With a total weight of 15.8%, it is now Tepper’s largest holding.

Allergan produces specialty pharmaceuticals, including Botox, Juvederm, Latisse and Zenpep. It has a market cap of $92.8 billion; its shares were trading around $247.67 on Thursday with a P/E ratio of 6.6, a forward P/E ratio of 15.6, a P/B ratio of 1.2 and a P/S ratio of 6.4.

The Peter Lynch chart below shows the stock is trading significantly above its fair value.

1487259396505.png

GuruFocus ranked Allergan’s financial strength 5 of 10 and its profitability and growth 4 of 10. The forward dividend yield is 1.13%. It will pay its first quarterly dividend of 70 cents on March 28.

Vanguard is the largest guru shareholder of Allergan with 3.2% of outstanding shares, representing 5.9% of its total assets managed. Tepper is second with 1.14% of outstanding shares. In total, 34 gurus hold the stock.

Health care stocks have a total weight of 27.7% in the portfolio. For all of Tepper’s current holdings, view his portfolio.

Disclosure: I do not own any stocks mentioned in the article.

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About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and an MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneeg

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