Andreas Halvorsen (Trades, Portfolio), a former managing director of Julian Robertson (Trades, Portfolio)’s Tiger Management Fund, founded Viking Global Investors LP in 1999 and currently serves as the hedge fund’s chief investment officer. During fourth-quarter 2016, the guru gained a position in Deere & Co. (DE, Financial), one of Warren Buffett (Trades, Portfolio)’s major sells for the quarter. Halvorsen also gained positions in Dow Chemical Co. (DOW, Financial), UnitedHealth Group Inc. (UNH, Financial) and Twenty-First Century Fox Inc. (FOXA, Financial).
Deere & Co.
Halvorsen purchased 9,311,050 shares of Deere & Co. at an average price of $94.02 per share. With this transaction, the guru increased his portfolio 4.36%.
Illinois-based John Deere & Co. provides agriculture and forestry products and services. The company operates in three business segments: agriculture/turf, construction/forestry and financial services. Although the company has good profitability, Deere’s financial strength ranks a poor 4 out of 10, implying a weak business outlook for early 2017. The company’s interest coverage is slightly below Ben Graham’s required threshold of 5 and has just $13 in cash per $100 in debt. Additionally, Deere’s Altman Z-score of 2.06 suggests mild financial distress.
Deere’s management reported poor fiscal 2016 earnings results and gave a modest outlook for fiscal 2017. For fiscal 2016, agriculture/turf sales and construction/forestry sales declined 7% and 18%. Management expects that agriculture and turf sales will decline 1% while construction and forestry sales will climb 1% during fiscal 2017. Despite the modest earnings outlook, Deere still “remains in a strong position” to execute good growth plans and attract new customers globally. With a “more durable business model,” Deere’s management expects the company to increase shareholder value in 2017.
While the company’s profit margins and returns outperform more than 85% of global competitors, Deere’s operating margin declined close to a 10-year low of 10.3%. During the past three years, Deere decreased its revenue per share 4.70% per year on average and increased its long-term debt by about $3.1 billion. As the company fails Buffett and Charlie Munger (Trades, Portfolio)’s four-criterion investing approach, the Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO axed his 21,085,061-share stake in Deere & Co. during fourth-quarter 2016.
Dow Chemical
Halvorsen made a giant bet on Dow Chemical, investing 19,651,893 shares in the company. The Michigan science and technology company’s share price averaged $54.99 during the quarter, and Halvorsen expanded his portfolio 5.11% with this transaction. As of Feb. 16, Dow Chemical’s stock traded around $60.95 per share, slightly above its Peter Lynch earnings line.
Dow Chemical has a modest financial outlook with a financial strength rank of 5 and a profitability rank of 4. Despite this, the chemical company has interest coverage slightly higher than 5 and operating margins near a 10-year high of 12.21%. Unlike Deere & Co., whose profit margins declined over the past five years, Dow Chemical had steadily increased operating margins and gross margins since 2009.
The company reported strong performance in fiscal year 2016, delivering on several “strategic priorities including progress on growth investments.” Dow Chemical received several accolades in 2016 including nominations to the Dow Jones Sustainability World Index, Chief Executive’s Top 10 Best Companies for Leaders and Forbes Just 100: America’s Best Corporation Citizens list for its strong performance in 2016.
Halvorsen currently has an estimated gain of about 11% on Dow Chemical based on GuruFocus estimates. As of Dec. 31, 2016, the Viking Global fund manager had the highest ownership in Dow Chemical among gurus.
UnitedHealth Group
Halvorsen purchased 2,213,236 shares of UnitedHealth Group at an average price of $149.38 per share. With this transaction, the guru increased his portfolio 1.61%. As of Feb. 16, the health care plans company’s share price is near a 10-year high of $163.56.
UnitedHealth Group has a solid financial outlook including a profitability rank of 7 and a GuruFocus business predictability rank of a perfect five stars. The company’s operating margin outperforms 72% of competitors albeit declining close to a 10-year low of 6.48%.
Twenty-First Century Fox
Halvorsen purchased 12,287,292 Class A shares of Fox at an average price of $26.90 per share. With this transaction, the guru increased his portfolio 1.57%.
Twenty-First Century Fox has a profitability rank of 9 and a Piotroski F-score of 8, suggesting strong growth potential for early 2017. The company’s return on equity of 21.79% outperforms 85% of global diversified media companies. Additionally, Fox’s operating margin and Greenblatt return on capital are both near 10-year highs.
The New York diversified media company reported strong earnings performance for the three months ending Dec. 31, 2016, including a 4% increase in total revenue from the prior-year quarter. Management discussed the company’s “solid increases in affiliate and advertising revenues across cable and television,” which resulted in double-digit earnings growth in each of the past two quarters. As the company has high growth potential, several gurus gained a position in Fox. Barrow, Hanley, Mewhinney & Strauss purchased 31,086,305 shares, the largest number of shares among gurus that “bought” Fox during the quarter.
Disclosure: I do not own positions in the companies mentioned.
