Legendary value investor Jeremy Grantham (Trades, Portfolio) has disclosed his three largest stock picks for the final months of the year.
Grantham bought shares of Orbital ATK Inc. (OA, Financial), an aerospace company that has been acquired by aerospace systems giant Northrop Grumman Corp. (NOC, Financial).
Grumman, whose stock this week reached a 52-week high of $356 a share, announced in September plans to buy Orbital for $9.2 billion. The European Commission authorized the union just this week.
Grantham‘s second stock pick is Shake Shack (SHAK, Financial), a fast-casual restaurant chain that began as a food cart inside Madison Square Park in 2004.
The guru’s third new position is in iShares Inc. MSCI South Korea (EWY, Financial), an index exposed to equities in South Korea.
Of 757 stocks in all, 109 are new to the $17 billion portfolio of Grantham’s asset management firm Grantham, Mayo, Van Otterloo & Co.
His portfolio has a 9% turnover rate from the previous quarter of the year. More than 35% of the portfolio is in technology; 17.1% health care; 11.8% financial services; 11.4% consumer cyclical, 6.3% industrials; consumer defensive, ETFs, communication services, basic materials, energy, utilities and real estate make up the remainder.
Orbital ATK
Virginia-based Orbital is releasing its fourth-quarter financial results on Feb. 22. The stock was trading at $132 a share, up .01% on Tuesday. Grantham bought nearly 232,000 shares. The stock’s fourth-quarter share price averaged $132. It takes up 0.18% of the portfolio.
Orbital has a market cap of $7.62 billion. It has a price-earnings ratio of 24.35 and a price-sales ratio of 1.63. The trailing 12-month dividend yield of Orbital is 0.97%. Its revenue growth over the last 12 months is 10.40%. Prior to that, its revenue per share has been in decline.
One key warning sign is the company’s Beneish M-score implies it might have manipulated its financial results.
GuruFocus rated it a business predictability rating of one star. The rating is based, among other things, on GuruFocus rankings of 5 out of 10 in financial strength and profitability and growth.
Grumman said in September the acquisition would trigger an annual cost savings of $150 million a year by 2020. It also said it would create strong combined cash flow generation that supports financial flexibility.
Shake Shack
Grantham purchased 900,000 shares of the New York City-based company. The average price in the quarter was $38 a share. It holds 0.23% of the portfolio.
Shake Shack was down 2% on Tuesday for a share price of $37.20. It stock has surged 21% in the last six months and was at a high of over $92 a share in 2015.
The company has a market cap of $1.36 billion and a price-sales ratio of 6.12, which is lower than 90% of its peers.
Its revenue has grown 11% over the last 12 months.
Its earnings per share without nonrecurring items for the trailing 12 months ended Sept. 2017 was 63 cents.
A warning sign is it has a short interest of 38.40, signifying a large portion of its float is made up of short sales.
GuruFocus gives it a financial strength rating of 8 out of 10 and a profitability and growth rating of 5 of 10.
iShares Inc. MSCI South Korea
The index has a market cap of $4.2 billion. Grantham purchased 2.5 million shares for an average price of $74 a share. It represents 1.1% of the portfolio.
Gurus David Swensen (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) also had held the stock, but sold out last year.
It has a trailing 12-month dividend of $2.50 and a dividend yield of 3.45%. Its latest pay date was Dec. 26. It pays out annually. Its historical trailing 12-month price-earnings ratio is 13.60. Its price-book ratio is 1.3%.
