Jeff Ubben (Trades, Portfolio)’s ValueAct Capital disclosed it established a new position and closed two others when it released its first-quarter portfolio this week.
The firm, which is activist in nature, takes large positions in a concentrated number of undervalued companies in order to work with them to maximize returns. Ubben handed the reins of the $9.9 billion portfolio over to Mason Morfit last July. He remains at the company as CEO.
During the quarter, ValueAct added SLM Corp. (SLM, Financial) to its portfolio and cut Microsoft Corp. (MSFT, Financial) and Express Scripts Holding Co. (ESRX, Financial).
SLM
The firm invested in 7.4 million shares of SLM for an average price of $11.23 per share, allocating the holding to 0.83% of the portfolio.
The Newark, Delaware-based consumer banking company has a market cap of $5.08 billion; its shares were trading around $11.65 on Wednesday with a price-earnings ratio of 16.69, a price-book ratio of 2.28 and a price-sales ratio of 4.25.
The Peter Lynch chart below shows the stock is trading near its fair value.
Weighed down by $2.7 billion in new long-term debt, SLM’s financial strength and profitability and growth were both rated 4 out of 10 by GuruFocus. Its revenue, however, has ballooned from $674 million in 2013 to $1.1 billion in 2017, a growth rate of 12.2% per annum. In addition, the company has a business predictability rating of one star out of five.
With 7.78% of outstanding shares, Barrow, Hanley, Mewhinney & Strauss is the company’s largest guru shareholder. VA Partners I LLC, Hotchkis & Wiley, Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) also own the stock.
Microsoft
ValueAct dumped its 9.01 million-share stake in Microsoft for an average price of $91.45 per share. The trade had an impact of -7.8% on the portfolio.
GuruFocus estimates the firm has gained an estimated 105% on the investment since the first quarter of 2013.
The California-based software company has a market cap of $746.42 billion; its shares were trading around $97.15 on Wednesday with a price-earnings ratio of 66.54, a price-book ratio of 9.42 and a price-sales ratio of 7.61.
According to the Peter Lynch chart below, the stock is overpriced as it is trading higher than its fair value.
Despite the fact the company has been issuing new long-term debt over the past several years, Microsoft’s financial strength was rated 6 out of 10 as it is at a manageable level. In addition, its Altman Z-Score of 4.10 indicates a healthy financial position. The company’s profitability and growth was rated 8 of 10, boosted by a moderately high Piotroski F-Score of 6 and a 3.5-star business predictability rating. While its operating margin has been declining for the past several years, it still outperforms 93% of competitors.
Unsurprisingly, Bill Gates (Trades, Portfolio) is the company’s largest shareholder with 0.52% of outstanding shares. Dodge & Cox, Pioneer, Ken Fisher (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Spiros Segalas (Trades, Portfolio) and many other gurus are also shareholders.
Express Scripts
The firm sold 1.2 million shares of Express Scripts for an average price of $76.29 per share, impacting the portfolio by -0.91%.
According to GuruFocus, the firm has made an estimated gain of 19% on the investment since the fourth quarter of 2017.
The pharmacy benefits manager, which is headquartered in St. Louis, has a market cap of $41.42 billion; its shares were trading around $73.73 on Wednesday with a price-earnings ratio of 9.26, a price-book ratio of 2.24 and a price-sales ratio of 0.42.
Based on the Peter Lynch chart below, the stock appears to be undervalued as it is trading below its fair value.
Express Scripts’ financial strength was rated 6 out of 10 by GuruFocus. While its interest coverage shows room for improvement, its Altman Z-score of 3.24 indicates the company is financially healthy. The company’s profitability and growth was rated 8 out of 10, driven by an expanding operating margin and a high Piotroski F-Score of 7. In addition, it has a three-star business predictability rating.
The company, which is in the process of being acquired by Cigna (CI, Financial), has drawn the attention of several high-profile guru investors. With 6.23% of outstanding shares, Dodge & Cox is the company’s largest guru shareholder. Barrow, Hanley, Mewhinney & Strauss, Larry Robbins (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Manning & Napier, Charles Brandes (Trades, Portfolio) and Simons, among others, also hold the stock.
Other trades
ValueAct also added to its positions in Citigroup Inc. (C, Financial), Trinity Industries Inc. (TRN, Financial), KKR & Co. LP (KKR, Financial) and Valeant Pharmaceuticals International Inc. (VRX, Financial) during the quarter. It trimmed its CBRE Group Inc. (CBRE, Financial) and Armstrong World Industries Inc. (AWI, Financial) holdings.
The portfolio of 12 stocks is largely invested in the financial services sector.
Disclosure: No positions.
