John Hussman (Trades, Portfolio), leader of Hussman Strategic Advisors, disclosed that he established 49 new positions when he released his second-quarter portfolio earlier this week.
With a focus on long-term growth of capital, Hussman picks a diverse number of stocks that demonstrate favorable valuations, market action and financial stability. He is also known to hedge his portfolio to protect it from market fluctuations.
Among the stocks that met these criteria in the most recent quarter were Generac Holdings Inc. (GNRC, Financial), Fastenal Co. (FAST, Financial), Xylem Inc. (XYL, Financial), CF Industries Holdings Inc. (CF, Financial) and Amneal Pharmaceuticals Inc. (AMRX, Financial).
Generac Holdings
Having previously closed a position in Generac in the first quarter of 2017, Hussman established a new 76,100-share holding for an average price of $48.51 per share. The trade had an impact of 1.06% on the equity portfolio.
The Wisconsin-based manufacturer of backup power generation products has a market cap of $3.44 billion; its shares were trading around $55.50 on Wednesday with a price-earnings ratio of 20.05, a price-book ratio of 6.05 and a price-sales ratio of 1.98.
The Peter Lynch chart below shows the stock is trading higher than its earnings line, suggesting it is overpriced.
GuruFocus rated Generac’s financial strength 5 out of 10. While the company’s interest coverage meets Benjamin Graham’s standard of 5, it falls below the industry average of 39.09. The Altman Z-Score of 3.26, however, indicates it is financially strong. The company’s profitability and growth scored a 7 out of 10 rating. While the operating margin has declined in recent years, it still outperforms 84% of industry peers. The company is also supported by a high Piotroski F-Score of 7, which means business conditions are good. Generac also has a business predictability ranking of one out of five stars. According to GuruFocus, companies with this rank typically see an average gain of 1.1% per year.
Of the gurus invested in Generac, Mairs and Power (Trades, Portfolio) has the largest position with 1.38% of outstanding shares. Joel Greenblatt (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Lee Ainslie (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Paul Tudor Jones (Trades, Portfolio), Hotchkis & Wiley and David Dreman (Trades, Portfolio) also own the stock.
Fastenal
The guru invested in 76,200 shares of Fastenal for an average price of $51.75 per share, allocating 0.99% of the equity portfolio to the position. He previously exited the stock in the third quarter of 2017.
The industrial supplies company, which is headquartered in Winona, Minnesota, has a market cap of $16.29 billion; its shares were trading around $56.68 on Wednesday with a price-earnings ratio of 23.85, a price-book ratio of 7.32 and a price-sales ratio of 3.49.
According to the Peter Lynch chart below, the stock is overpriced since it is trading higher than its earnings line.
Fastenal’s financial strength and profitability and growth were both rated 8 out of 10 by GuruFocus. While the company has issued approximately $95 million in new long-term debt over the last three years, it is still at a manageable level. In addition, the Altman Z-Score of 15.26 indicates a strong financial position. Even though the operating margin has declined in recent years, it still outperforms 96% of competitors. It is also strengthened by a high Piotoski F-Score of 7 and a 4.5-star business predictability ranking. GuruFocus says companies with this rank see an average gain of 10.6% per year and have consistent revenue and earnings growth.
Mairs and Power (Trades, Portfolio) is the company’s largest guru shareholder with 1.05% of outstanding shares. David Rolfe (Trades, Portfolio), Ron Baron (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Manning & Napier Advisors, Greenblatt, Diamond Hill Capital (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Ruane Cunniff (Trades, Portfolio) are also shareholders.
Xylem
After selling out in the first quarter of 2017, the guru picked up 50,000 shares of Xylem for an average price of $72.65 per share. The trade expanded the equity portfolio 0.91%.
The American company, which produces technologies for the transportation, treatment, measurement and testing of water, has a market cap of $13.44 billion; its shares were trading around $74.70 on Wednesday with a price-earnings ratio of 38.31, a price-book ratio of 5.29 and a price-sales ratio of 2.79.
Based on the Peter Lynch chart below, the stock appears to be overpriced since it is trading above the earnings line.
GuruFocus rated Xylem’s financial strength 5 out of 10. Although the interest coverage meets Graham’s threshold of 5, the Altman Z-Score of 2.84 indicates the company is under some financial pressure. The company’s profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin, which outperforms 75% of competitors, and a moderate Piotroski F-Score of 6.
With 1.33% of outstanding shares, Gabelli is the company’s largest guru shareholder. Pioneer, Greenblatt, Simons and Mariko Gordon (Trades, Portfolio) also hold the stock.
CF Industries
Hussman purchased 75,000 shares of CF Industries for an average price of $40.76 per share, impacting the equity portfolio by 0.9%. He previously closed a position in the stock in the fourth quarter of 2015.
The Illinois-based fertilizer manufacturer has a market cap of $10.35 billion; its shares were trading around $44.37 on Wednesday with a price-earnings ratio of 23.35, a price-book ratio of 2.87 and a price-sales ratio of 2.56.
The Peter Lynch chart below shows the stock is trading above its earnings line, suggesting it is overpriced.
Weighed down by poor interest coverage, CF Industries’ financial strength was rated 4 out of 10 by GuruFocus. In addition, the Altman Z-Score of 1.62 indicates the company is in danger of going bankrupt. The company’s profitability and growth did not fare much better, scoring a 5 out of 10 rating, as its operating margin is declining. The Piotroski F-Score of 6 indicates operations are stable, however. The company also has a one-star business predictability ranking.
The T Rowe Price Equity Income Fund (Trades, Portfolio) has the largest stake in CF Industries, holding 2.32% of outstanding shares. Other gurus who have positions are Manning & Napier, Pioneer, Simons, Ken Fisher (Trades, Portfolio) and Greenblatt.
Amneal Pharmaceuticals
The investor bought 200,000 shares of Amneal for an average price of $17.49 per share, giving it 0.88% space in the equity portfolio.
Headquartered in New Jersey, the pharmaceutical company, which went public in May, has a market cap of $2.2 billion; its shares were trading around $19.15 on Wednesday.
On May 7, the company announced it had completed its combination with Impax Laboratories Inc., leading to its debut on the New York Stock Exchange.
The stock has risen since its initial public offering.
Holding 1.27% of outstanding shares, Fisher is the company’s largest guru shareholder. Hussman holds 0.17%.
Other trades
During the quarter, Hussman also established positions in Tyson Foods Inc. (TSN, Financial), Express Scripts Holdings Inc. (ESRX, Financial), Landstar System Inc. (LSTR, Financial), Diodes Inc. (DIOD, Financial), F5 Networks Inc. (FFIV, Financial) and many other companies.
The equity portfolio, which is composed of 219 stocks, is largely invested in the consumer cyclical and technology sectors, followed closely by health care. According to GuruFocus, the Strategic Growth Fund underperformed the S&P 500 index in 2017 with a return of -12.72%. The index posted a 21.71% return.
Disclosure: No positions.
