The Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio) disclosed seven new positions when it released its second-quarter portfolio this week.
Managed by Jason Kritzer and Samantha Pandolfi, the fund invests heavily in the health care space. The portfolio managers search around the world for securities that are not only reasonably priced, but which they believe will grow in value over time.
The five largest new positions the fund established during the quarter were GlaxoSmithKline PLC (LSE:GSK, Financial), Novartis AG (NVS, Financial), Lonza Group Ltd. (XSWX:LONN, Financial), Medtronic PLC (MDT, Financial) and Masimo Corp. (MASI, Financial).
GlaxoSmithKline
The fund invested in 1.3 million shares of GlaxoSmithKline for an average price of 14.14 pounds ($18.47) per share, giving the stake 2.68% space in the equity portfolio.
The U.K.-based pharmaceutical company, whose products include Advair and Zantac, has a market cap of 77.99 billion pounds; its shares closed at 15.72 pounds on Wednesday with a price-earnings ratio of 46.24, a price-book ratio of 21.19 and a price-sales ratio of 2.59.
The Peter Lynch chart below shows the stock is trading above the earnings line, suggesting it is overpriced.
GuruFocus rated GlaxoSmithKline’s financial strength 5 out of 10. Although the company has issued 8.6 billion pounds in new long-term debt over the last three years, it is still at a manageable level. In addition, the Altman Z-Score of 1.54 indicates the company is at risk of going bankrupt. The company’s profitability and growth was rated 7 out of 10. While the operating margin has declined over the last several years, it still outperforms 66% of competitors. In addition, the moderate Piotroski F-Score of 5 implies conditions are stable. GuruFocus ranked the company’s business predictability one out of five stars. GuruFocus says companies with this rank typically see an average gain of 1.1% per year. The ranking is on watch, however, as GlaxoSmithKline has posted an operating income loss for the last three years.
Of the gurus invested in GlaxoSmithKline, the Tweedy Browne (Trades, Portfolio) Global Value Fund has the largest position with 0.24% of outstanding shares. The Causeway International Value (Trades, Portfolio) Fund and the T Rowe Price Equity Income Fund (Trades, Portfolio) also have stakes.
Novartis
Having previously exited a position in Novartis in the second quarter of 2017, Eaton Vance established a new 295,000-share holding for an average price of $79.19 per share. The fund allocated 2.22% of the equity portfolio to the holding.
The pharmaceutical company, which is headquartered in Switzerland, has a market cap of $195.3 billion; its shares were trading around $83.75 on Thursday with a price-earnings ratio of 14.45, a price-book ratio of 2.56 and a price-sales ratio of 3.87.
According to the Peter Lynch chart below, the stock is undervalued since it is trading slightly below the earnings line.
Novartis’ financial strength was rated 6 out of 10 by GuruFocus. While the company has sufficient interest coverage, the Altman Z-Score of 2.57 indicates it is under some financial pressure. The company’s profitability and growth scored a 7 out of 10 rating. Even though the operating margin is in decline, it still outperforms 76% of industry peers. In addition, the company has a strong Piotroski F-Score of 7 and a one-star business predictability ranking.
Dodge & Cox has the largest stake in Novartis among the gurus with 1.91% of outstanding shares. Other guru shareholders include PRIMECAP Management (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Manning & Napier Advisors, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Sarah Ketterer (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).
Lonza Group
The fund managers picked up 55,571 shares of Lonza for an average price of 244.03 Swiss francs ($245.46) per share, dedicating 1.51% of the equity portfolio to the position.
The Swiss company, which supplies products to the pharmaceutical, biotech and specialty ingredients markets, has a market cap of 22.67 billion Swiss francs; its shares closed at 305.3 francs on Tuesday with a price-earnings ratio of 28.80, a price-book ratio of 3.59 and a price-sales ratio of 4.09.
Based on the Peter Lynch chart below, the stock appears to be overpriced since it is trading higher than its earnings line.
Supported by sufficient interest coverage, Lonza’s financial strength was rated 5 out of 10 by GuruFocus. The Altman Z-Score of 2.67, however, suggests the company is experiencing minor financial stress. Boosted by an expanding operating margin, the company’s profitability and growth scored a 7 out of 10 rating. In addition, it has a moderate Piotroski F-Score of 6 and a one-star business predictability ranking.
The fund holds 0.07% of Lonza’s outstanding shares.
Medtronic
Having previously closed a Medtronic holding in the second quarter, the fund initiated a new position of 117,565 shares for an average price of $81.47 per share. The trade had an impact of 1.03% on the equity portfolio.
The Minneapolis-based manufacturer of medical devices has a $121.49 billion market cap; its shares were trading around $89.98 on Thursday with a price-earnings ratio of 39.77, a price-book ratio of 2.40 and a price-sales ratio of 4.10.
The Peter Lynch chart below suggests the stock is overpriced as it is trading well above the earnings line.
GuruFocus rated Medtronic’s financial strength 6 out of 10. While the company’s interest coverage meets Benjamin Graham’s threshold of 5, it is below the industry median of 66.37. In addition, the Altman Z-Score of 2.92 indicates it is under some financial pressure. Supported by a high Piotroski F-Score of 8, the company’s profitability and growth was rated 8 out of 10. The operating margin, which has been in decline for the past several years, outperforms 88% of competitors. In addition, the company has a 4.5-star business predictability ranking. According to GuruFocus, companies with this coveted rank typically see an average gain of 10.6% per year and have consistent earnings and revenue growth.
With 1.39% of outstanding shares, Dodge & Cox is the company’s largest guru shareholder. Other gurus invested in the stock include the Vanguard Health Care Fund (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Primecap, Manning & Napier, Jeremy Grantham (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).
Masimo
Eaton Vance purchased 58,354 shares of Masimo for an average price of $90.61 per share, filling 0.59% of the equity portfolio.
The manufacturer of noninvasive monitoring technologies, which is based in California, has a market cap of $5.53 billion; its shares were trading around $108.53 on Thursday with a price-earnings ratio of 45.45, a price-book ratio of 7.21 and a price-sales ratio of 7.23.
According to the Peter Lynch chart below, the stock is overpriced since it is trading higher than the earnings line.
Strengthened by a high Altman Z-Score of 19.97 and no debt, Masimo’s financial strength was rated a perfect 10 by GuruFocus. The company’s profitability and growth scored an 8 out of 10 rating, boosted by an expanding operating margin, a moderate Piotroski F-Score of 6 and a one-star business predictability ranking.
Cohen is the company’s largest guru shareholder with 2.75% of outstanding shares. Columbia Wanger (Trades, Portfolio), Simons’ Renaissance Technologies, Mario Gabelli (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Pioneer also see value in Masimo.
Additional trades
During the quarter, the fund also established positions in Bluebird Bio Inc. (BLUE, Financial) and Atara Biotherapeutics Inc. (ATRA, Financial) as well as added to many other holdings, including Merck & Co. Inc. (MRK, Financial), Abbott Laboratories (ABT, Financial) and Baxter International Inc. (BAX).
According to its fact sheet, the fund’s 60-stock equity portfolio underperformed the MSCI World Health Care Index in 2017 with a return of 16.24%. The index posted a 19.80% return.
Disclosure: No positions.
