The firm manages only equity portfolios for a select group of employee benefit plans, endowments, foundations, the Vanguard Group, and the PRIMECAP Odyssey Funds. GuruFocus tracks its portfolio under “PRIMECAP Management”. As of September 30, 2009, it manages $56 billion distributed among 237 stocks. When you are so successful, you probably do not need to do much of marketing.
The flagship Vanguard Premecap Fund alone manages $26.27 billion and is closed to new investors in August of 2009. Even for the new investors, the annual additional capital to contribute is limited to $25,000 per account. Through October 31, 2009, the fund’s 1, 3, 5, 10, and since inception (11/01/1984) performance has been 11.98, -2.49, 3.60, 3.37, and 13.02% respectively, as compared to S&P 500’s 9.80, -7.02, 0.33, -0.95 and 10.23% during the corresponding period.
PRIMECAP Management website also gives away the firm’s investment strategy:
Four distinctive principles guide our approach to investment selection: fundamental research, long-term perspective, individual decision-making, and value.
First, we are committed to fundamental research. The primary objective of our research is to develop opinions independent of Wall Street and to understand the companies we follow as well as any industry analyst. We look for stocks where we believe the underlying company's long-term fundamentals will evolve significantly better than the current Wall Street consensus or valuation suggests. This can be a function of greater expectations we have for new products, new markets, new management, changing industry dynamics, etc. Our research involves interacting directly with the companies we are reviewing, their competitors, suppliers, and customers.
Second, we take a long-term perspective. We look for stocks that will outperform the market over a three- to five-year time horizon. We strive to recognize values early and patiently wait for the market to reach a similar conclusion. Often, our search begins with companies and industries that are currently out of favor among investors. Consequently, our investment ideas are frequently early. However, conviction derived through our research efforts gives us the fortitude to stay the course when the near-term fundamentals are challenging if we believe the long-term thesis is intact.
Third, we emphasize individual decision-making. We shun "group think" and committees whenever possible, and rely on individual decision-making in our investment process. We believe that individuals generate the best investment ideas, not committees.
Ultimately, the key to successful investment decisions rests in correctly appraising the relationship between the fundamental value of a company and the market price of its stock. A company may be valuable because of its ability to make money, its assets, or both. However, a company is a good investment only if it is purchased at the right price.
As of September 30, 2009, this is the sector allocation of the firm’s $56+ equity portfolio:
|Oil & Gas||6.9%||6.8%|
The firm over-weighted on Technology and Health Care, and under-weighted on Utilities and Telecommuniations.
As of individual holdings, here are the firm’s top holdings:
No. 1: Amgen Inc. (AMGN), Weightings: 4.19% - 39,278,616 Shares
Amgen Inc. is a biotechnology company that discovers, develops, manufactures and markets human therapeutics-based on advances in cellular and molecular biology. The Company operates in human therapeutics. It markets human therapeutic products in the areas of supportive cancer care, nephrology and inflammation. Its principal products include Aranesp (darbepoetin alfa), EPOGEN (Epoetin alfa), Neulasta (pegfilgrastim), NEUPOGEN (Filgrastim) and Enbrel (etanercept). Aranesp and EPOGEN stimulate the production of red blood cells to treat anemia and belong to a class of drugs referred to as erythropoiesis-stimulating agents (ESAs).
Amgen Inc. has a market cap of $56.24 billion; its shares were traded at around $55.38 with a P/E ratio of 11.4 and P/S ratio of 3.8. Amgen Inc. had an annual average earning growth of 19.2% over the past 10 years. GuruFocus rated Amgen Inc. the business predictability rank of 4-star.
No. 2: Eli Lilly and Company (LLY), Weightings: 3.65% - 62,428,802 Shares
Eli Lilly and Company discovers, develops, manufactures and sells products in one business segment, pharmaceutical products. The Company also has an animal health business segment.
Eli Lilly And Company has a market cap of $42.04 billion; its shares were traded at around $36.59 with a P/E ratio of 8 and P/S ratio of 2. The dividend yield of Eli Lilly And Company stocks is 5.4%. Eli Lilly And Company had an annual average earning growth of 4.4% over the past 10 years. GuruFocus rated Eli Lilly And Company the business predictability rank of 4.5-star.
No. 3: Novartis AG (NVS), Weightings: 3.34% - 37,443,854 Shares
Novartis AG is a Switzerland-based holding that, through its subsidiaries, is engaged in the research, development, manufacture and marketing of healthcare products.
Novartis Ag has a market cap of $120.67 billion; its shares were traded at around $53.13 with a P/E ratio of 16 and P/S ratio of 3. The dividend yield of Novartis Ag stocks is 2.7%. Novartis Ag had an annual average earning growth of 8.9% over the past 10 years.
No. 4: FedEx Corp. (FDX), Weightings: 3.07% - 23,062,721 Shares
FedEx Corporation (FedEx) is a holding company. The Company provides a portfolio of transportation, e-commerce and business services through companies that compete collectively, operate independently and manage collaboratively, under the respected FedEx brand. These companies are included in four business segments: FedEx Express, FedEx Ground, FedEx Freight and FedEx Services.
Fedex Corp. has a market cap of $25.56 billion; its shares were traded at around $81.78 with a P/E ratio of 26.3 and P/S ratio of 0.7. The dividend yield of Fedex Corp. stocks is 0.5%. Fedex Corp. had an annual average earning growth of 17.7% over the past 10 years. GuruFocus rated Fedex Corp. the business predictability rank of 3.5-star.
No. 5: Google Inc. (GOOG), Weightings: 2.79% - 3,179,626 Shares
Google Inc. maintains an index of Websites and other online content, and makes this information freely available through its search engine to anyone with an Internet connection. The Company generates revenue primarily by delivering online advertising. Businesses use its AdWords program to promote their products and services with targeted advertising.
Google Inc. has a market cap of $180.43 billion; its shares were traded at around $569.964 with a P/E ratio of 29.5 and P/S ratio of 8.3.
No. 6: Medtronic Inc. (MDT), Weightings: 2.74% - 42,096,982 Shares
Medtronic, Inc. (Medtronic) is a global player in medical technology. The Company operates in seven segments that manufacture and sell device-based medical therapies: Cardiac Rhythm Disease Management, Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical Technologies and Physio-Control.
Medtronic Inc. has a market cap of $43.85 billion; its shares were traded at around $39.62 with a P/E ratio of 13.2 and P/S ratio of 3. The dividend yield of Medtronic Inc. stocks is 2%. Medtronic Inc. had an annual average earning growth of 14.7% over the past 10 years. GuruFocus rated Medtronic Inc.
Judged by the top holdings, PRIMECAP Management has found value in Health Care companies.
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About the author:
My name is Ben C. and I am 2nd year MBA candidate at the Anderson School of Business at the University of California- Los Angeles. I have a BS in Economics from the Wharton School of Business at the University of Pennsylvania. Before coming to Anderson I worked as a generalist equity research analyst for Right Wall Capital, a long-short equity hedge fund located in New York City. Prior to working at Right Wall I worked as an analyst at Blue Ram Capital, another long-short equity hedge fund located in Rye Brook, NY. This past summer, I worked for West Coast Asset Management as a research analyst. West Coast, which was co-founded by Kinko’s founder Paul Orfalea, is run by well-known value investors Lance Helfert and Atticus Lowe.