The MS Global Franchise Fund (Trades, Portfolio), which is part of Morgan Stanley (MS, Financial), released its third-quarter portfolio last week, disclosing it established one new position and exited another.
Managed by a nine-person team, the New York-based fund invests in high-quality companies around the world in order to achieve long-term capital appreciation. It looks for companies that have resilient business franchises and growth potential.
Based on these criteria, the fund opened a position in Thermo Fisher Scientific Inc. (TMO, Financial) and closed out of its Clorox Co. (CLX, Financial) holding during the quarter.
Thermo Fisher Scientific
The portfolio managers invested in 155,289 shares of Thermo Fisher Scientific, dedicating 2.45% of the equity portfolio to the holding. The stock traded for an average price of $286.65 per share during the quarter.
The Waltham, Massachusetts-based health care company, which sells scientific instruments, laboratory equipment, diagnostics consumables and life science reagents, has a $127.55 billion market cap; its shares were trading around $319.36 on Thursday with a price-earnings ratio of 35.78, a price-book ratio of 4.34 and a price-sales ratio of 5.1.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Thermo Fisher’s financial strength 5 out of 10. In addition to adequate interest coverage, the company is supported by a robust Altman Z-Score of 4.14, which indicates it is in good financial health.
The company’s profitability fared even better, scoring a 9 out of 10 rating on the back of operating margin expansion, strong returns that outperform more than 70% of its competitors and a high Piotroski F-Score of 8, which implies business conditions are healthy. Driven by consistent earnings and revenue growth, Thermo Fisher also has a perfect business predictability rank of five out of five stores. According to GuruFocus, companies with this rank typically see their stocks gain an average of 12.1% per annum over a 10-year period.
Of the gurus invested in the stock, PRIMECAP Management (Trades, Portfolio) has the largest stake with 1.18% of outstanding shares. Other guru shareholders include the Vanguard Health Care Fund (Trades, Portfolio), Al Gore (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Larry Robbins (Trades, Portfolio), John Rogers (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), the Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Dodge & Cox.
Clorox
The fund divested of its 90,305 remaining shares of Clorox, impacting the equity portfolio by -0.81%. During the quarter, the stock traded for an average per-share price of $158.07.
GuruFocus estimates the fund gained 10.5% on the investment since establishing it in the third quarter of 2018.
The consumer packaged goods manufacturer, which is headquartered in Oakland, California, has a market cap of $19.09 billion; its shares were trading around $152.13 on Thursday with a price-earnings ratio of 24.19, a price-book ratio of 34.82 and a price-sales ratio of 3.2.
According to the Peter Lynch chart, the stock is overvalued.
Clorox’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately $297 million in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. In addition, the strong Altman Z-Score of 4.98 suggests it is in good financial standing.
The company’s profitability scored an 8 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 5, which indicates conditions are stable. Despite recording a slowdown in revenue per share growth over the past 12 months, Clorox still has a three-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 8.2% per year.
With 0.93% of outstanding shares, Jim Simons (Trades, Portfolio)’ Renaissance Technologies is the company’s largest shareholder. Pioneer, Ray Dalio (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Mairs and Power (Trades, Portfolio) also have positions in the stock.
Additional trades and portfolio performance
During the quarter, the Global Franchise Fund also trimmed its holdings of Zoetis Inc. (ZTS, Financial) and Unilever PLC (LSE:ULVR, Financial) and boosted its positions in a number of other stocks, including Philip Morris International Inc. (PM, Financial), Microsoft Corp. (MSFT, Financial), Reckitt Benckiser Group PLC (LSE:RB., Financial) and Visa Inc. (V, Financial).
The fund’s $1.85 billion equity portfolio, which is composed of 30 stocks, is largely invested in the consumer defensive sector, followed by smaller holdings in the technology and health care spaces.
According to its website, the fund posted a return of -2.51% in 2018, outperforming the MSCI World Net Index’s -8.71% return.
Disclosure: No positions.
Read more here:
- Chuck Royce's Firm Cleans Out Its Closet, Sells Destination Maternity
- Seth Klarman Pares Paratek Pharmaceuticals Stake
- Bernard Horn Goes 2 for 2 in 3rd Quarter
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
