The Vanguard Health Care Fund (Trades, Portfolio) released its fourth-quarter 2019 portfolio late last week, listing four new holdings.
Managed by Jean Hynes, the fund invests in a variety of health care-related stocks from around the world in order to achieve long-term capital appreciation. She picks stocks of companies that have high-quality balance sheets, strong management teams and the potential for new products that will generate consistently above-average revenue and earnings growth.
Based on these criteria, the fund established positions in Reata Pharmaceuticals Inc. (RETA, Financial), Ascendis Pharma AS (ASND, Financial), Sarepta Therapeutics Inc. (SRPT, Financial) and Notre Dame Intermedica Participacoes SA (BSP:GNDI3, Financial) during the quarter.
Reata Pharmaceuticals
The fund invested in 574,907 shares of Reata Pharmaceuticals, allocating 0.25% of the equity portfolio to the holding. The stock traded for an average price of $184.77 per share during the quarter.
The Irving, Texas-based biopharmaceutical company, which focuses on small molecule therapeutics, has a $7.96 billion market cap; its shares were trading around $242.44 on Tuesday with a price-sales ratio of 223.35, which is near a five-year high.
The median price-sales chart shows the stock is trading above its historical average, suggesting it is overpriced.
GuruFocus rated Reata’s financial strength 4 out of 10. While it has a moderate cash-debt ratio of 2.99, the robust Altman Z-Score of 11.2 indicates the company is in good financial standing. In addition, the Beneish M-Score of 0.33 implies possible financial manipulation.
The company’s profitability fared even worse, scoring a 2 out of 10 rating on the back of negative margins and returns that underperform a majority of competitors. In addition, the low Piotroski F-Score of 2 suggests poor business operations. Reata has also recorded a decline in revenue per share over the past five years.
With its purchase of 1.74% of its outstanding shares, Vanguard is now the company’s largest guru shareholder. Steven Cohen (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Stanley Druckenmiller (Trades, Portfolio) also have positions in the stock.
Ascendis Pharma
Vanguard picked up 603,093 shares of Ascendis Pharma, dedicating 0.18% of the equity portfolio to the position. During the quarter, the stock traded for an average price of $111.70 per share.
The biopharmaceutical company, which is headquartered in Denmark, has a market cap of $6.69 billion; its shares were trading around $139.36 on Tuesday with a price-book ratio of 9.19 and a price-sales ratio of 252.8.
According to the median price-sales chart, the stock is overvalued.
Ascendis’ financial strength was rated 6 out of 10 by GuruFocus, driven by a high cash-debt ratio of 17.84 and a solid Altman Z-Score of 49.52. The Beneish M-Score of 48.95, however, suggests there may be some earnings manipulation.
Weighed down by negative margins and returns, the company’s profitability scored a 2 out of 10 rating. Although the moderate Piotroski F-Score of 4 indicates operations are stable, the company has recorded a decline in revenue per share over the past five years.
Vanguard is the company’s largest shareholder with a 1.26% holding. Jim Simons (Trades, Portfolio)’ Renaissance Technologies also owns the stock.
Sarepta Therapeutics
The Health Care Fund entered a 463,410-share holding of Sarepta Therapeutics, giving it 0.13% space in the equity portfolio. Shares traded for an average price of $101.97 during the quarter.
The Cambridge, Massachusetts-based medical research and drug development company has an $8.6 billion market cap; its shares were trading around $117.61 on Tuesday with a price-book ratio of 8.9 and a price-sales ratio of 23.5.
Based on the median price-sales chart, the stock appears to be overvalued.
GuruFocus rated Sarepta’s financial strength 6 out of 10, driven by a comfortable cash-debt ratio of 2.16 and a high Altman Z-Score of 5.48.
The company’s profitability did not fare as well, scoring a 3 out of 10 rating, as its margins and returns are negative and underperform over half of its competitors. The operating margin is expanding, however, which is a good sign. Sarepta also has a low Piotroski F-Score of 2. Despite recording a slowdown in revenue per share growth over the past year, it has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
Of the gurus invested in Sarepta, Frank Sands (Trades, Portfolio) has the largest stake with 5.3% of outstanding shares. Cohen, Simons’ firm, Pioneer and Ken Fisher (Trades, Portfolio) also see value in the stock.
Notre Dame Intermedica Participacoes
The fund purchased 1.5 million shares of Notre Dame Intermedica Participacoes, expanding the equity portfolio 0.06%. The stock traded for an average per-share price of 60.31 Brazilian reals ($14.21) during the quarter.
The Brazilian company, which provides managed health care services, has a market cap of 44.2 billion reals; its shares closed at 73.32 reals on Monday with a price-earnings ratio of 70.46 and a price-book ratio of 14.79.
Additional trades and portfolio performance
The portfolio manager also expanded many other positions during the quarter, including Centene Corp. (CNC, Financial), Daiichi Sankyo Co. Ltd. (TSE:4568, Financial), Bluebird Bio Inc. (BLUE, Financial), Astellas Pharma Inc. (TSE:4503), Qiagen NV (QGEN) and Biogen Inc. (BIIB).
The Health Care Fund’s $46.68 billion equity portfolio is composed of 87 stocks. By industry, drug manufacturers make up the largest percentage of its holdings at 35.06%, followed by biotechnology at 16.75% and health care plans at 13.09%.
According to its website, the fund posted a 22.93% return for 2019, slightly outperforming its benchmark, the Spliced Health Care Index. The index posted a return of 22.67% for the year.
Disclosure: No positions.
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