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James Li
James Li
Articles (1130)  | Author's Website |

Top 5 Buys of Charles Brandes’ Firm

Firm of Ben Graham disciple releases portfolio. Buys include two Chinese companies

February 13, 2020 | About:

Brandes Investment Partners, the firm started by Charles Brandes (Trades, Portfolio), disclosed this week that its top five buys for the fourth quarter of 2019 were Alibaba Group Holding Co. Ltd. (NYSE:BABA), Baidu Inc. (NASDAQ:BIDU), Cameco Corp. (NYSE:CCJ), Ingredion Inc. (NYSE:INGR) and Westlake Chemical Corp. (NYSE:WLK).

The San Diego-based firm follows Benjamin Graham’s investing style, seeking out-of-favor securities that are trading at discounts to their intrinsic values and holding them until the market recognizes true worth.

A key Graham investing style is the net-net working capital approach: Graham said in his book “The Intelligent Investor” that the idea is to purchase stocks at two-thirds or less than net current asset value or net-net working capital. The former equals total current assets less total liabilities, while the latter equals the sum of cash and cash equivalents, 75% of accounts receivable and 50% of total inventories, less total liabilities.

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As of quarter-end, the $4.21 billion equity portfolio contains 141 stocks, of which 10 represent new holdings. The top three sectors in terms of weight are health care, financial services and industrials.

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Alibaba

Brandes Investment purchased 345,185 shares of Alibaba, giving the holding 1.74% weight in the equity portfolio. Shares averaged $188.59 during the quarter.

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The Hangzhou, Zhejiang-based company operates several major online marketplaces, including Taobao and Tmall. GuruFocus ranks Alibaba’s profitability 9 out of 10 on several positive investing signs, which include a three-year revenue growth rate, an operating margin and a return on assets all outperforming over 94% of global competitors.

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Gurus with large holdings in Alibaba include Ken Fisher (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio).

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Baidu

Brandes Investment purchased 166,147 shares of Baidu, giving the position 0.50% weight in the equity portfolio. Shares averaged $114.18 during the quarter.

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The Beijing-based company operates a wide range of online media platforms, including Baidu Search, Baidu Maps and Baidu Baike. According to GuruFocus, the company’s business predictability ranks a solid three stars even though profit margins and returns are underperforming more than half of global competitors.

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Cameco

Brandes Investment purchased 1,095,366 shares of Cameco, giving the stake 0.23% weight in the equity portfolio. Shares averaged $9.24 during the quarter.

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The Canadian energy company produces uranium primarily through its McArthur River mine in Saskatchewan. GuruFocus ranks Cameco’s financial strength 5 out of 10: Although the company’s debt-to-equity ratio of 0.20 outperforms 60.29% of global competitors, it has a moderately weak Altman Z-score of 2.35.

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Ingredion

Brandes Investment purchased 48,333 shares of Ingredion, giving the position 0.11% weight in the equity portfolio. Shares averaged $84.22 during the quarter.

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The Westchester, Illinois-based company manufactures ingredients for the food, beverage, paper and personal care industries. GuruFocus ranks the company’s profitability 7 out of 10 on several positive investing signs, which include a return on assets that outperforms 73.60% of global competitors and an operating margin that has increased approximately 2.6% per year over the past five years.

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Westlake

Brandes Investment purchased 61,484 shares of Westlake, giving the holding 0.10% weight in the equity portfolio. Shares averaged $67.27 during the quarter.

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The Houston-based company produces low-density polyethylene, a plastic that goes into bags, food wrap and other products. GuruFocus ranks the company’s profitability 9 out of 10: The operating margin outperforms 61.62% of global competitors while its three-year revenue growth rate outperforms 88.81% of global special chemical companies.

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Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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