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Margaret Moran
Margaret Moran
Articles (235) 

First Eagle Investment’s Top 1st-Quarter Buys

Firm focuses on names with high financial strength

May 14, 2020 | About:

First Eagle Investment (Trades, Portfolio) Management recently disclosed its portfolio updates for the first quarter of 2020, which ended on March 31.

The firm takes a long-term, flexible, absolute return-oriented investment approach that does not attempt to “beat the benchmark.” Instead, it seeks to achieve attractive returns while providing downside protection. The firm manages a variety of funds under the leadership of president and CEO Mehdi Mahmud and Chief Financial Officer Brian Margulies. Matthew McLennan serves as the lead portfolio manager for First Eagle’s Global Value investment strategies.

Based on its core investing strategy, the firm’s biggest buys in the first quarter were Ambev SA (ABEC), Exxon Mobil Corp. (NYSE:XOM), Facebook Inc. (NASDAQ:FB) and Expeditors International of Washington Inc. (NASDAQ:EXPD).

Ambev

The firm established a new position of 165,129,178 shares in Ambev SA after selling out of its previous (much smaller) holding in the first quarter of 2018. The trade had a 1.38% impact on the equity portfolio. Shares traded for an average price of $3.65 during the quarter.

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Formally known as Companhia de Bebidas das Américas, Ambev is a Brazilian brewing company that operates as a subsidiary of Anheuser-Busch InBev (BUD). The company produces, distributes and sells beer, carbonated soft drinks and other beverages across the Americas.

On May 14, shares of Ambev traded around $2.04 for a market cap of $31.47 billion and a price-earnings ratio of 18.29. The Peter Lynch chart suggests that the price is in line with the company’s fair value.

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GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 3.89 is higher than 72.54% of competitors, and the debt-to-equity ratio of 0.05 also indicates a strong liquidity position. The operating margin of 28.88% beats 85.71% of competitors and the return on invested capital is more than three times the weighted average cost of capital, indicating high profitability.

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Exxon Mobil

The firm increased its stake in Exxon Mobil by 7,611,498 shares, or 38.17%, increasing its total number of shares owned to 27,551,706. The trade impacted the equity portfolio by 1.05%. During the quarter, shares traded for an average price of $55.73.

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Exxon Mobil is an international oil and gas company based in Irving, Texas. Formed from the merger of Exxon and Mobil in 1999, it is one of the six “Big Oil” companies that control the chartering of the majority of the world’s oil tankers.

On May 14, Exxon Mobil’s shares traded around $42.17 for a market cap of $178.82 billion and a price-earnings ratio of 15.82. According to the Peter Lynch chart, the stock trades slightly above its intrinsic value.

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GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10. While the cash-debt of 0.19 is low for the industry, the Altman Z-Score of 3.08 suggests that the company is unlikely to go bankrupt. The WACC is higher than the ROIC, indicating that the profitability has been worsening, but the operating margin of 4.99% is above the industry median of 3.21%.

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Facebook

First Eagle also increased its stake in Facebook by 43.87%, buying 956,231 shares to bring the total position to 3,135,800 shares. The trade had a 0.58% impact on the equity portfolio. The stock traded for an average price of $196.62 per share during the quarter.

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Facebook is a social media giant based in Menlo Park, California. It was founded by Mark Zuckerberg and several fellow Harvard students. Since its launch in 2004, it has become an icon of the social media industry and expanded into news, advertising, business, data collection and other avenues.

On May 14, shares of Facebook traded around $206.81 for a market cap of $589.22 billion and a price-earnings ratio of 27.98. According to the Peter Lynch chart, this price falls between the stock’s fair value and its median historical valuation.

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GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 5.83 and Altman Z-Score of 12.85 suggest a fortress-like liquidity position. The operating margin of 36.21% is higher than 93.70% of competitors, while the ROIC is more than double the WACC.

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Expeditors International of Washington

The firm’s second-largest new portfolio addition was Expeditors International of Washington. It bought 2,323,920 shares of the company, impacting the equity portfolio by 0.56%. During the quarter, shares traded for an average price of $71.55.

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Expeditors is a global logistics and freight forwarding company based in Seattle. Operating 322 locations in 103 countries, the company provides transportation, supply chain solutions, customs and compliance services and warehouse and distribution services.

On May 14, shares of Expeditors traded around $72.98 for a market cap of $12.15 billion and a price-earnings ratio of 22.13. According to the Peter Lynch chart, this price falls between the stock’s fair value and its median historical valuation.

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GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 2.95 is higher than 86.88% of competitors, while the Altman Z-Score of 9.36 suggests that the company is safe from bankruptcy concerns. The operating margin of 9.16% is above the industry median of 6.62%, while the ROIC is more than four times the WACC.

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Portfolio overview

At the end of the quarter, First Eagle held shares of 109 stocks for an equity portfolio valued at $27.55 billion. The firm’s top holdings were Oracle Corp. (ORCL) with 5.33%, Comcast Corp. (CMCSA) with 4.07% and Exxon Mobil with 3.08%.

In terms of sector weighting, the firm was most invested in basic materials, financial services and technology.

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Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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