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Margaret Moran
Margaret Moran
Articles (290) 

First Eagle Investment's Top 2nd-Quarter Trades

The firm's top investments were in software and beverages

August 11, 2020 | About:

First Eagle Investment (Trades, Portfolio) Management recently disclosed its portfolio updates for the second quarter of 2020, which ended on June 30.

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's portfolio managers operate a variety of funds under the leadership of president and CEO Mehdi Mahmud and Chief Financial Officer Brian Margulies.

Based on its investing strategy, the firm's biggest buys for the quarter were Salesforce.com Inc. (NYSE:CRM) and Fomento Economico Mexicano SAB de CV (NYSE:FMX), while its biggest sells were Omnicom Group Inc. (NYSE:OMC) and Weyerhaeuser Co (NYSE:WY).

Salesforce.com

First Eagle established a new stake of 1,413,810 shares in Salesforce.com, impacting the equity portfolio by 0.83%. During the quarter, shares traded for an average price of $168.06.

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Salesforce is a subscription-based cloud software company headquartered in San Francisco. It provides corporate customers with market-leading sales, marketing, customer relationship management, analytics and application development tools.

On Aug. 11, shares of Salesforce traded around $191.99 apiece for a market cap of $172.98 billion. The stock reached a new all-time high of $207.79 on Aug. 6 before pulling back.

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GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rating of 5 out of 10. The cash-debt ratio of 1.68 is average for the industry, while the Altman Z-Score of 6.04 indicates the company is not likely to go bankrupt. The weighted average cost of capital has been consistently higher than the return on invested capital throughout the company's history, indicating difficulty with turning investment dollars into profits.

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Fomento Economico Mexicano

The firm increased its holding of Fomento Economico Mexicano by 2,448,508 shares, or 145.89%, for a total of 4,126,825 shares. The trade had a 0.47% impact on the equity portfolio. Share traded for an average price of $63.60 during the quarter.

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The Mexican company, which operates under the name FEMSA, is the world's largest independent bottler of Coca-Cola (KO) products, as well as the owner of the largest convenience store chain in Mexico.

On Aug. 11, shares of FEMSA traded around $59.14 apiece for a market cap of $105.81 billion and a price-earnings ratio of 58.69. According to the Peter Lynch chart, the stock is trading above its intrinsic value based on recent earnings, but in line with its intrinsic value based on 2018 earnings.

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GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The Altman Z-Score of 1.65 indicates the company could be in danger of bankruptcy within the next two years, but the interest coverage ratio of 2.86 suggests it can pay its debts in the shorter term. Revenue has been steadily increasing with a three-year growth rate of 8.2%, but net income has been more inconsistent.

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Omnicom Group

The firm sold the remaining 3,698,660 shares of its Omnicom Group investment, impacting the equity portfolio by -0.74%. During the quarter, shares traded for an average price of $54.42.

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Omnicom is a global media, marketing and corporate communications company based in New York. Through its network of subsidiaries, the company provides advertising, customer relationship management, public relations and specialty services in over 100 countries.

On Aug. 11, shares of Omnicom traded around $55.74 apiece for a market cap of $11.98 billion and a price-earnings ratio of 13.21. According to the Peter Lynch chart, the stock is undervalued.

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GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The Altman Z-Score of 1.67 suggests potential danger of bankruptcy, while the current ratio of 0.96 indicates the company may have trouble paying its short-term debt obligations. On an annual basis, ROIC has surpassed WACC since 2014, indicating high profitability.

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Weyerhaeuser

The firm reduced its position in Weyerhaeuser by 10,763,498 shares, or 26.34%, to 30,097,458 shares. The trade had a -0.66% impact on the equity portfolio. Shares traded for an average price of $20.19 during the quarter.

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Headquartered in Seattle, Weyerhaeuser is a timberland real estate investment trust that owns 12.4 million acres of timberlands in the U.S. and manages 14.0 million acres under long-term licenses in Canada. It also produces wood products for the construction industry with a focus on sustainability.

On Aug. 11, shares of Weyerhaeuser traded around $28.89 apiece for a market cap of $21.56 billion and a price-earnings ratio of 71.64. The Peter Lynch chart suggests that the stock is overvalued.

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GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.1 is average for the industry, while the Altman Z-Score of 2.22 indicates the company is not in immediate danger of bankruptcy. The operating margin and net margin have declined in recent years, indicating lower profitability.

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Portfolio overview

At the end of the quarter, First Eagle held shares in 98 stocks for an equity portfolio valued at $31.82 billion. The firm's top holdings were Oracle Corp. (ORCL) with 5.16% of the equity portfolio, Comcast Corp. (CMCSA) with 3.99% and Exxon Mobil (XOM) with 3.88%.

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

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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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