Media-shy investment firm PRIMECAP Management (Trades, Portfolio) revealed earlier this week it curbed its stakes in two companies and added to its position in another on Dec. 31.
The California-based firm, which was founded in 1983, manages the Odyssey Funds. It seeks to provide long-term capital appreciation by investing in companies with stronger growth potential than their valuations suggest and that trade at reasonable prices.
According to GuruFocus Real-Time Picks, a Premium feature, Primecap reduced its Cree Inc. (CREE, Financial) stake by 46.45% and its BioMarin Pharmaceutical Inc. (BMRN, Financial) position by 0.24%. Its holding of FibroGen Inc. (FGEN, Financial) was boosted 30.27%.
Cree
Impacting the equity portfolio by -0.25%, the firm sold 2.8 million shares of Cree. The stock traded for an average price of $105.90 per share on the day of the transaction.
Primecap now holds 3.2 million shares of Cree total, representing 0.28% of the equity portfolio. GuruFocus estimates the firm has gained 206.29% on the investment.
The Durham, North Carolina-based company, which manufactures lighting-class LEDs, lighting products and products for power and radio frequency applications, has a $12.74 billion market cap; its shares were trading around $115.45 on Friday with a price-book ratio of 6.67 and a price-sales ratio of 14.28.
The median price-sales value chart suggests the stock is overvalued. The GuruFocus valuation rank of 2 out of 10 also supports this assessment since the share price and price ratios are all approaching 10-year highs.
GuruFocus rated Cree's financial strength 5 out of 10. In addition to a stable cash-to-debt ratio of 1.42, the high Altman Z-Score of 6.18 that indicates it is in good standing.
The company's profitability scored a 3 out of 10 rating on the back of negative margins and returns that underperform a majority of competitors. Cree also has a low Piotroski F-Score of 2, which implies business conditions are in poor shape. Its predictability rank of one out of five stars is on watch as a result of revenue per share declining over the past five years. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Primecap remains the company's largest guru shareholder with a 2.94% stake. Philippe Laffont (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Ray Dalio (Trades, Portfolio)'s Bridgewater Associates and Paul Tudor Jones (Trades, Portfolio) also have positions in the stock.
BioMarin Pharmaceutical
Primecap divested of 43,580 shares of BioMarin. Shares traded for an average price of $87.69 each on the day of the transaction.
The firm now holds 18.14 million shares total, accounting for 1.31% of the equity portfolio. GuruFocus data shows Primecap has gained an estimated 63.55% on the investment.
The biotech company focusing on enzyme replacement therapies, which is headquartered in Novato, California, has a market cap of $16.68 billion; its shares were trading around $91.70 on Friday with a price-earnings ratio of 21.02, a price-book ratio of 4.11 and a price-sales ratio of 9.19.
According to the Peter Lynch chart, the stock is overvalued.
BioMarin's financial strength was rated 6 out of 10 by GuruFocus. Even though assets are building up at a faster rate than revenue is growing, the Altman Z-Score of 5.17 indicates it is in good standing. The return on invested capital also significantly surpasses the weighted average cost of capital, indicating good value creation.
The company's profitability did not fare as well, scoring a 3 out of 10 rating. In addition to an expanding operating margin, BioMarin is supported by strong returns that outperform a majority of industry peers. It also has a moderate Piotroski F-Score of 4, indicating conditions are stable, and a one-star predictability rank.
Of the gurus invested in BioMarin, Primecap has the largest stake with 10% of outstanding shares. Other top guru investors are Dodge & Cox, Cohen, Stanley Druckenmiller (Trades, Portfolio), Jerome Dodson (Trades, Portfolio), Pioneer Investements and Jones.
FibroGen
With an impact of 0.07% on the equity portfolio, Primecap invested in 2.14 million shares of FibroGen. On the day of the transaction, the stock traded for an average per-share price of $37.09.
The firm now holds 9.2 million shares total, which make up 0.28% of the equity portfolio. GuruFocus data shows Primecap has lost an estimated 0.10% on the investment since the fourth quarter of 2019.
The San Francisco-based biotech company, which develops medicines to treat anemia, idiopathic pulmonary fibrosis and pancreatic cancer, has a $3.53 billion market cap; its shares were trading around $38.82 on Friday with a price-book ratio of 8.05 and a price-sales ratio of 29.48.
Based on the median price-sales value chart, the stock appears to be overvalued.
GuruFocus rated FibroGen's financial strength 7 out of 10 on the back of a robust Altman Z-Score of 4.89. In addition, the WACC eclipses the ROIC, indicating the company struggles with creating value.
The company's profitability scored a 1 out of 10 rating. In addition to the operating margin being in decline, FibroGen's returns are negative and underperform at least half of its competitors. It also has a low Piotroski F-Score of 3 and revenue per share had been declining over the past five years.
Primecap has a 10.14% stake in FibroGen, making it the largest guru shareholder. Pioneer Investments also owns the stock.
Portfolio composition and performance
Around 60% of the firm's $121.21 billion equity portfolio, which was composed of 311 stocks as of the end of the third quarter, is invested in the technology and health care sectors.
Primecap's five largest holdings as of Sept. 30 were Eli Lilly and Co. (LLY, Financial), Adobe Inc. (ADBE, Financial), Microsoft Corp. (MSFT, Financial), Biogen Inc. (BIIB, Financial) and Amgen Inc. (AMGN, Financial).
In its annual letter released in December, the firm disclosed its Odyssey Growth Fund returned 6.83% for fiscal 2020.
Disclosure: No positions.
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