Jeff Auxier's Top 5 Buys of the 4th Quarter

Guru invests in health care, insurance, restaurants and retail

Mar 09, 2021

Auxier Asset Management leader Jeff Auxier (Trades, Portfolio) released his fourth-quarter portfolio last week.

The guru's Oregon-based firm seeks to invest in "compelling, undervalued" companies that have, among other attributes, strong or improving fundamentals, consistent operating results, a significant competitive advantage, understandable products and a demonstrated ability to earn a high return on capital.

In his fourth-quarter commentary, Auxier noted he saw "an outperformance in many of the beaten down value, cyclical and small cap areas of the market." As such, he expects a "stronger economy should lead to better pricing, higher inflation and higher interest rates" as the Covid-19 vaccine is being rolled out across the country.

"With low inventories and strong demand, prices and margins are improving across many industries," he added. "We are seeing strong fundamentals in insurance, natural resources, used cars, semitrucks, lumber, farm commodities, etc."

Keeping these considerations in mind, Auxier established seven new positions during the quarter, eliminated a stake and added to or trimmed a slew of other existing holdings. Among the most notable trades the guru made were additions to Bristol-Myers Squibb Co. (BMY, Financial), CVS Health Corp. (CVS, Financial), Arcos Dorados Holdings Inc. (ARCO, Financial) and Aon PLC (AON, Financial) as well as a new position in Alibaba Group Holding Ltd. (BABA, Financial).

The Dunkin' Brands Group Inc. (DNKN, Financial) holding was dissolved after the company completed its merger with Inspire Brands Inc. in December.

Bristol-Myers Squibb

With an impact of 0.17% on the equity portfolio, the investor upped his holding of Bristol-Myers Squibb (BMY, Financial) by 83.55%, buying 14,570 shares. The stock traded for an average price of $61.52 per share during the quarter.

Auxier now holds 32,009 shares total, accounting for 0.37% of the equity portfolio. GuruFocus estimates he has gained 9.79% on the investment.

The New York-based pharmaceutical company has a $136.13 billion market cap; its shares were trading around $61.61 on Tuesday with a price-book ratio of 3.62 and a price-sales ratio of 3.24.

The GF Value Line shows the stock is currently modestly undervalued based on historical ratios, its past performance and projections of future earnings. The GuruFocus valuation rank of 9 out of 10 supports this assessment.

GuruFocus rated Bristol-Myers' financial strength 4 out of 10. As a result of issuing approximately $21 billion in new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 1.58 also warns the company could be in danger of going bankrupt since its assets are building up at a faster rate than revenue is growing. The return on invested capital is also eclipsed by the weighted average cost of capital, indicating issues with creating value.

The company's profitability scored a 7 out of 10 rating despite having a declining operating margin and negative returns that underperform a majority of competitors. Bristol-Myers is also supported by a moderate Piotroski F-Score of 4, which indicates business conditions are stable. The predictability rank of one out of five stars, however, is on watch as the company has recorded losses in operating income over the past three years. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Bristol-Myers Squibb, Warren Buffett (Trades, Portfolio) has the largest stake with 1.49% of outstanding shares. Other top guru shareholders include the Vanguard Health Care Fund (Trades, Portfolio), Dodge & Cox, PRIMECAP Management (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Pioneer Investments (Trades, Portfolio), Hotchkis & Wiley, Andreas Halvorsen (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Richard Pzena (Trades, Portfolio) and NWQ Managers (Trades, Portfolio).

CVS Health

Auxier boosted his CVS Health (CVS, Financial) position by 8.67%, buying 8,250 shares. The transaction had an impact of 0.10% on the equity portfolio. Shares traded for an average price of $65.16 each during the quarter.

He now holds 103,448 shares total, which represent 1.31% of the equity portfolio. GuruFocus data shows the guru has gained an estimated 72.38% on the investment.

The retail pharmacy chain operator, which is headquartered in Woonsocket, Rhode Island, has a market cap of $94.93 billion market cap; its shares were trading around $72.32 on Tuesday with a price-earnings ratio of 13.26, a price-book ratio of 1.37 and a price-sales ratio of 0.36.

According to the GF Value Line, the stock is fairly valued currently. The GuruFocus valuation rank of 10 out of 10, however, leans more toward undervaluation even though the share price and price-sales ratio are both closing in on multiyear highs.

In his quarterly commentary, Auxier noted CVS has played a major role in the Covid-19 pandemic as its stores served as "the #1 testing site in the United States."

"With their near ubiquity, as well as their institutional experience delivering vaccines, CVS is likely to play a significant role in the vaccine rollout, exposing millions of new customers to the value CVS can provide," he wrote. "While the headlines might not be as exciting as those of a company like Amazon, CVS has the potential to provide significant returns with the fundamentals to back it up."

CVS Health's financial strength was rated 5 out of 10 by GuruFocus. In addition to insufficient interest coverage, the Altman Z-Score of 1.97 indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing.

The company's profitability scored a 7 out of 10 rating. It is being weighed down, however, by a declining operating margin as well as returns that underperform a majority of industry peers. It also has a moderate Piotroski F-Score of 5 and consistent earnings and revenue growth contributed to a 2.5-star predictability rank. GuruFocus says companies with this rank return, on average, 7.3% annually.

With a 1.22% stake, Dodge & Cox is CVS Health's largest guru shareholder. Barrow, Hanley, Mewhinney & Strauss, PRIMECAP, the T Rowe Price Equity Income Fund (Trades, Portfolio), Bill Nygren (Trades, Portfolio), Pioneer and Pzena also have substantial stakes.

Arcos Dorados

The investor picked up an additional 85,840 shares of Arcos Dorados (ARCO, Financial), boosting the holding by 28.53%. The transaction had an impact of 0.08% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $4.64.

Auxier now holds 386,664 shares total, which make up 0.36% of the equity portfolio. He has lost an estimated 29.79% so far on the investment according to GuruFocus.

The Uruguayan fast-food company, which owns the master franchise of McDonald's restaurants in Latin America and the Caribbean, has a $1.02 billion market cap; its shares were trading around $4.88 on Tuesday with a price-book ratio of 6.27 and a price-sales ratio of 0.48.

Based on the GF Value Line, the stock appears to be fairly valued currently. The GuruFocus valuation rank of 8 out of 10 is more supportive of undervaluation though.

GuruFocus rated Arcos Dorados' financial strength 3 out of 10. The low Altman Z-Score of 1.33 cautions the company could potentially face bankruptcy.

The company's profitability fared better, scoring a 6 out of 10 rating on the back of an expanding operating margin and negative returns that underperform over half of its competitors. Arcos Dorados also has a moderate Piotroski F-Score of 4, but the one-star predictability rank is on watch as a result of revenue per share declining over the past five years.

Simons' firm has the largest stake in Arcos Dorados with 0.48% of its outstanding shares. Barrow, Hanley, Mewhinney & Strauss and Paul Tudor Jones (Trades, Portfolio) are also shareholders.

Aon

Expanding the holding in Aon (AON, Financial) by 128.11%, the investor purchased 1,700 shares. The transaction had an impact of 0.07% on the equity portfolio. During the quarter, the stock traded for an average price of $204.13 per share.

Auxier now holds 3,027 shares total, giving it 0.12% space in the equity portfolio. GuruFocus estimates he has gained 9.56% on the investment since establishing it in the third quarter of 2020.

The London-based insurance company has a market cap of $52.71 billion; its shares were trading around $232.60 on Tuesday with a price-earnings ratio of 27.64, a price-book ratio of 15.39 and a price-sales ratio of 4.91.

The GF Value Line shows the stock is modestly overvalued currently, an assessment which the valuation rank of 1 out of 10 aligns with since the share price and price ratios are closing in on 10-year highs.

Aon's financial strength was rated 4 out of 10 by GuruFocus. Despite issuing approximately $1.7 billion in new long-term debt over the past three years, it is still at a manageable level due to adequate interest coverage. The Altman Z-Score of 1.82 also indicates the company is under some financial pressure since it has recorded losses in operating income for the past three years.

The company's profitability scored an 8 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 8, which implies business conditions are healthy. Despite redording a slowdown in revenue per share growth over the past 12 months, Aon also has a 3.5-star predictability rank. GuruFocus data shows companies with this rank return, on average, 9.3% annually.

With a 1.12% stake, Andreas Halvorsen (Trades, Portfolio) is Aon's largest guru shareholder. Other top guru investors include Glenn Greenberg (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), Steven Romick (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Wallace Weitz (Trades, Portfolio), Simons' firm, NWQ and Cohen.

Alibaba

Auxier invested in 1,431 shares of Alibaba (BABA, Financial), allocating 0.06% of the equity portfolio to the position. Shares traded for an average price of $277.43 each during the quarter.

The Chinese e-commerce company has a $645.95 billion market cap; its shares were trading around $238.14 on Tuesday with a price-earnings ratio of 27.79, a price-book ratio of 4.59 and a price-sales ratio of 6.92.

According to the GF Value Line, the stock is modestly undervalued currently.

Driven by a good cash-debt ratio, a comfortable level of interest coverage and a robust Altman Z-Score of 5.68, GuruFocus rated Alibaba's financial strength 7 out of 10.

The company's profitability scored a 9 out of 10 rating. Although the operating margin is in decline, Alibaba has strong returns that outperform a majority of competitors as well as a high Piotroski F-Score of 4. Despite recording consistent earnings and revenue growth, the 2.5-star predictability rank is on watch.

Of the gurus invested in Alibaba, Baillie Gifford (Trades, Portfolio) & Co. has the largest stake with 0.92% of outstanding shares. Ken Fisher (Trades, Portfolio), PRIMECAP, Frank Sands (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Chris Davis (Trades, Portfolio), Dodge & Cox, Sarah Ketterer (Trades, Portfolio), Ron Baron (Trades, Portfolio), David Tepper (Trades, Portfolio) and several other gurus also have significant positions in the stock.

Additional trades and portfolio performance

During the quarter, Auxier also established new holdings in CSX Corp. (CSX, Financial), Tapestry Inc. (TPR, Financial), Align Technology Inc. (ALGN, Financial), Discovery Inc. (DISCK, Financial), The Interpublic Group of Companies Inc. (IPG, Financial) and Waddell & Reed Financial Inc. (WDR).

Nealy half of the guru's $539 million equity portfolio, which is composed of 157 stocks, is invested in the health care and consumer defensive sectors, followed by an 18.22% holding in the financial services space.

GuruFocus data shows the Auxier Focus Fund returned 6.03% in 2020, underperforming the S&P 500's 18.4% return.

Disclosure: No positions.