Auxier Asset Management leader Jeff Auxier (Trades, Portfolio) released his first-quarter portfolio earlier this 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 quarterly commentary, Auxier noted that one thing the pandemic has "highlighted" is "the importance of staying the course and knowing market declines and panics are a normal occurrence."
"Last year, the stock market experienced one of the sharpest declines in recent memory due to the Covid-19 pandemic, but in the year since it has also experienced one of the quickest recoveries," he wrote. "While the virus' impact on the market was dramatic, it proved to be more of a temporary shock with a quick reversal due largely to the dramatic response by the Fed and massive government stimulus."
Keeping these considerations in mind, Auxier established seven new positions during the three-month period ended March 31, eliminated a stake and added to or trimmed a slew of other existing holdings. Among the most notable trades were new investments in Unilever PLC (UL, Financial) and International Flavors & Fragrances Inc. (IFF, Financial), a boost to the Alibaba Group Holding Ltd. (BABA, Financial) position and reductions to the Zimmer Biomet Holdings Inc. (ZBH, Financial) and Discovery Inc. (DISCA, Financial) holdings.
Unilever
Auxier invested in 93,148 shares of Unilever (UL, Financial), allocating 0.89% of the equity portfolio to the position. The stock traded for an average price of $56.58 per share during the quarter.
The British consumer goods company, which owns a broad portfolio of nutrition, hygiene and personal care brands, has a $159.36 billion market cap; its shares were trading around $60.86 on Wednesday with a price-earnings ratio of 22.34, a price-book ratio of 8.13 and a price-sales ratio of 2.46.
The GF Value Line shows the stock is fairly valued currently based on historical ratios, its past performance and projections of future earnings.
The valuation rank of 5 out of 10 aligns with this assessment.
GuruFocus rated Unilever's financial strength 5 out of 10. Although the company has issued approximately 1.3 billion euros ($1.58 billion) in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The high Altman Z-Score of 3.05 also indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital has historically been above the weighted average cost of capital, indicating good value creation.
The company's profitability scored an 8 out of 10 rating, driven by an expanding operating margin and returns on equity, assets and capital that outperform a majority of competitors. Unilever also has a high Piotroski F-Score of 7, indicating business conditions are healthy. Consistent earnings and revenue growth contributed to a predictability rank of two out of five stars. According to GuruFocus, companies with this rank return an average of 6% annually over a 10-year period.
Of the gurus invested in Unilever, Tom Russo (Trades, Portfolio) has the largest stake with 0.38% of outstanding shares. Other top guru shareholders are Hotchkis & Wiley, Ken Fisher (Trades, Portfolio), Tweedy Browne (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Dodge & Cox, Mario Gabelli (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio).
International Flavors & Fragrances
The investor picked up 4,156 shares of International Flavors & Fragrances (IFF, Financial), dedicating 0.10% of the equity portfolio to the holding. Shares traded for an average price of $129.42 each during the quarter.
The New York-based company, which produces flavors, fragrances and cosmetic actives for a number of markets, has a market cap of $35.03 billion; its shares were trading around $140.52 on Wednesday with a price-earnings ratio of 76.07, a price-book ratio of 1.61 and a price-sales ratio of 3.15.
According to the GF Value Line, the stock is fairly valued currently.
The valuation rank of 3 out of 10, however, leans more toward overvaluation since the share price and price ratios are all approaching 10-year highs.
International Flavors & Fragrances' financial strength was rated 4 out of 10 by GuruFocus. In addition to poor interest coverage, the Altman Z-Score of 1.51 warns the company could be in danger of bankruptcy if it does not improve its liquidity. Assets are building up at a faster rate than revenue is growing, indicating it is become less efficient. The WACC also eclipses the ROIC, implying it struggles to create value.
The company's profitability fared better, scoring a 7 out of 10 rating despite the operating margin being in decline and returns underperforming a majority of industry peers. International Flavors & Fragrances also has a moderate Piotroski F-Score of 4, suggesting business conditions are stable, and the one-star predictability rank is on watch due to revenue per share declining over the past 12 months. GuruFocus says companies with this rank return an average of 1.1% annually.
With a 1.97% stake, Barrow, Hanley, Mewhinney & Strauss is the company's largest guru shareholder. Pioneer, Seth Klarman (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio) also have significant positions in International Flavors & Fragrances.
Alibaba
The guru boosted the Alibaba (BABA, Financial) investment by 468.13%, buying 6,699 shares. The transaction had an impact of 0.26% on the equity portfolio. The stock traded for an average per-share price of $245.98 during the quarter.
Auxier now holds 8,130 shares total, which represent 0.32% of the equity portfolio. GuruFocus estimates he has lost 15.01% on the investment so far.
The Chinese e-commerce company has a $573.69 billion market cap; its shares were trading around $211.34 on Wednesday with a price-earnings ratio of 26.12, a price-book ratio of 4 and a price-sales ratio of 5.43.
Based on the GF Value Line, the stock appears to be significantly undervalued currently.
In his quarterly commentary, Auxier noted that Alibaba "continues to trade at a steep discount" due to scrutiny from Chinese regulators regarding its competitive position.
Alibaba's financial strength and profitability were both rated 8 out of 10 by GuruFocus. The company has a good cash-debt ratio, a comfortable level of interest coverage and a robust Altman Z-Score of 5.06. The ROIC also surpasses the WACC, indicating good value creation.
Although the operating margin is in decline, Alibaba has strong returns that outperform a majority of competitors as well as a moderate Piotroski F-Score of 5. Despite recording consistent earnings and revenue growth, the 2.5-star predictability rank is on watch. GuruFocus data shows companies with this rank return an average of 7.3% annually.
Baillie Gifford (Trades, Portfolio) is Alibaba's largest guru shareholder with a 0.98% stake. Other top guru investors include PRIMECAP Management (Trades, Portfolio), Fisher, Frank Sands (Trades, Portfolio), Pioneer, Chase Coleman (Trades, Portfolio), Chris Davis (Trades, Portfolio), Dodge & Cox, Ketterer, Ron Baron (Trades, Portfolio), David Tepper (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Al Gore (Trades, Portfolio), Philippe Laffont (Trades, Portfolio), Russo, Tweedy Browne (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).
Zimmer Biomet
With an impact of -0.19% on the equity portfolio, Auxier pared his holding of Zimmer Biomet (ZBH, Financial) by 9.73%, selling 6,680 shares. The stock traded for an average price of $159.58 per share during the quarter.
The guru now holds 61,984 shares total, accounting for 1.71% of the equity portfolio. GuruFocus data shows he has gained an estimated 155.24% on the investment.
The orthopedic medical device manufacturer, which is headquartered in Warsaw, Indiana, has a market cap of $34.38 billion; its shares were trading around $164.64 on Wednesday with a price-earnings ratio of 61.28, a price-book ratio of 2.76 and a price-sales ratio of 4.85.
The GF Value Line shows the stock is currently significantly overvalued.
The GuruFocus valuation rank of 3 out of 10 supports this assessment, especially since the share price and price-sales ratio are both closing in on 10-year highs.
GuruFocus rated Zimmer Biomet's financial strength 4 out of 10 on the back of insufficient interest coverage and an Altman Z-Score of 2.93, which indicates the company is under pressure. The ROIC has also fallen below the WACC, indicating struggles with creating value.
The company's profitability scored a 7 out of 10 rating. Although the operating margin is in decline, Zimmer Biomet is supported by returns that outperform over half of its industry peers as well as a moderate Piotroski F-Score of 6. Despite recording a decline in revenue per share over the past five years, the company still has a one-star predictability rank.
Of the gurus invested in Zimmer Biomet, Andreas Halvorsen (Trades, Portfolio) has the largest stake with 1.83% of outstanding shares. PRIMECAP, Pioneer, Hotchkis & Wiley, the T. Rowe Price Equity Income Fund, John Rogers (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Gabelli, Dalio and Louis Moore Bacon (Trades, Portfolio), among others, also have positions in the stock.
Discovery
Curbing the position in Discovery (DISCA, Financial) by 13.34%, the guru sold 25,835 shares. The transaction had an impact of -0.14% on the equity portfolio. During the quarter, shares traded for an average price of $49.90 each.
Auxier now holds 167,805 shares total, giving it 1.25% space in the equity portfolio. GuruFocus estimates he has gained 11.50% on the investment since establishing it in the third quarter of 2012.
The New York-based mass media company, which produces a number of factual and lifestyle TV programs, has a $16.49 billion market cap; its shares were trading around $33.31 on Wednesday with a price-earnings ratio of 22.71, a price-book ratio of 1.57and a price-sales ratio of 2.08.
According to the GF Value Line, the stock is fairly valued currently.
The valuation rank of 8 out of 10, however, points toward undervaluation.
In his letter for the quarter, Auxier wrote that Discovery's stock "benefited during the first quarter from the launch of Discovery+ and the company's new focus on digital direct-to-consumer content delivery." It has already gained over 12 million paid subscribers.
Discovery's financial strength was rated 4 out of 10 by GuruFocus. In addition to inadequate interest coverage, the company is weighed down by a weak Altman Z-Score of 1.45 that warns it could be at risk of going bankrupt since assets are building up at a faster rate than revenue is growing. The WACC also surpasses the ROIC, indicating poor value creation.
The company's profitability scored an 8 out of 10 rating. Despite the operating margin being in decline, Discovery is supported by strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6. The 3.5-star predictability rank is on watch as a result of revenue per share growth slowing down over the past year. GuruFocus notes that companies with this rank return, on average, 9.3% annually.
With a 0.76% stake, Simons' firm is Discovery's largest guru shareholder. The Smead Value Fund (Trades, Portfolio), Gabelli, Pioneer, David Tepper (Trades, Portfolio), George Soros (Trades, Portfolio), Murray Stahl (Trades, Portfolio), Prem Watsa (Trades, Portfolio) and Fisher are also among its top investors.
Additional trades and portfolio performance
During the quarter, Auxier also established new holdings in KLA Corp. (KLAC, Financial), Nucor Corp. (NUE, Financial), Enbridge Inc. (ENB, Financial), Fox Corp. (FOXA, Financial) and CytoDyn Inc. (CYDY, Financial). He also eliminated his position in Waddell & Reed Financial Inc. (WDR, Financial).
Nearly half of the guru's $582 million equity portfolio, which is composed of 162 stocks, is invested in the health care and financial services sectors, followed by a 17.49% holding in the consumer defensive 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.
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