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First Eagle Investment's Top 5 Most Profitable Holdings

Long-term holdings outshined by a portfolio newcomer

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Graham Griffin
Sep 28, 2021

Summary

  • First Eagle's most profitable investments range across a variety of industries.
  • A holding from the end of 2020 ranks first among the firm's most profitable holdings.
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First Eagle Investment (Trades, Portfolio)’s value-oriented approach is defined by the conviction that absolute long-term performance is the best way to preserve capital. The firm's strategy incorporates on-site research by actively visiting companies and the rigorous application of bottom-up fundamental analysis reduces overall risk. First Eagle buys securities whose intrinsic value and long-term potential outweighs market risk.

Based upon this philosophy, First Eagle maintains five holdings with returns in excess of 100%. These holdings include Deere & Co. (

DE, Financial), Brown & Brown Inc. (BRO, Financial), W.R. Berkley Corp. (WRB, Financial), Microsoft Corp. (MSFT, Financial) and J. Jill Inc. (JILL, Financial).

Deere

First Eagle established its holding in Deere (

DE, Financial) for the first time in the fourth quarter of 2013 with a small purchase of 4,300 shares. Share prices rose just over $7 per share over the next two quarters and the position was cut from the portfolio. The position was re-established soon after with the purchase of 3.55 million shares. The last seven years of ownership has seen the position bloom to a peak of 6.65 million shares before being scaled down to a current total of 1.51 million shares. An average purchase price of $86.92 per share places the firm well ahead on the holding with a total estimated gain of 176.47%.

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Deere is the world's leading manufacturer of agricultural equipment, producing some of the most recognizable machines in the heavy machinery industry. The company is divided into four reportable segments: production and precision agriculture, small agriculture and turf, construction and forestry, and John Deere Capital Corp. Its products are available through a robust dealer network, which includes over 1,900 dealer locations in North America and approximately 3,700 locations globally. John Deere Capital provides retail financing for machinery to its customers, in addition to wholesale financing for dealers; which increases the likelihood of Deere product sales.

On Sept. 28, the stock was trading at $353.64 per share with a market cap of $109.72 billion. According to the GF Value Line, the stock is trading at a significantly overvalued rating.

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GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 8 out of 10 and a financial strength rank of 1 out of 10. There is currently one severe warning sign issued for poor financial strength. The company’s cash-to-debt ratio of 0.17 ranks the company worse than 87.37% of competitors in the industry due to debt that has risen consistently since 2016.

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Other top guru shareholders in Deere (

DE, Financial) include Barrow, Hanley, Mewhinney & Strauss, Andreas Halvorsen (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Pioneer Investments and Diamond Hill Capital (Trades, Portfolio).

Brown & Brown

Brown & Brown (

BRO, Financial) has maintained a consistent place in the firm’s portfolio since the second quarter of 2014. The position was established with the purchase of 3.70 million shares that traded at an average price of $15.04 per share. By the third quarter of 2017, First Eagle had grown the holding to 14.52 million shares with almost uninterrupted purchases. Share prices have risen consistently since 2018 and have landed the firm at a total estimated gain of 186.99%.

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Brown & Brown offers insurance products and services, primarily in the areas of property, casualty and employee benefits, by connecting customers with insurance companies. It earns its revenue via commissions from insurance companies and direct fees from customers, and it generally has no underwriting risk exposure. More than half of its revenue is from its retail segment, which provides a broad range of insurance products and services to entities and individuals.

As of Sept. 28, the stock was trading at $56.02 per share with a market cap of $15.79 billion. The GF Value Line shows the stock trading at a modestly overvalued rating.

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GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 1 out of 10. There are currently three severe warning signs issued for assets growing faster than revenue, a declining gross margin and a declining operating margin. Despite the severe warning sign, the company’s operating margin of 26.91 ranks better than 92.45% of the insurance industry alongside an equally strong net margin.

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Brown & Brown (

BRO, Financial) is also owned by Jim Simons (Trades, Portfolio)' Renaissance Technologies, Diamond Hill Capital (Trades, Portfolio), Pioneer Investments, Ray Dalio (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).

W.R. Berkley

First Eagle dove in deep to W.R. Berkley (

WRB, Financial) with the purchase of 7.24 million shares back in the third quarter of 2010. Over the next five years, the firm grew the position to 10.30 million shares, but the holding has slowly shrunk back down to 4.96 million shares. An average purchase price of $20.85 per share and an average sale price of $60.70 has landed the firm at a solid total estimated gain of 217.82%.

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W.R. Berkley is an insurance holding company with a host of subsidiaries that primarily write commercial casualty insurance. The company specializes in niche products that include various excess and surplus lines, workers' compensation insurance, self-insurance consulting, reinsurance and regional commercial lines for small and midsize businesses.

The stock was trading at $72.86 per share with a market cap of $12.94 billion on Sept. 28. The stock is trading at a fair value rating according to the GF Value Line.

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GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 3 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. In line with the warning sign, revenue growth has tapered off since 2016 and net income fell off last year.

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Simons' firm, Pioneer Investments,

Mario Gabelli (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) also maintain positions in W.R. Berkley (WRB, Financial).

Microsoft

With a staggering total estimated gain of 231.71%, a holding in Microsoft (

MSFT, Financial) lands firmly as First Eagle’s second-most profitable holding. The holding grew consistently through 2014 before share prices started to grow rapidly. At an average purchase price of $29.40 across 40.33 million total shares purchased, the firm has done exceptionally well with the holding.

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Microsoft develops and licenses consumer and enterprise software. It is known for its Windows operating systems and Office productivity suite. The company is organized into three equally sized broad segments: productivity and business processes, intelligence cloud and more personal computing.

On Sept. 28, the stock was trading at $285.15 per share with a market cap of $2.14 trillion. According to the GF Value Line, the stock is significantly overvalued.

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GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 1 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The company’s cash flows have grown rapidly over the last several years and are more than sufficient to support dividend payouts.

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Other top guru shareholders in Microsoft (

MSFT, Financial) include Ken Fisher (Trades, Portfolio), Pioneer Investments, Primecap Management, Chase Coleman (Trades, Portfolio) and Dodge & Cox.

J. Jill

Landing squarely in first place with a total estimated gain of 344.87% is the firm’s J. Jill (

JILL, Financial) holding. The holding was established in the fourth quarter of 2020 with the purchase of 113,967 shares that traded at an average price of $3.90 per share. First Eagle purchased just prior to share prices rising, dramatically setting itself up perfectly for profit.

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J. Jill operates a network of apparel stores in the United States. The company's business strategy is centred on the idea of offering products that appeal to the middle-aged affluent class of women. Its brand portfolio comprises of J. Jill, The J. Jill Wearever Collection and Pure Jill, under which it sells jackets, sweaters, knit tops, tees and an array of other women's clothing and accessories that portray an easy and relaxed lifestyle. The company recognizes its revenue through the sale of products employing a multi-channel platform that consists of websites, retail stores and catalogs.

As of Sept. 28, the stock was trading at $17.42 per share with a market cap of $174.63 million. The stock is trading at a significantly overvalued rating according to the GF Value Line.

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GuruFocus gives the company a financial strength rating of 1 out of 10 and a profitability rank of 4 out of 10. There are currently three severe warning signs issued for declining revenue per share, poor financial strength and an Altman Z-Score placing the company in the distress column. The company’s return on invested capital is outweighed by the weighted average cost of capital, indicating capital efficiency struggles.

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J. Jill (

JILL, Financial) is also owned by Chuck Royce (Trades, Portfolio) and Simons' firm.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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