First Eagle Dumps Alibaba, Buys Walmart

Firm reveals 2nd-quarter portfolio

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Aug 11, 2022
Summary
  • First Eagle sold out of Alibaba and bought Walmart.
  • The firm added to its investments in HCA Healthcare and Ross Stores.
  • It also trimmed its stake in Exxon Mobil.
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First Eagle Investment (Trades, Portfolio) disclosed its second-quarter equity portfolio earlier this month.

The New York-based firm, which was founded in 1864, takes a value-oriented approach to investing that prioritizes on-site research by actively visiting companies and talking to management to gain first-hand knowledge of its prospects. It strives to preserve capital over the long term by applying bottom-up fundamental research in order to reduce risk.

Based on these considerations, the 13F filing for the the three months ended June 30 showed the firm entered 37 new positions, sold out of 29 stocks and added to or trimmed a number of other existing investment. First Eagle’s most notable trades included the divestment of Alibaba Group Holding Ltd. (

BABA, Financial), a new stake in Walmart Inc. (WMT, Financial), increased bets on HCA Healthcare Inc. (HCA, Financial) and Ross Stores Inc. (ROST, Financial) and a reduction of the Exxon Mobil Corp. (XOM, Financial) holding.

Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

Alibaba

First Eagle sold its 5.71 million remaining shares of Alibaba (

BABA, Financial), impacting the equity portfolio by -1.52%. The stock traded for an average price of $98.24 per share during the quarter.

GuruFocus estimates the firm lost 41.45% on the investment over its lifetime.

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The Chinese e-commerce giant has a $255.83 billion market cap; its shares were trading around $96.63 on Thursday with a price-earnings ratio of 55.21, a price-book ratio of 1.85 and a price-sales ratio of 2.06.

The GF Value Line suggests the stock is significantly undervalued currently based on historical ratios, past financial performance and analysts’ estimates of future earnings.

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GuruFocus rated Alibaba’s financial strength 7 out of 10 despite having inadequate interest coverage. The Altman Z-Score of 2.91 indicates the company is under some pressure. The weighted average cost of capital also eclipses the return on invested capital, meaning the company is struggling to create value as it grows.

The company’s profitability scored a 9 out of 10 rating. Along with operating and gross margins that are in decline, Alibaba’s returns on equity, assets and capital are underperforming over half of its competitors. It also has a moderate Piotroski F-Score of 5 out of 9, indicating conditions are typical of a stable company. Due to a slowdown in revenue growth, the predictability rank of 3.5 out of five stars is on watch. According to GuruFocus research, companies with this rank return an average of 9.3% annually over a 10-year period.

Of the gurus invested in Alibaba,

David Herro (Trades, Portfolio) has the largest stake with 1.65% of its outstanding shares. PRIMECAP Management (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Dodge & Cox, Ray Dalio (Trades, Portfolio), Al Gore (Trades, Portfolio), Chris Davis (Trades, Portfolio) and several other gurus also have significant positions in the stock.

Walmart

The firm invested in 1.96 million shares of Walmart (

WMT, Financial), allocating 0.67% of the equity portfolio to the stake. Shares traded for an average price of $138.51 each during the quarter.

It previously sold out of the stock in 2018.

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The Betonville, Arkansas-based retail company, which operates the Walmart and Sam’s Club chains, has a market cap of $353.33 billion; its shares were trading around $129.14 on Thursday with a price-earnings ratio of 27.72, a price-book ratio of 4.60 and a price-sales ratio of 0.63.

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

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Walmart’s financial strength was rated 6 out of 10 by GuruFocus, driven by sufficient interest coverage and a high Altman Z-Score of 4.32 that indicates it is in good standing. The ROIC also overshadows the WACC, so value is being created.

The company’s profitability fared better, scoring an 8 out of 10 rating. In addition to solid margins and returns that are outperforming versus industry peers, Walmart has a high Piotroski F-Score of 7, indicating operations are healthy. The one-star predictability rank is also on watch. GuruFocus data shows companies with this rank return, on average, 1.1% annually.

With a 0.15% stake, Dalio is the retailer’s largest guru shareholder. Other top guru shareholders include

Bill Gates (Trades, Portfolio)’ foundation trust, the T Rowe Price Equity Income Fund (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Fisher.

HCA Healthcare

Impacting the equity portfolio by 0.93%, First Eagle upped its HCA Healthcare (

HCA, Financial) position by 78.35%, buying 1.96 million shares. During the quarter, the stock traded for an average per-share price of $215.40.

The firm now holds 4.47 million shares total, accounting for 2.12% of the equity portfolio. GuruFocus data shows it has gained an estimated 28.54% on the investment so far.

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The company headquartered in Nashville, Tennessee, which owns and operates health care facilities across the U.S., has a $62.76 billion market cap; its shares were trading around $218.52 on Thursday with a price-earnings ratio of 10.51 and a price-sales ratio of 1.13.

Based on the GF Value Line, the stock appears to be fairly valued currently.

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GuruFocus rated HCA Healthcare’s financial strength 4 out of 10. Although the company has issued new long-term debt in recent years, it is manageable due to adequate interest coverage. The Altman Z-Score of 2.58, however, indicates the company is under some pressure. The ROIC also exceeds the WACC, so value creation is occurring.

The company’s profitability fared better with a 10 out of 10 rating on the back of operating margin expansion, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 8. Consistent earnings and revenue growth also contributed to HCA’s five-star predictability rank. GuruFocus says companies with this rank return an average of 12.1% annually.

First Eagle is now the largest guru shareholder of HCA with a 1.56% stake. The

Vanguard Health Care Fund (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio) also have notable holdings.

Ross Stores

With an impact of 0.72% on the equity portfolio, the firm boosted its Ross Stores (

ROST, Financial) holding by 1,899.84%, buying 3.64 million shares. The stock traded for an average price of $89.08 per share during the quarter.

First Eagle now holds 3.83 million shares total, which represent 0.76% of the equity portfolio. According to GuruFocus, the firm has gained 6.89% on the investment since establishing it in the third quarter of 2020.

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The Dublin, California-based retail company, which owns and operates discount department stores like Ross Dress for Less, has a market cap of $31.30 billion; its shares were trading around $89.54 on Thursday with a price-earnings ratio of 19.92, a price-book ratio of 7.74 and a price-sales ratio of 1.69.

The GF Value Line suggests the stock is significantly undervalued currently.

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Ross Stores’ financial strength was rated 5 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the Altman Z-Score of 4.53 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also outshines the WACC, so value is being created.

The company’s profitability also fared well with an 8 out of 10 rating. Although its margins are in decline, its returns top a majority of industry peers. Ross also has a high Piotroski F-Score of 7 and a one-star predictability rank.

Of the gurus invested in Ross,

PRIMECAP Management (Trades, Portfolio) has the largest stake with 3.23% of its outstanding shares. Steven Cohen (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio), Elfun Trusts (Trades, Portfolio), Simons’ firm, Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Fisher and Dalio also own the stock.

Exxon Mobil

First Eagle curbed its investment in Exxon Mobil (

XOM, Financial) by 15.47%, selling 3.65 million shares. The transaction had an impact of -0.74% on the equity portfolio. During the quarter, shares traded for an average price of $90.08 each.

The firm now holds 19.95 million shares in total, which make up 4.82% of the equity portfolio and is its second-largest holding. GuruFocus data shows it has gained approximately 16.78% on the investment since establishing it in the second quarter of 2010.

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The integrated oil and gas giant headquartered in Irving, Texas has a $382.38 billion market cap; its shares were trading around $92.34 on Thursday with a price-earnings ratio of 10.05, a price-book ratio of 2.16 and a price-sales ratio of 1.11.

According to the GF Value Line, the stock is fairly valued currently.

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GuruFocus rated Exxon Mobil’s financial strength 8 out of 10. In addition to adequate interest coverage, the Altman Z-Score of 4.30 indicates the company is in good standing. Value is also being created since the ROIC surpasses the WACC.

The company’s profitability scored a 7 out of 10 rating due to strong margins and returns that are outperforming versus competitors. Exxon Mobil also has a high Piotroski F-Score of 8 and a one-star predictability rank.

With a 0.48% stake, First Eagle is the company’s largest guru shareholder. Other gurus with large holdings in Exxon Mobil include Simons’ firm,

Richard Pzena (Trades, Portfolio), the T. Rowe Price Equity Income Fund, Fisher, Dalio and John Paulson (Trades, Portfolio).

Additional trades and portfolio performance

During the quarter, the firm also added to a number of holdings, including Fidelity National Information Services Inc. (

FIS, Financial), D.R. Horton Inc. (DHI, Financial), Alphabet Inc. (GOOG, Financial), Douglas Emmett Inc. (DEI, Financial) and Fomento Economico Mexicano SAB de CV (FMX, Financial).

Consisting of 392 holdings, First Eagle’s $35.42 billion equity portfolio is most heavily invested in the technology, financial services, energy and basic materials sectors.

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First Eagle posted a return of 12.24% in 2021, underperforming the S&P 500’s 28.70% return.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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