The Vanguard Health Care Fund (Trades, Portfolio) released its fourth-quarter 2022 portfolio earlier this week.
The fund, which is overseen by Jean Hynes, invests in a variety of health care-related stocks from around the world in order to achieve long-term capital appreciation. It picks stocks of companies that have high-quality balance sheets, strong management teams and the potential for new products that will generate consistently above-average revenue and earnings growth.
Keeping these criteria in mind, NPORT-P filings show the fund entered 12 new positions during the three months ended Dec. 31, sold out of seven stocks and added to or reduced a number of other existing investments. The most notable trades included new stakes in Merck & Co. Inc. (MRK, Financial) and Abbott Laboratories (ABT, Financial) and the divestment of Bristol-Myers Squibb Co. (BMY, Financial), Baxter International Inc. (BAX, Financial) and Dexcom Inc. (DXCM, Financial).
Investors should be aware that, just like 13F filings, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these partial filings can provide valuable information.
Merck
The fund invested in 13.71 million shares of Merck (MRK, Financial), allocating 3.24% of the equity portfolio to the position. The stock traded for an average price of $102.22 per share during the quarter. It previously sold out of the stock in the fourth quarter of 2020.
It is now Vanguard’s sixth-largest holding.
The Rahway, New Jersey-based pharmaceutical company has a $266.31 billion market cap; its shares were trading around $105.04 on Thursday with a price-earnings ratio of 17.48, a price-book ratio of 5.98 and a price-sales ratio of 4.52.
The GF Value Line suggests the stock is fairly valued currently based on its historical ratios, past performance and analysts’ future earnings projections.
Further, the GF Score of 81 out of 100 indicates the company has good outperformance potential on the back of high ratings for profitability and growth, middling marks for financial strength and GF Value and a low momentum rank.
Of the gurus invested in Merck, Vanguard has the largest position with 0.54% of its outstanding shares. Ken Fisher (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Jeremy Grantham (Trades, Portfolio), the Smead Value Fund (Trades, Portfolio) and several other gurus also have notable positions in the stock.
Abbott Laboratories
Vanguard picked up 9.5 million shares of Abbott Laboratories (ABT, Financial), dedicating 2.22% of the equity portfolio to the position. Shares traded for an average price of $103.54 each during the quarter. The fund previously sold out of the stock in the fourth quarter of 2021.
The medical device company headquartered in Chicago, which manufactures pacemakers, implantable cardiovascular defibrillators, stents, catheters and other equipment, has a market cap of $193.69 billion; its shares were trading around $111.09 on Thursday with a price-earnings ratio of 28.41, a price-book ratio of 5.43 and a price-sales ratio of 4.48.
According to the GF Value Line, the stock is modestly undervalued currently.
Driven by high ratings for all five criteria, the GF Score of 92 means the company has high outperformance potential.
With a 0.54% stake, Vanguard is Abbott’s largest guru shareholder. Other top guru investors include Fisher, Diamond Hill Capital (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, Simons’ firm, Grantham, Mairs and Power (Trades, Portfolio), the MS Global Franchise Portfolio (Trades, Portfolio) and the late Spiros Segalas’ Harbor Capital Appreciation Fund (Trades, Portfolio).
Bristol-Myers Squibb
The Health Care Fund exited its 19.52 million-share investment in Bristol-Myers Squibb (BMY, Financial), which had an impact of -3.25% on the equity portfolio. During the quarter, shares traded for an average per-share price of $75.40.
GuruFocus data shows Vanguard gained 40.56% on the long-held investment, which was previously its sixth-largest holding.
The New York-based biopharmaceutical company, which develops therapeutics for cardiovascular diseases, cancer and immune disorders, has a $154.23 billion market cap; its shares were trading around $72.54 on Thursday with a price-earnings ratio of 23.63, a price-book ratio of 4.72 and a price-sales ratio of 3.38.
Based on the GF Value Line, the stock appears to be fairly valued currently.
The GF Score of 90 means the company has high outperformance potential. While it received high ratings for three of the criteria, financial strength and GF Value were more moderate.
PRIMECAP is Bristol-Myers’ largest guru shareholder with a 1.04% stake. Dodge & Cox, Richard Pzena (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) also have significant positions in the stock.
Baxter International
The fund dumped all 10.55 million shares of Baxter International (BAX, Financial), impacting the equity portfolio by -1.33%. During the quarter, the stock traded for an average price of $53.71 per share.
GuruFocus estimates the fund gained 4.40% on the investment over its lifetime.
Headquartered in Deerfield, Illinois, the company, which primarily focuses on products to treat hemophilia, kidney disease, immune disorders and other chronic and acute medical conditions, has a market cap of $23.55 billion; its shares were trading around $46.72 on Thursday with a price-book ratio of 4.25 and a price-sales ratio of 1.61.
The GF Value Line suggests the stock, while undervalued, is a possible value trap currently. As such, potential investors should be thorough in their research before making a decision.
The GF Score of 69 indicates the company has poor future performance potential. Although it raked in a high profitability rating, its growth, financial strength and GF Value ranks were more moderate and the momentum was low.
Of the gurus invested in Baxter, Al Gore (Trades, Portfolio)’s Generation Investment has the largest stake with 2.36% of its outstanding shares. Larry Robbins (Trades, Portfolio) and the MS Global Franchise Portfolio (Trades, Portfolio) also have large holdings.
Dexcom
Impacting the equity portfolio by -0.59%, the Health Care Fund sold all 3.10 million shares of Dexcom (DXCM, Financial). Shares traded for an average price of $109.79 each during the quarter.
GuruFocus found the fund gained around 32.10% on the investment.
The San Diego-based medical devices company, which manufactures continuous glucose monitoring systems, has a $41.64 billion market cap; its shares were trading around $107.80 on Thursday with a price-earnings ratio of 198.53, a price-book ratio of 22.84 and a price-sales ratio of 16.02.
According to the GF Value Line, the stock is modestly undervalued currently.
The company has good outperformance potential based on its GF Score of 81, which is supported by high ratings for growth and GF Value and middling marks for the other three criteria.
With a 4.48% stake, Baillie Gifford (Trades, Portfolio) is Dexcom’s largest guru shareholder. Frank Sands (Trades, Portfolio), Ron Baron (Trades, Portfolio), Fisher and Segalas’ fund also have sizeable holdings.
Additional trades and portfolio composition
During the quarter, Vanguard also boosted the GSK PLC (GSK, Financial) investment, curbed the Pfizer Inc. (PFE, Financial), Vertex Pharmaceuticals Inc. (VRTX, Financial) and UnitedHealth Group Inc. (UNH, Financial) holdings and sold out of Koninklijke Philips NV (XAMS:PHIA, Financial).
The Health Care Fund’s $46.98 billion equity portfolio is composed of 108stocks. By industry, drug manufacturers make up the largest percentage of its holdings at 39.14%, followed by biotechnology at 20.66% and health care plans at 13.97%.
