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James Li
James Li
Articles (328)  | Author's Website |

Tweedy Browne Hooks Up Baidu in 1st Quarter

Guru adds 3 new positions to portfolio

May 17, 2017 | About:

Tweedy Browne (Trades, Portfolio), an investment partnership owned by managing directors William Browne, John Spears, Thomas Shrager and Robert Wyckoff, invests in companies using a Ben Graham style approach. Tweedy Browne’s investment partnership, recognized by Warren Buffett (Trades, Portfolio) as Graham-Doddsville Superinvestors, added three new positions during the first quarter: Baidu Inc. (NASDAQ:BIDU), Signet Jewelers Ltd. (NYSE:SIG) and Merck & Co. Inc. (NYSE:MRK).

Baidu

Browne purchased 1,382,979 shares of Baidu, a major Chinese online media site. The company’s share price averaged $175.99 per share during first-quarter 2017. With this transaction, the investment partnership boosted its portfolio 6.85%.

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Baidu, Chinese for “hundreds of times,” comprises about 80% of the revenue share in the Chinese paid-search market. The company has satisfactory financial strength with interest coverage of 8.15 and $1.48 in cash for every $1 in debt.

During first-quarter 2017, Baidu reported net revenues of $2.454 billion, a 6.8% increase from first-quarter 2016. Despite this, the company reported lower net earnings with operating profit and net incomes declining 9.3% and 10.6% from the prior-year quarter. The lower earnings were driven by higher bandwidth, depreciation, operational and content costs. Company content costs were higher primarily due to content costs from Baidu’s iQiyi business.

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Baidu’s four-star business predictability rank is on watch as the company reported declining revenue and earnings during full-year 2016. Despite this, Baidu CEO Robin Li said that the company’s investment in artificial intelligence (AI) gives management confidence that the company’s technology advantage positions Baidu to “both enable and participate in the growth and transition of China’s AI-powered industries.” These investments in AI are expected to generate company revenues between $2.974 billion and $3.048 billion, which would outperform second-quarter 2016 results by at least 12.1% and first-quarter 2017 results by at least 21.2%.

Signet Jewelers

Browne invested in 225,918 shares of Signet Jewelers at an average price of $74.77. The investment partnership increased its portfolio 0.45% with this transaction.

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Signet Jewelers, a Bermuda diamond retailer, operates jewelry stores under well-known brands like Kay and Jared. The company’s margins and returns are near a 10-year high and outperform over 80% of its competitors.

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Signet reported a 4.5% decline in same-store sales during the 13 weeks ending Jan. 28, driven by lower mall and e-commerce merchandise collections. CEO Mark Light reported that, while the company faced a “challenging fourth quarter and fiscal year,” Signet plans to intensively focus on its “omnichannel approach supported by a significant increase in [the company’s] digital ecosystem.” These initiatives contribute to a profitability rank of 7, suggesting good short-term growth potential.

Merck & Co.

Browne invested in 3,306 shares of Merck & Co. at an average price of $63.58.

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Merck has a profitability rank of 7, suggesting good growth potential. The New Jersey drug manufacturing company reported a 1% increase in worldwide sales from first-quarter 2016 to first-quarter 2017. CEO Kenneth Frazier listed several contributing factors, including the continued momentum of Keytruda, one of the company’s therapy products. Keytruda garnered regulatory approvals from the Food and Drug Administration, the European Commission and the Committee for Medicinal Products for Human Use of the European Medicines Agency.

As the company offers good growth potential, Jim Simons (Trades, Portfolio) purchased 7,363,034 shares of Merck. Simons has the fourth-largest stake among gurus owning Merck shares.

Disclosure: I do not have positions in the stocks mentioned in the article.

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About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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