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Holly LaFon
Holly LaFon
Articles (7467) 

Top 5 Buys of Market-Beating Investors at Primecap Management

Quiet managers have beat benchmark over long and short term

May 19, 2017 | About:

PRIMECAP Management (Trades, Portfolio)’s quiet nature belies its gravity-defying returns on long and short-term bases. Its best performer, the Primecap Fund, posted a 24.48% return for the year ended April 30, beating the 17.92% return in the S&P 500. It also outperformed on five-, 10- and since-inception categories.

The firm was formed in 1983 and in one year, the founder of Vanguard, Jack Bogle, approached its founders, Mitch and Howie Schow, with an offer to start a fund together, which they accepted. The Primecap Fund was born in 1984 with $100,000 in management. Four years later, it had attracted $200 million invested capital and by 2000 it reached $22 billion.

Today, the fund has $52.3 billion in assets and remains under the leadership of one of its founders, Theo Kolokotrones.

The other funds overseen by Pasadena, California-based Primecap Management include the Primecap Odyssey Stock Fund, Primecap Odyssey Growth Fund and Primecap Odyssey Aggressive Growth Fund, founded in 2004. These funds have consistently outpaced the index on long- and short-term bases as well.

In its most recent communication, its letters to shareholders in October, Primecap confided that it looked toward the post-election economy positively for investors.

“While we are concerned by some of the nativist and protectionist policies articulated in the run-up to the recent elections, we are hopeful that the new administration will promote economic growth through policies such as lighter regulation and lower taxes,” managers wrote.

“With likely Congressional support, such policies could realistically be implemented over the next couple of years, which we believe would be favorable for the U.S. economy and stock market.”

Primecap Management had nine new stocks in the first quarter among its 283 holdings across its funds. The largest of these were: Citigroup (NYSE:C), Bristol-Myers Squibb Company (NYSE:BMY), Rockwell Collins Inc. (NYSE:COL), Bank of America Corp. (NYSE:BAC) and Axon Enterprise Inc. (NASDAQ:AAXN).

Citigroup Inc. (NYSE:C)

The bank Citigroup was Primecap’s largest new buy. The firm acquired 3,399,700 shares of the company, whose share price averaged $59 in the first quarter.

Citigroup has a market cap of $165.94 billion; its shares were traded around $60.27 Thursday with a P/E ratio of 12.13 and P/S ratio of 2.44. The trailing 12-month dividend yield of Citigroup is 1.08%. The forward dividend yield is 1.07%. Citigroup had an annual average earnings growth of 14.7% over the past five years.

Bristol-Myers Squibb Company (NYSE:BMY)

Primecap picked up 1,772,900 shares of the drug company, whose share price averaged around $55 in the quarter.

Bristol-Myers Squibb has a market cap of $88.86 billion; its shares were traded around $53.94 Thursday with a P/E ratio of 18.73 and P/S ratio of 4.52. The trailing 12-month dividend yield of Bristol-Myers Squibb is 2.87%. The forward dividend yield of Bristol-Myers Squibb is 2.87%.

Rockwell Collins Inc. (NYSE:COL)

Primecap bought 571,700 shares of the aerospace and defense company, whose shares traded on average around $94 for the quarter.

Rockwell Collins has a market cap of $16.57 billion; its shares were traded around $102.05 Thursday with a P/E ratio of 18.28 and P/S ratio of 2.56. The trailing 12-month dividend yield of Rockwell Collins is 1.29%. The forward dividend yield of Rockwell Collins is 1.29%. Rockwell Collins had an annual average earnings growth of 6.4% over the past 10 years. GuruFocus rated Rockwell Collins the business predictability rank of 5-star.

Bank of America Corp. (NYSE:BAC)

Primecap swept up 1,012,200 shares of the bank, whose shares were priced around $24 on average in the first quarter.

Bank of America has a market cap of $226.31 billion; its shares were traded around $22.74 Thursday with a P/E ratio of 14.39 and P/S ratio of 2.97. The trailing 12-month dividend yield of Bank of America is 1.22%. The forward dividend yield of Bank of America is 1.33%. Bank of America had an annual average earnings growth of 48% over the past five years.

Axon Enterprise Inc. (NASDAQ:AAXN)

Primecap also established a position of 447,000 shares of the aerospace and defense company, whose price per share averaged $25 during the quarter.

Axon Enterprise has a market cap of $1.27 billion; its shares were traded around $24.13 with a P/E ratio of 68.96 and P/S ratio of 4.39.

See Primecap's portfolio here.


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