Ken Heebner (Trades, Portfolio), co-founder of Capital Growth Management, invested in three companies during the second quarter: Copa Holdings SA (CPA, Financial), Royal Caribbean Cruises Ltd. (RCL, Financial) and Alibaba Group Holding Ltd. (BABA, Financial). The guru also axed his positions in Goldman Sachs Group Inc. (GS, Financial), NVIDIA Corp. (NVDA, Financial) and Teradyne Inc. (TER, Financial).
Copa Holdings and Royal Caribbean
Heebner purchased 619,100 shares of Copa and 567,000 shares of Royal Caribbean, increasing his portfolio 6.14% in the aggregate. The former averaged $115.05 per share while the latter averaged $105.98 per share.
Copa, a Panama airline, reported net income of $63 million during the quarter, up $8.5 million from prior-year quarter net income. The earnings results, according to management, reflect “outstanding commercial execution and improved demand trends.” Based on such trends, management expects operating margins between 16% and 18% for the year.
Royal Caribbean said second-quarter earnings increased 60% from the prior-year quarter as “strong close-in demand for cruise [travel] bolstered the quarter,” according to CEO Richard Fain. The cruise travel company’s profitability ranks a solid 8 as the company has expanding operating margins and consistent revenue growth. Royal Caribbean’s Piotroski F-score ranks 7, driven by increasing gross margins and asset turnover.
Alibaba
Heebner invested in 403,000 shares of Alibaba at an average price of $123.4 per share. The guru increased his portfolio 2.6% with this transaction.
Alibaba, a Chinese online retailer, reported a 56% year-over-year increase in fiscal 2017 revenues, driven by the company’s robust core businesses and “the positive momentum of [Alibaba’s] emerging businesses,” according to Chief Financial Officer Maggie Wu. The company has a GuruFocus business predictability rank of four stars based on consistent revenue growth during the past five years.
Several other gurus invested in Alibaba as the company offers good growth potential, including Daniel Loeb (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and the Matthews China Fund (Trades, Portfolio). Fisher increased his position to 10,318,873 shares, which represents the second-largest stake among gurus.
Goldman Sachs
Heebner closed his position in Goldman Sachs, selling his 335,000 shares at an average price of $222.11 per share. The guru pared his portfolio 3.40% with this transaction.
Goldman Sachs has a modest financial strength rank of 5. The company has interest coverage of 1.33 and cash-debt ratio of 0.41, increasing Goldman’s chance of financial distress. Goldman has increased its long-term debt each year since 2014.
NVIDIA and Teradyne
Heebner sold his 621,000-share holding in NVIDIA at an average price of $126.48 per share. The guru trimmed his portfolio 2.98% with this transaction.
Although the company has strong financial strength and profitability, NVIDIA is significantly overvalued. The company’s share price is still near a 10-year high despite dropping 5.71% from its previous close of $164.74. NVIDIA also has price-book (P/B) and price-sales (P/S) ratios near respective 10-year highs, both ranking lower than more than 94% of global competitors.
Heebner also closed his position in Teradyne, selling his 1.77 million-share stake at an average price of $33.72 per share. The semiconductor equipment company trades near a 10-year high of $33.48 per share despite having strong financial strength and profitability.
Disclosure: I do not have any positions in the stocks mentioned.
