Francis Chou (Trades, Portfolio), portfolio manager of Chou America Mutual Funds, disclosed Wednesday he nearly eliminated his stakes in three companies during fourth-quarter 2017: Valeant Pharmaceuticals International Inc. (VRX, Financial), Teva Pharmaceutical Industries Ltd. (TEVA, Financial) and Overstock.com Inc. (OSTK, Financial).
Valeant
Chou axed 95.12% of his Valeant stake, selling 2,904,851 shares for an average price of $15.84. With this transaction, the manager knocked 14.8% off his portfolio.
Throughout the past two months, our Forum users debated on Valeant’s growth prospects. Although the company has good profitability, Valeant’s financial strength ranks a poor 3 out of 10, suggesting moderate financial stress. The company only has four cents in cash per $1 in debt, ranking lower than 96% of global competitors. Additionally, Valeant’s interest coverage is a weak 0.31, significantly lower than Benjamin Graham’s required threshold of 5.
Teva
Chou took an opposite stance than Warren Buffett (Trades, Portfolio) did with Teva: while the Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO initiated an 18,875,721-share stake, Chou sold 490,000 shares, leaving him with just 15,000. Teva’s stock averaged $15.05 during the quarter, and Chou took a loss of approximately 55% on the stock based on GuruFocus estimates.
Teva CEO Kare Shultz said the company had a “challenging” 2017, which included an as-reported loss per share of $16.26. Gross profits declined 9% from the prior year mainly due to higher amortization costs and lower profitability in both the General Medicines and Specialty Medicines business segments. GuruFocus ranks Teva’s profitability 4 out of 10 as the company’s profit margins underperform 85% of global competitors.
Overstock.com
Chou eliminated 97.68% of his stake in Overstock.com, selling 280,000 shares for an average price of $48.08 per share.
Although the company’s financial strength ranks a satisfactory 6 out of 10, Overstock.com has a weak Piotroski F-score of 3 and a relatively high debt-to-EBITDA ratio of 3.32. The latter underperforms 61% of global competitors.
According to a previous article, George Soros (Trades, Portfolio) invested in 2,472,188 shares for $40.10 per share.
Disclosure: No positions.
