Nothing is the same about New York City-based investment firm of Ruane Cunniff (Trades, Portfolio) & Goldfarb since it dove into darkness in 2014.
There were many mistakes back then, but, after a shoddy investment nearly doomed its prospects, the famed founder of the Sequoia Fund is now staring at redemption.
In almost two years, a major housecleaning has produced an investment structure that distributes ownership, as well as decision-making, more broadly. The firm also has a new website, a new accounting system and a back to basics vision that signals its old emphasis on traditional value investing: choosing companies that are off the beaten path but can deliver the goods.
With this in mind, the mutual firm, once one of Wall Street’s top performers, released its top picks for the final months of the year. They include holdings in a Maryland-based television broadcaster, a Latin American online sports retailer and a Germany-based kidney dialysis provider.
Investors also heard encouraging results in the final quarter of the year.
The firm’s flagship Sequoia Fund finished off 2017 with a 20.07% annualized rate of return, just under the 21.83% posted by the S&P 500. In the fourth quarter, it posted 5.57% compared to the S&P’s 6.64%.
While this may not be much to brag about, it says a lot for Sequoia, which, in 2014, began investing in what became a scandal-ridden pharmaceutical company that bled billions from its net assets.
Just a year ago, returns looked very different. The firm’s 2016 semi-annual report to shareholders showed an annualized loss of 26.70%, trailing the S&P’s 3.99%. The six-month loss was 13.19% compared to the S&P’s 3.84%.
Buys in the fourth quarter
Ruane Cunniff finished liquidating its ill-fated investment in Valeant Pharmaceuticals (VRX, Financial) in the second quarter of 2016.
In the fourth quarter of 2017, the firm announced three new positions as part of its total investment accounts worth $12.2 billion.
Of the holdings in its various accounts, 35.9% is in consumer cyclical, 33.7% in financial services, 18.8% in technology, 6.5% in health care, 3.2% in industrials, 1.5% in basic materials and 0.2% in consumer defensive.
Sinclair Group Inc.
Of 66 stocks total, the largest of the three is represented by Sinclair Broadcasting Group Inc. (SBGI, Financial), a broadcasting company that owns and operates, programs or provides sales services to 58 television stations in 38 markets.
At 1.3 million shares, Ruane Cuniff paid on average $33 a share. It sits in 0.42% of the portfolio.
Sinclair was trading at $36.48 a share on Monday afternoon, up .21%.
GuruFocus rates it a 4 out of 10 in financial strength and an 8 of 10 in profitability and growth. It has a price-earnings ratio of 13.82 (higher than 73% of peers); a price-book ratio of 3.23 (lower than 70% of peers) and a price-sales ratio of 1.27 (higher than 66% of peers). Its dividend yield is at 1.98%, higher than half of its peers.
The company with a market cap of $3.7 billion has a one-star business predictability ranking, meaning margins have been on the decline. The company also continues to issue new debt.
Netshoes Cayman Ltd.
Netshoes (NETS, Financial) stock was bought for an average price of $9.17 a share for 1.4 million shares. It sits in 0.09% of the portfolio. Late Monday, it was trading for $8.02 a share, up 2.17%.
The holding company’s subsidiaries offer sports and lifestyle products and athletics shoes. (Netshoes is a Latin American sports and online retailer.) It was established in 2015.
GuruFocus rates its financial strength 5 of 10 and its profitability and growth 3 of 10. Its price-book ratio is 1.25 and its price-sales ratio is 0.37. Both are 70% higher than its peers.
It has an operating margin of -2.39% and its net margin is -7.85%. Both are at least 80% lower than peers. Its return on equity is -55.29% and return on assets is -14.74%.
Fresenius Medical Care AG & Co.
More than 10,000 shares of Germany-based kidney dialysis company Fresenius Medical Care AG & Co. (FMS, Financial) were purchased for an average of $49.68 a share. The impact on the portfolio is so small it could not be quantified.
Shares were trading at $54.73 a share in afternoon trading, up 0.29%. The company has a five-star business preditability ranking, signaling an average earnings gain of 12% a year.
It has a financial strength rating of 5 in 10 and a profitability and growth rating of 8 in 10. It has a price-earnings ratio of 21.06, a price-book ratio of 2.78 and a price-sales ratio of 1.49. Its dividend yield of 0.94% is lower than 68% of its peers.
Ruane Cunniff also purchased about 2,000 shares of Walmart Inc. (WMT) for an average price of $91.17 a share
The Sequioia Fund's top holdings are the following:
Berkshire Hathaway Inc., (BRK.A, Financial) (BRK.B, Financial) 12.5%
Alaphbet Inc. (GOOGL, Financial) 10.2%
Mastercard Inc. 8.1% (MA, Financial)
Constellation Software Inc. (CSU, Financial) 5.6%
Dentsply Sirona Inc. (XRAY) 5.3%
TJX Companies, (TJX, Financial) 5.2%
Royce Rolls Holdings, (RYCEF) 4.6%
Charles Schwab Corp., (SCHW) 3.9%
CarMax Inc., (KMX) 3.8%
Liberty Media Corp. 3.8%
