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Yamil Berard
Yamil Berard
Articles (192) 

John Griffin Makes New Bet Before Calling It Quits

Pet food and online car marketplace draw interest before winding down

John Griffin (Trades, Portfolio), owner of Blue Ridge Capital, announced in December that he is shutting down the hedge fund that he founded in 1996. As he wraps up business, his portfolio in the final months of the year is a lot leaner, signaling the tiger cub is about to call it quits.

The former partner and protégé of Julian Robertson (Trades, Portfolio) has indicated the shutdown will be gradual and take place over the earlier part of this year.

In the final months of 2017, Griffin eliminated more than a dozen positions and opened up two new ones, signaling buys in the stock of the online car sales marketplace, CarGurus Inc. (NASDAQ:CARG), and pet food maker Blue Buffalo Pet Products Inc. (NASDAQ:BUFF), which has recently been in the headlines.

Last month, General Mills announced a deal to buy Blue Buffalo for $8 billion in cash. The deal is expected to close by the end of the year.

In total, Griffin’s portfolio in the final months of the year contained 30 stocks and was worth $3 billion, compared to $5.5 billion in the prior-quarter.

The portfolio hit a high of over $10 billion in investments about four years ago, after standing at under $4 billion in the third quarter of 2009, according to GuruFocus.

Before kicking off his New York-based firm, he spent nine years with Robertson’s Tiger Management. Over more than two decades at his own firm, Griffin remained loyal to a long-short portfolio strategy that was the basis of the hedge fund’s philosophy.

LIke other long-short managers, Griffin struggled to post gains in a recent climate of low interest rates. But, the firm reportedly averaged returns of 15.4% a year, which was higher than the S&P 500 Index, since its launch in 1996.

Selling out on stocks

Blue Ridge reported a selling spree in the final months of the year.

Blue Ridge vacated holdings of the following companies: TransDigm Group Inc. (NYSE:TDG), CSX Corp. (NASDAQ:CSX), Platform Specialty Products Corp. (NYSE:PAH), The Kraft Heinz Co. (NASDAQ:KHC), O’Reilly Automotive Inc. (NASDAQ:ORLY), MGM Resorts International (NYSE:MGM), Range Resources Corp. (NYSE:RRC), Whiting Petroleum Corp. (NYSE:WLL), Och-Ziff Capital Management Group (NYSE:OZM), GNC Holdings Inc. (NYSE:GNC), Social Capital Hedosophia Holdings Corp. (IPOA), Wells Fargo & Co. (WFC), Fleetcor Technologies Inc. (FLT), Autodesk Inc. (ADSK), Ulta Beauty (ULTA), Nike Inc. (NKE) and others.

It is made up of equities in the following sectors: 16.5% financial services; 11.2% technology, 10.9% consumer cyclical, 9.1% energy, 9% healthcare, 8.5% communication services, 7% consumer defensive and 3% basic materials.

Blue Buffalo Pet Products Inc.

Blue Ridge bought 3.4 million shares at an average price of about $29.62 a share. The investment sits in over 3.75% of the portfolio space. So far, the investment has triggered a gain of 35%.

Early Thursday, shares were trading at just under $40 or up .01%. The stock is up 64% over the last 12 months.

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The company manufactures premium all-natural dog and cat foods. It has a market cap of $7 billion.

It also has a price-earnings ratio of 41.15 versus an industry median of 20.26. Its price-book ratio is 26.10; its price-sales ratio is 6.22 compared to the industry median of 1.08.

GuruFocus ranks it a 7 in 10 in financial strength and 6 in 10 in profitability and growth. The company has a high F-Score, indicating a healthy situation. It has other healthy indicators, such as an average revenue growth per share of 11.10% over 12 months. The company’s average growth in book value per share is 105.40% over 12 months.

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BUFF data by GuruFocus.com

GuruFocus identified one severe warning sign. The company’s operating margin has been in a five-year decline. The average rate of decline is 1.1% a year.

Investors also have been discussing a series of recent headlines involving the pet food maker.

For example, just two weeks ago, a California-based law firm announced it was filing a shareholder rights lawsuit against the brand. Accusations are that Buffalo’s board of directors breached their fiduciary duties in connection with the proposed sale of the company to General Mills Inc. (GIS). Among the issues under review are whether the board adequately pursued alternatives to the acquisition and whether it obtained the best price possible for shares of common stock.

CarGurus Inc.

Griffin purchased 100,000 shares of the Massachusetts-based company at an average price of just under $30 a share. It holds 0.1% portfolio space.

The company was founded in 2006 by Langley Steinert, co-founder of TripAdvisor. CarGurus began trading in October 2017. It now operates online marketplaces in Canada, the U.K. and Germany.

The company’s stock was at $36.30 a share, up by more than 2% in early Thursday trading.

It has a market cap of $3.77 billion.

GuruFocus ranks it a financial strength of 10 in 10 and a profitability and growth of 3 in 10. Its price-book ratio stands at 29.87 and its price-sales ratio stands at 14.69. The company has over $1.3 billion in cash and no debt.

Its shares and revenue have been climbing year to date. But a concern is a short interest of 26.56% on shares.

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