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Yamil Berard
Yamil Berard
Articles (192) 

The Bruce Fund Bets on Botox and Steel

Robert Bruce piles up on Allergan and manufacturer of steel wire products

Robert Bruce (Trades, Portfolio)’s Chicago-based investment fund, Bruce & Co., boosted its stake in Botox maker Allergan as the company begins multimillion-dollar cost cuts, including an elimination of 1,000 jobs.

Bruce gave a 78% boost to its position in Allergan PLC (NYSE:AGN), which beat earnings and revenue forecasts in the fourth quarter, but has experienced a significant stock slide in recent months.

The fund also raised by 3% its stake in struggling biopharmaceutical company Valeant Pharmaceuticals International Inc. (VRX).

The Quebec-based company is no stranger to controversy. For a number of years, it has been the focus of class-action suits and regulatory action over questionable takeovers and pricing strategies. Its stock tanked at $15 a share after reaching highs of over $250 a share in 2015.

Bruce also increased by 10% a third position in Insteel Industries Inc. (NASDAQ:IIIN), a North Carolina-based manufacturer of steel wire reinforcement products for concrete construction applications.

Insteel has seen a 16% jump in its stock price over the last six months, and a 33% increase over the last three years.

The stock stood at $28.29 a share, down nearly 2%, in Thursday afternoon trading.


Other gurus who established new positions in steel company in the fourth quarter include Leucadia National (Trades, Portfolio), Richard Snow (Trades, Portfolio) and Hotchkis and Wiley.

The Bruces

In the fourth quarter of the year, Bruce filled a $424 million portfolio of 37 stocks with mostly utility and pharmaceutical equities. He and his son, R. Jeffrey Bruce, co-manage the fund.

The elder Bruce, who is 85 years old, has been chairman, director and president of the fund over several decades. Morningstar has ranked his diversified, no-load mutual fund a top performer over the years.

According to its latest prospectus, the Bruce Fund has posted a 6.6% rate of return before taxes over a 10-year period, based on returns for the period ending Dec. 31, 2016. The S&P 500 return was 4.73%.

The fund took no new positions in the final months of the year.

Closing out

In the final months of the year, Bruce closed several positions, including Durect Corp. (NASDAQ:DRRX), a specialty pharmaceutical company that develops anti-abuse drug technology.

In Durect Corp., Bruce posted a 10% loss since it began buying shares in 2015. The current price for shares is $1.75. In Thursday afternoon trading, the stock was up 0.29%. Shares of the California-based company have dropped amid delays over a new drug technology.


In the fourth quarter, Bruce also closed a position in the global health care company Perrigo Co. PLC (NYSE:PRGO), which manufactures generic and private-label over-the-counter supplements and other drugs.

The Ireland-based company’s stock sold for about $84.59 a share in Thursday afternoon trading, up 2%. Year to date, the stock is down 6%.

Bruce also dropped shares of U.S. Ecology Inc. (NASDAQ:ECOL), an Idaho-based company that provides waste management services. The stock is up 6% year to date to $54 a share.

More Allergan

The holding in Allergan has reported a loss of 27% since the Bruces first began buying shares in the second quarter of 2016.

Bruce first bought 25,000 shares of Allergan at an average price of $231 a share. In the first quarter of 2017, he bought another 25,000 shares for an average of $232.88 a share.

In the final months of the year, Bruce purchased additional shares, bringing his total holding to 89,200. The average price of the stock in the fourth quarter was $179.54.


On Thursday, Allergan was trading at $153.70 a share, up 0.31%.

Allergan has a forward price-earnings ratio of 9.84 versus an industry median of 15.67 and a price-sales ratio of 3.21 versus an industry median of 3.

GuruFocus gives the company 3 out of 10 in financial strength and 5 out of 10 in profitability and growth. The company’s dividend yield is 1.82 versus a median of 1.61.

The company has a market cap of $50 billion.

GuruFocus shows the company keeps issuing long-term debt and its assets are growing at a faster rate than its growth in revenue.

The Peter Lynch chart suggests the stock is overpriced.


The company has experienced a drop in sales after it lost some exclusivity over the sale of some anti-inflammatory drugs.

Insteel Industries

The buy in the third quarter of last year has gained a rate of return of 5%. Bruce now holds 260,520 shares of the stock.

In the third quarter, he bought 235,520 shares for an average price of $27.13 per share. His purchase price in the final months of the year was an average of $26.78.

On Thursday, the stock was trading at $28.55 a share.


Its market cap is $538 million.

GuruFocus ranks the company a 9 out of 10 in financial strength and 6 out of 10 in profitability and growth. It has no debt and is expanding its operating margins.

Its price-earnings ratio is 20.73 versus an industry median of 13.70. Its price-book ratio is 2.55 versus an industry median of 1.09 and it has a price-sales ratio of 1.37 versus an industry median of 0.54. Its dividend yield is 0.42% versus 1.04% for the industry.

Valeant Pharmaceuticals

Valeant has gained 27% since the stock became part of the portfolio in the second quarter of 2017. Bruce initiated the position with 581,000 shares for an average price of $11.95 a share.

The company with a market cap of 5.2 billion has a price-earnings ratio of 2.30 versus an industry median of 26.21. It has a price-book ratio of 0.93 versus an industry median of 2.79 and a price-sales ratio of 0.61 versus an industry median of 3.

The Peter Lynch chart suggests its stock is undervalued. 1520538380057.png

GuruFocus ranks it 3 of 10 in financial strength and 7 of 10 in profitability and growth. The company’s rate of revenue growth over the last 12 months is a loss of 14.80%. Over 10 years, the rate is 27.20%.

The company bears one severe warning sign as it cannot cover its interest expense if it was required to issue more debt. The company has also experienced a massive stock decline, which has impaired its intrinsic value. Revenues in 2017 fell by 10% as a result of declines in sales across its three business segments.

Gurus who bought Valeant in the fourth quarter were Joel Greenblatt (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).

Rating: 5.0/5 (1 vote)



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