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Yamil Berard
Yamil Berard
Articles (192) 

Jeremy Grantham Buys Facebook, Novo Nordisk

Top buys are in high-quality companies with a proven track record of profitability

Investor Jeremy Grantham (Trades, Portfolio)’s Boston-based asset management firm established two major new positions in the early months of the year.

Grantham, Mayo & van Otterloo initiated its top position in Facebook (NASDAQ:FB), buying more than 752,000 shares of the social media giant for an average price of $179.55 a share. So far, Grantham’s GMO has made an estimated 3% gain on the investment.

The guru’s second-largest new position for the quarter was Novo Nordisk (NYSE:NVO). The Denmark-based multinational company develops drugs for the treatment of diabetes, obesity care and biopharmaceuticals.

The purchase of 657,000 Novo Nordisk shares was executed for an average price of $52.50 a share. So far, the investment has posted an estimated loss of 7%.

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Worthy of distinction

Grantham’s first-quarter buys are worthy of distinction. Facebook and Novo Nordisk received among the highest performance "ratings" on key financial metrics by GuruFocus. Companies that receive the high ratings enjoy long-term profitability, little or no debt and steady operating margins. GuruFocus developed the ratings to help investors who subscribe to the site identify quality stocks. 

Grantham, GMO’s co-founder and chief investment strategist, has a $16 billion portfolio made up of a total of 567 equities. Grantham had an 11% turnover in his first-quarter portfolio, choosing a total of 87 new stocks.

His portfolio leans heaviest on technology stocks, where he invests nearly 36% of the total portfolio. The remaining investments are in health care, 19%; financial services, 11.8%; consumer cyclical, 10%; consumer defensive, 6.8%; industrials, 5.5%;  and exchange-traded funds, 5.3%. GMO’s remaining positions are in energy, communication services, utilities and real estate.

For the first quarter, other new buys included: iShares Inc. MSCI Brazil (EWZ), which sits in 0.19% portfolio space. Smaller positions were in Vipshop Holdings Ltd. (NYSE:VIPS), Bunge Ltd. (NYSE:BG), Magna International Inc. (NYSE:MGA), Danaher Corp. (NYSE:DHR), Sanofi SA (NYSE:SNY) and Twenty-First Century Fox Inc. (NASDAQ:FOXA).

Facebook

Shares of the California-based company sit in about 0.74% of the portfolio.

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Grantham last bought shares of Facebook in the fourth quarter of 2013. The guru bought more than 109,000 shares for $50 a pop back then. He sold out in the second quarter of 2014 for about $61 a share, a substantial gain compared to the purchase price.

Facebook was trading at under $184 a share early Wednesday afternoon. The stock was down slightly 0.29%. It has risen 27% over the last 12 months. Its 52-week range is $144.42 to $195.32 a share.

Facebook trades at more than 30 times its earnings. Its price-book ratio is 6.91 times and its price-sales ratio is 12.21 times.

The stock trades at 24.15 times its forward earnings multiple. Its return on equity is 25.36% while its return on assets is 22.6%. Over the last five years, its average annualized earnings grew at a rate of 63.50%.

It reported an operating margin of 49.7% in December 2017. The margin has teetered between 35% and 50% over the last six years.

In the final months of the year, revenue stood at $40.6 billion, up from $27.6 billion the prior year and $18 billion the year before that.

Net income in December 2017 was $16 billion, compared to $10 billion in December 2016.

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Its market cap has jumped to $540 billion from $63 billion in December 2012.

Analysts are projecting earnings of $10.87 per share on revenues of more than $85 billion in 2020. The three- to five-year growth rate estimate on earnings per share is 19.92%.

Facebook is ranked with a financial strength of 9 out of 10 and a profitability and growth ranking of 9 of 10, according to GuruFocus.

Novo Nordisk

The pharmaceutical company sits in 0.2% of GMO’s portfolio space. A total of 657,000 shares were purchased for an average price of $52.50 a share. The investment has posted an estimated loss of 8% so far.

GMO last bought shares of Novo Nordisk in the first quarter of 2016. A total of 122,600 were purchased at $53 a share until they were sold in the fourth quarter of the same year for $36 a share.

In Wednesday trading, shares stood at $48.81 a share, up 1% after losing over 3.5% on a day of market uncertainty over rising interest rates and yields on U.S. Treasury bonds. On Wednesday, the markets were in the green in the early afternoon. The Dow Jones Industrial Average was up 0.25% to 24,767.52 while the S&P 500 stood at 2,724, up 0.48%.

Novo Nordisk has been a cash-generating machine for shareholders. It reported a return on equity of 84%, the zenith among 969 companies in the Global Biotechnology Industry, GuruFocus shows.

The company had average annualized growth of 19% over the last decade. Its operating margin rose to more than 43% in the final months of the year.

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It reported revenues of $18 billion last year, compared to $4.4 billion 15 years ago, reflecting an upbeat path over a long period of time. It has a net income of $6 billion, compared to $805 million reported 15 years ago.

The stock trades at 18.94 times its earnings and 19 times its forward earnings. It has a price-book ratio of 16 times, which is lower than the majority of its peers. Its price-sales ratio is 6.68 times, which is higher than 63% of its peers in the Global Biotechnology Industry.

It has a market cap of $112.7 billion. GuruFocus ranks it 9 out of 10 in financial strength, as well as 9 of 10 in profitability and growth


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