The MS Global Franchise Fund (Trades, Portfolio), part of Morgan Stanley, released its second-quarter portfolio this week, listing one new position. It also divested of four holdings.
Managed by a nine-person team, the fund invests in high-quality companies around the world in order to achieve long-term capital appreciation. It looks for companies that have resilient business franchises and growth potential.
The fund established a position in Baxter International Inc. (BAX, Financial) during the quarter and sold its British American Tobacco PLC (BTI, Financial), Intuit Inc. (INTU, Financial), Walt Disney Co. (DIS, Financial) and International Flavors & Fragrances Inc. (IFF, Financial) holdings.
Baxter International
The fund invested in 81,262 shares of Baxter International for an average price of $70.48 per share, allocating 0.51% of the equity portfolio to the holding.
The Deerfiled, Illinois-based health care company, which manufactures medical instruments and supplies, has a $39.55 billion market cap; its shares were trading around $74.03 on Thursday with a price-earnings ratio of 44.60, a price-book ratio of 4.47 and a price-sales ratio of 3.72.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
Supported by good interest coverage and a high Altman Z-Score of 5.6, GuruFocus rated Baxter’s financial strength 7 out of 10. The company’s profitability and growth scored a 5 out of 10 rating. Although the operating margin is in decline, it still outperforms 68% of competitors. The company also has a moderate Piotroski F-Score of 6 and a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank see their stock prices gain an average of 1.1% per year.
Of the gurus invested in Baxter, Daniel Loeb (Trades, Portfolio) has the largest position with 6.74% of outstanding shares. Other shareholders include the Vanguard Health Care Fund (Trades, Portfolio), Bill Nygren (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and the Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio).
British American Tobacco
The Global Franchise Fund sold its remaining 288,472 shares of British American for an average price of $52.69 per share, impacting the equity portfolio by -1.47%. GuruFocus estimates the fund has lost 16.64% on the investment since the third quarter of 2017.
The tobacco company, which is headquartered in the U.K., has a market cap of $109.79 billion; its shares were trading around $47.81 on Thursday with a price-earnings ratio of 2.05, a price-book ratio of 1.38 and a price-sales ratio of 3.77.
According to the Peter Lynch chart, the stock is undervalued because it is trading below its fair value.
British American’s financial strength was rated 5 out of 10 by GuruFocus. Despite issuing 24.6 billion pounds ($31.8 billion) in new long-term debt over the last three years, it is still at a manageable level. The Altman Z-Score of 1.86, however, indicates the company is under minor financial pressure. The company’s profitability and growth scored an 8 out of 10 rating. While the operating and gross margins are in decline, they still outperform industry peers. The company also has a moderate Piotroski F-Score of 5, which indicates operations are stable, and a three-star business predictability rank. According to GuruFocus, companies with this rank see their stock prices gain an average of 8.2% per year and have consistent earnings and revenue growth.
With 0.06% of outstanding shares, Lee Ainslie (Trades, Portfolio) is the company’s largest guru shareholder. Sarah Ketterer (Trades, Portfolio), Simons, David Winters (Trades, Portfolio), the Wintergreen Fund (Trades, Portfolio), Jeff Auxier (Trades, Portfolio), Grantham, Ken Fisher (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and David Dreman (Trades, Portfolio) are also shareholders.
Intuit
The fund cashed in on its 88,532 remaining shares of Intuit for an average price of $191.62 per share. The trade had an impact of -1.35% on the equity portfolio. According to GuruFocus, the fund gained approximately 110.69% on the investment since being established in the third quarter of 2013.
The Mountain View, California-based software developer has a $56.47 billion market cap; its shares were trading around $218.32 on Thursday with a price-earnings ratio of 47.36, a price-book ratio of 23.80 and a price-sales ratio of 9.52.
Based on the Peter Lynch chart, the stock appears to be overpriced since it is trading higher than its fair value.
Supported by a comfortable level of interest coverage and a high Altman Z-Score of 16.4, Intuit’s financial strength was rated 8 out of 10 by GuruFocus. The company’s profitability and growth was rated 9 out of 10. While its operating margin has declined in recent years, it still outperforms 92% of competitors. The Piotroski F-Score of 7 also indicates business conditions are strong. The company also has a four-star business predictability rank. GuruFocus says companies with this rank not only have consistent earnings and revenue growth, but typically see their stock prices gain an average of 9.8% per year.
PRIMECAP Management (Trades, Portfolio) is the company’s largest guru shareholder with 1.95% of outstanding shares. Other top guru investors include Pioneer, Joel Greenblatt (Trades, Portfolio), David Carlson (Trades, Portfolio), Grantham, Frank Sands (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, Cohen and Fisher.
Walt Disney
The fund managers divested of the remaining 128,350 Disney shares for an average price of $102.31 per share, impacting the equity portfolio by -1.14%. GuruFocus data shows the fund gained an estimated 5.14% on the investment since the fourth quarter of 2014.
The well-known entertainment company, which is based in California, has a market cap of $163.91 billion; its shares were trading around $109.95 on Thursday with a price-earnings ratio of 13.86, a price-book ratio of 3.59 and a price-sales ratio of 2.89.
The Peter Lynch chart suggests the stock is undervalued since it is trading below its fair value.
Despite issuing $9 billion in new long-term debt over the last three years, GuruFocus rated Disney’s financial strength 6 out of 10 as it is at a manageable level. In addition, the Altman Z-Score of 4.20 indicates the company is fiscally stable. The company’s profitability and growth scored a 9 out of 10 rating, boosted by an expanding operating margin, a high Piotroski F-Score of 7 and a 4.5-star business predictability rank. According to GuruFocus, companies with this rank have solid earnings and revenue growth. They typically see their stock prices gain an average of 10.6% per year.
Of the gurus invested in Disney, Andreas Halvorsen (Trades, Portfolio) has the largest position with 0.39% of outstanding shares. Primecap, Ainslie, Diamond Hill Capital (Trades, Portfolio), Mairs and Power, Tom Gayner (Trades, Portfolio), Pioneer, Carlson and many other gurus also own the stock.
International Flavors & Fragrances
The Global Franchise Fund sold its 64,479 remaining shares of International Flavors & Fragrances for an average price of $130.81 per share, impacting the equity portfolio by -0.78%. GuruFocus estimates the fund has gained 5.44% on the investment since being established in the second quarter of 2016.
The New York-based company, which manufactures flavors and fragrances for a range of products across a number of industries, has a $10.31 billion market cap; its shares were trading around $130.44 on Thursday with a price-earnings ratio of 34.70, a price-book ratio of 5.89 and a price-sales ratio of 2.89.
According to the Peter Lynch chart, the stock is overpriced because it is trading higher than its fair value.
International Flavors & Fragrances’ financial strength was rated 6 out of 10 by GuruFocus. While the company has issued approximately $735.65 million in new long-term debt over the last three years, the Altman Z-Score of 4.86 indicates it is fiscally stable. Bolstered by an expanding operating margin and a high Piotroski F-Score of 7, the company’s profitability and growth scored an 8 out of 10 rating. The company also has a perfect five-star business predictability rank, which, according to GuruFocus, means it typically sees its stock price gain an average of 12.1% per year. In addition, the company has consistent earnings and revenue growth.
With 1.42% of outstanding shares, Pioneer is the company’s largest guru shareholder. Other top guru shareholders include Mario Gabelli (Trades, Portfolio), Simons, Gayner, Paul Tudor Jones (Trades, Portfolio), Stahl, Caxton Associates (Trades, Portfolio), Dalio, Mairs and Power and Grantham.
Other trades
During the quarter, the fund managers also added to positions in Twenty-First Century Fox Inc. (FOXA, Financial), Altria Group Inc. (MO, Financial), Abbott Laboratories (ABT, Financial) and several others. They also trimmed a number of holdings, including Nike Inc. (NKE, Financial), Visa Inc. (V, Financial) and Pernod Ricard SA (XPAR:RI, Financial), among others.
The fund’s $1.17 billion portfolio, which is composed of 28 holdings, is largely invested in the consumer defensive sector. By region, U.S. stocks make up the majority of the portfolio at 55.92%. According to its website, the fund outperformed its benchmark in 2017 with a return of 24.63%. The MSCI World Net Index posted a 22.40% return.
Disclosure: No positions.
