The Vanguard Health Care Fund (Trades, Portfolio) released its third-quarter portfolio last week, listing four new positions.
Managed by Jean Hynes, the fund invests in a number of diverse health care-related stocks from around the world in order to achieve long-term capital appreciation. She picks stocks of companies that have high-quality balance sheets, strong management teams and the potential for new products that will contribute to generate above-average revenue and earnings growth.
Based on these criteria, the fund established positions in Elanco Animal Health Inc. (ELAN, Financial), Insulet Corp. (PODD, Financial), Qiagen NV (QGEN, Financial) and NMC Health PLC (LSE:NMC, Financial) during the quarter.
Elanco Animal Health
The fund invested in 901,500 shares of Elanco Animal Health for an average price of $35.17 per share, dedicating 0.06% of the equity portfolio to the position.
The Indiana-based company, which produces pharmaceutical products for animals and livestock, has a market cap of $12.37 billion; its shares were trading around $33.82 on Wednesday with a forward price-earnings ratio of 34.48 and a price-book ratio of 1.62.
Shares of the company, which spun off of Eli Lilly (LLY, Financial) in September, have declined approximately 6% since its initial public offering.
Boosted by good interest coverage and no debt, GuruFocus rated Elanco’s financial strength 8 out of 10. The company’s profitability and growth did not fare as well, scoring a 3 out of 10 rating despite its margins and returns outperforming competitors.
Vanguard holds 0.25% of the company’s outstanding shares.
Insulet
Vanguard picked up 289,600 shares of Insulet for an average price of $93.68 per share, allocating 0.06% of the equity portfolio to the holding.
Headquartered in Massachusetts, the company, which manufactures insulin infusion systems for people with diabetes, has a $5.17 billion market cap; its shares were trading around $87.57 on Wednesday with a forward price-earnings ratio of 192.31, a price-book ratio of 27.06 and a price-sales ratio of 9.79.
According to the median price-sales chart, the stock is trading above its historical average.
Insulet’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. Although the company has poor interest coverage, its Altman Z-Score of 4.35 indicates it is in good financial standing. The company is also strengthened by an expanding operating margin, a moderate Piotroski F-Score of 5, which suggests good business conditions, and a business predictability rank of one out of five stars. GuruFocus says companies with this rank typically see their stock prices gain an average of 1.1% per year.
Of the gurus invested in Insulet, PRIMECAP Management (Trades, Portfolio) has the largest position with 8.4% of outstanding shares. Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Paul Tudor Jones (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) are also shareholders.
Qiagen
The fund purchased 63,800 shares of Qiagen for an average price of $37.68 per share.
The German company, which manufactures sample and assay technologies used to extract, purify, amplify and interpret DNA, RNA and proteins, has an $8.46 billion market cap; its shares were trading around $36.28 on Wednesday with a price-earnings ratio of 164.90, a price-book ratio of 3.25 and a price-sales ratio of 5.89.
Based on the Peter Lynch chart below, the stock appears to be overpriced.
GuruFocus rated Qiagen’s financial strength 5 out of 10. In addition to having inadequate interest coverage, the Altman Z-Score of 2.65 indicates the company is experiencing some financial pressure. The company’s profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin, a moderate Piotroski F-Score of 5 and a one-star business predictability rank.
Primecap is the company’s largest guru shareholder with a 7.15% stake. Pioneer, Simons and Ken Fisher (Trades, Portfolio) also own the stock.
NMC Health
Vanguard bought 6,067 shares of NMC Health for an average price of 37.28 pounds ($48.85) per share.
Based in Abu Dhabi, United Arab Emirates, the health care chain and distribution company has a market cap of 7.06 billion pounds; its shares closed at 33.56 pounds on the London exchange Tuesday with a price-earnings ratio of 44.03, a price-book ratio of 8.01 and a price-sales ratio of 5.83.
The Peter Lynch chart shows the stock is overvalued.
Weighed down by insufficient interest coverage and a slowdown in revenue per share growth over the last 12 months, NMC Health’s financial strength was rated 5 out of 10 by GuruFocus. While the company has issued approximately $693.4 million in new long-term debt over the last three years, its Altman Z-Score of 4.31 indicates it is financially stable. The company’s profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin, good returns and a moderate Piotroski F-Score of 4.
With 0.02% of outstanding shares, the Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio) is the company’s largest guru shareholder.
Other trades
During the quarter, Hynes also expanded the fund’s positions in Bluebird Bio Inc. (BLUE, Financial), Eisai Co. Ltd. (TSE:4523, Financial), Novartis AG (XSWX:NOVN), Alnylam Pharmaceuticals Inc. (ALNY, Financial) and Teva Pharmaceutical Industries Ltd. (TEVA), among others.
The fund’s $48.83 billion equity portfolio, which is composed of 89 holdings, slightly underperformed the S&P 500 in 2017 with a 19.61% return. The index posted a return of 21.71%.
Disclosure: No positions.
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