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Here's What This 2,115% Gainer Has Been Buying

By Selena Maranjian - Apr 19, 2013 at 6:24PM

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It can pay off to keep an eye on the most successful investors.

Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.

Today, let's look at Gardner, Russo & Gardner, a hedge fund company with a record that speaks for itself. Over the past 25 years, according to the folks at GuruFocus.com, it has posted a cumulative gain of about 2,115%, vs. 920% for the S&P 500. Over the past 10 full years, it gained 179%, vs. 100% for the S&P 500.

The company's reportable stock portfolio totaled $8.5 billion in value as of March 31, 2013.

Interesting developments
So what does Gardner, Russo & Gardner's latest quarterly 13F filing tell us? Here are a few interesting details:

The biggest new holdings are AbbVie (ABBV -0.15%) and J.C. Penney. Other new holdings of interest include Sarepta Therapeutics (SRPT 1.39%). AbbVie is half of the split-up of Abbott Labs -- it retained the pharmaceutical business, while Abbott focuses on medical, diagnostic, and nutritional products. Bears don't like its heavy debt or its being very dependent on its blockbuster drug Humira, which generates half its revenue. But the company does enjoy about $18 billion in annual revenue, more than $6 billion in free cash flow, and gobs of cash. It has other drugs on the market, too, and more in its pipeline, tackling Hepatitis C, among other conditions. It also sports a 3.7% dividend yield.

Sarepta took a tumble recently on news that, after petitioning the FDA for accelerated approval for its Duchenne muscular dystrophy drug, eteplirsen, the FDA requested more information. Some see that as not boding well, but there's really no meaningful conclusion anyone can draw from it. Meanwhile, its fourth-quarter results were not as meager as they appeared, partly due to the issuance of warrants to raise funds.

Among holdings in which Gardner, Russo & Gardner increased its stake was Philip Morris International (PM 0.26%). Many like the company, preferring it to its domestic counterpart, Altria, because of the greater growth potential abroad, and also because regulations and taxes related to tobacco are generally lower outside U.S. borders. But, despite its 3.6% dividend, there are drawbacks, such as its hefty debt load. In its recently reported first quarter, its cigarette volume shrank, and profits fell by 2% as the company lowered its projections (in part due to foreign exchange rates).

Gardner, Russo & Gardner reduced its stake in lots of companies, including Walgreen (WBA 0.22%), with a growing dividend that recently yielded 2.3%. (And I mean really growing – over the past five years, its average annual dividend growth has topped 20%.) The company is recovering from its now-resolved split with pharmacy benefits manager Express Scripts. Its pharmacy volume is picking up, and it has invested heavily in international growth, via a purchase of Europe-based Alliance Boots. It has also entered into a promising alliance with U.S. drug wholesaler AmerisourceBergen that strengthens it globally.

Finally, Gardner, Russo & Gardner's biggest closed positions included Staples and Intuitive Surgical (ISRG 0.94%), which specializes in robotic surgical equipment, and sports five-year average annual revenue and earnings growth rates in the double-digits, and fat profit margins, too. The stock has fallen sharply in recent months on bearish views from a research company, as well as questions about the efficacy of its systems. Its just-released first-quarter results are strong, though, with revenue up 23%, and net income up 31%. With billions in cash, the company has been buying back some shares, and there remains much to like about Intuitive.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. Therefore, 13-F forms can be great places to find intriguing candidates for our portfolios.

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Stocks Mentioned

Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
WBA
$40.70 (0.22%) $0.09
Sarepta Therapeutics, Inc. Stock Quote
Sarepta Therapeutics, Inc.
SRPT
$70.18 (1.39%) $0.96
Philip Morris International Inc. Stock Quote
Philip Morris International Inc.
PM
$100.76 (0.26%) $0.26
Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
ISRG
$220.19 (0.94%) $2.05
AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$151.49 (-0.15%) $0.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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