Every quarter, many money managers have to disclose what they have bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.
Today let's look at Bridgewater Associates, the world's largest hedge fund company. Bridgewater was founded by Ray Dalio, who focuses on macroeconomic factors in making investment decisions, such as inflation, currency exchange rates, and GDP growth. Bridgewater's size attests to Dalio's skill.
It can be hard to find many promising places to park your money when you have tens of billions to invest, but Bridgewater solves that problem partly with index funds: Recently, about 36% of its reportable stock portfolio value was allocated to the Vanguard Emerging Markets Stock ETF (VWO). Another 27% was in the S&P 500 SDPR ETF (SPY), and 26% was in the iShares MSCI Emerging Markets Index ETF (EEM). The company's reportable stock portfolio totaled $12.8 billion in value as of Sept. 30, 2014.
Let's talk about some of Bridgewater Associates' recent big buys, as reported in its latest quarterly 13F filing. United Parcel Service (NYSE:UPS) is a new holding, and Bridgewater significantly boosted its positions in Rite Aid (NYSE:RAD) and National Oilwell Varco (NYSE:NOV).
United Parcel Service
UPS fell out of favor with many investors over the past year, in part because of a tough holiday season in 2013, when it failed to deliver some packages on time due to bad weather and strong volume driven by online shoppers. That's not a permanent problem, though, and UPS has been investing in additional capacity to meet demand this year. E-commerce has been growing briskly, presenting a great opportunity, but UPS faces competition there from FedEx and also the U.S. Postal Service, which has cut prices in order to compete better. At a recent investor conference, UPS management waxed bullish, pointing to high returns on invested capital, relatively low capital expenditures, margin expansion, pricing initiatives, and productivity improvements. Further, the dividend recently yielded 2.4%, and that payout has increased at an average annual rate of 9% over the past decade.
Drugstore chain Rite Aid has been successfully turning around its once-ailing business over the past few years. Its last quarterly earnings report featured overall revenue growth of about 4% year over year, driven by a strong increase in pharmacy revenue. However, investors sold off some shares on news that near-term performance would suffer as generic drugs and lower Medicaid reimbursement rates pressured profit margins. On the other hand, Rite Aid still has plenty going for it, including favorable demographics (a growing and aging population increasingly in need of pharmacy services) and its Wellness initiatives. Investors are also pleased to see that the company's debt burden is gradually shrinking and that Rite Aid turned the corner into profitability last year and is generating positive free cash flow.
National Oilwell Varco
This oil and gas equipment and services company might draw attention just for its dividend, which recently yielded 2.9% and has roughly quadrupled in the past two years. Some worry about the company's fortunes amid plunging oil prices, as there is less incentive right now for exploration and production. Some orders have been coming in more slowly, but the company's order backlog recently topped $14 billion -- plenty big enough to keep it busy for some time. Its last reported quarter featured revenue rising a solid 17% year over year, along with growing gross profit margin. The company is a juggernaut in its realm, with more than 80% of floating offshore rigs having considerable National Oilwell Varco equipment on board. With a current and forward-looking P/E ratio of about 10, the company is compelling.
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. 13F forms can be great places to find intriguing candidates for our portfolios.