Billionaire Ray Dalio’s Latest Stock Picks

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Ray Dalio’s Bridgewater Associates is an extremely large and extremely successful hedge fund. Based in Westport and known for its strong -- some would say cultish -- culture, it has grown to well over $100 billion in assets under management with little negative impact on its returns. Dalio himself has become a billionaire several times over due to the fund’s performance. We have gone through the fund’s recent 13F filing, which reports some of its equity positions from the end of September, and compared it to previous filings (see what Bridgewater has reported owning in the past) to get an idea of what Dalio and his team are thinking. Here are some themes that we’ve noticed in the fund’s portfolio:

Hardware. Hewlett-Packard (NYSE: HPQ) and Dell (NASDAQ: DELL) were among Bridgewater’s top five stock picks at the end of June, and even with both stocks down during the third quarter (HP by 14% and Dell by over 20%), they remained at the top of the hedge fund’s portfolio; the stake in HP was increased by over 10% and the stake in Dell grew by over 60%. These companies are both trying to move away from PCs into more service-oriented businesses, but the market has been dissatisfied with their progress. It looks to us like Bridgewater believes that HP’s and Dell’s hardware businesses won’t do as poorly in the future as the market expects. It’s possible that the fund is in fact more confident that these players will make a successful transition to software and services, but we’d note that while Bridgewater did also report a sizable position in Oracle, it sold shares in that company during the third quarter. A hardware play seems to be more likely. We looked at Dell and Hewlett-Packard recently and didn't considered either to be a good stock to buy despite forward P/Es in the 4-5 range.

Retail. This one we may be stretching a bit, but Bridgewater did add shares to its position in Staples, vaulting that to the #6 slot in its 13F portfolio, as well as increasing its holdings of Safeway (NYSE: SWY) by about a third to make that the second largest stock holding by market value in its 13F portfolio. The trailing and forward P/E multiples at these two companies all come out to 8x, which normally represents value territory. Both stocks also pay dividend yields of about 4%. Staples seems to be struggling more in terms of its business, as competition with Amazon likely helped drive its earnings down 32% in its second fiscal quarter versus a year earlier, but it is Safeway, where net income has actually been up, that is the more popular short selling target with 30% of the outstanding shares held short. Safeway looks like a good potential value play, and while we’re considerably more cautious on Staples, we could see investors looking at that as well.

Uncool tech companies. Apple and Google are favorites of hedge funds (they'd topped our list of the most popular stocks among hedge funds for the second quarter), tech watchers, and consumers, but neither of those companies were to be found in Bridgewater’s 13F at all, let alone in its top holdings. It did own Microsoft (NASDAQ: MSFT) (the fund’s largest equity position by market value; to be fair, it too had been a widely held stock by hedge funds) and Yahoo! (NASDAQ: YHOO) (a position that it significantly increased to 1.3 million shares). Microsoft and Yahoo carry forward P/Es of 8 and 16 respectively, with Microsoft’s multiple artificially low due to the release of new versions of Windows and Office. As such, we can’t really say that that they are cheap, especially compared to Apple.

Bridgewater, at least in terms of its 13F portfolio, seems to be quite contrarian here. That’s paid off in some ways -- it’s missed the recent corrections at Apple and Google -- but not so much in others (as HP and Dell have continued to drop so far this quarter). Potentially the most interesting ideas for investors are its larger positions in Safeway and Staples.

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This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has long positions in Dell and Microsoft. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services recommend Dell, Microsoft, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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