What is Billionaire Ray Dalio’s Bridgewater Buying Now?

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Ray Dalio founded Bridgewater Associates in 1973, but gave up his official CEO title in 2011. Now Dalio serves as a “mentor” and continues to serve as co-CIO. Bridgewater manages only institutional money, around $120 billion, having returned around 23% in 2011. The uniqueness of Bridgewater lies in the firm’s culture, driven by utter transparency. We researched Bridgewater’s recent 13F filing, which reports publicly traded equity positions from the end of September, and noticed the firm made notable increases in various retail stocks. These retailers include grocers, auto parts and other specialty stores. 

The first retailer on our list is Kroger (NYSE: KR). Bridgewater increased its shares by 24% from 2Q. Kroger is a U.S. grocery store chain which is expected to continue its strong performance with sales forecasted to be up 7% in 2013 on the back of same store sales growth of 4%. Longer-term earnings are expected to grow by almost 10% annually for the next five years. Part of what will drive these increases will be Kroger’s initiative for growth, expected to boost capital spending by $200 million to fuel square footage increases and to enter new markets. Trading at a 24x trailing P/E, the grocer is near the top end of the industry, but its 10x forward P/E suggests investors are under-appreciating its shares.

O’Reilly Automotive (NASDAQ: ORLY) and AutoZone (NYSE: AZO) were two of the largest increases for Bridgewater, at 146% and 177% respectively, from 2Q. AutoZone trades at only 16x earnings, while O’Reilly is at 20x, and both companies are expected to grow five-year earnings at 16% annually. Driving the strong future performance of each auto parts company will be the increasing age of vehicles on the road and the continued need for maintenance.

O’Reilly is expected to see sales up 7.5% in 2013, following a 6.8% gain by the end of 2012. O’Reilly’s growth will come from 5% same-store sales growth and new store openings of almost 200. AutoZone is expected to grow 2013 sales much the same as O’Reilly at 7.2%, with 4% same-store sales growth and over 200 new store openings. Despite their similarities, we like AutoZone the best, as this auto parts company is trading the cheapest with a sub-1.0 PEG ratio, while O’Reilly has a PEG nearly 40% higher. AutoZone is also a top pick in the hedge fund industry (how many billionaires are buying this stock?).

Bed Bath & Beyond (NASDAQ: BBBY) had the largest share increase in Dalio's portfolio of our five retail stocks listed, at +214% from Q2. The specialty retailer is relatively flat year to date, but saw two large one-day stock price drops this year, one of around 15% and the other 10%. Bed Bath & Beyond still trades at 14x earnings, above Kirkland’s and Pier 1 Imports at 12x earnings. Even so, Bed Bath & Beyond’s forward P/E of 11.5x and its historical P/E of 16x suggest that investors are still over-discounting the retailer’s future earnings. Sales are expected to be up 16% in 2013 as key acquisitions, including Cost Plus and Linen Holdings, help boost the company.

Electronic Arts (NASDAQ: EA) saw Bridgewater increase its stake by over 60% during the third quarter. The video game company has been struggling of late, as shares are down almost 30% year to date. A fundamental change in gaming, one that is transitioning to online and social, is expected to continually put pressure on revenues. With 2013 revenues predicted to be down 7% after a 9% fall in 2012, it's hard to be too bullish on EA from a top line standpoint.

One bright spot is the company's projected 30% 2012 growth in digital revenues, which includes online and mobile games. What will continue to be a drag on EA is the high-teens drop in sales for it retail stores, but at a sales multiple below 2.0X, we could have a value play on our hands. This valuation is well below Activision's P/S of 3.5x, but above Take-Two’s of 1.0x. Legendary activist investor Carl Icahn made a sizable investment in EA’s top competitor Take-Two; see all of Icahn's latest stock picks here.

To recap: We believe Kroger will continue to perform well regardless of its economic backdrop, and the two auto parts companies we've discussed will also show near term strength as the average age of road vehicles continues to escalate, with AutoZone being the best value play. Bed Bath & Beyond operates in the increasingly competitive retail space that Amazon has been infringing upon, but we believe the company should continue to perform well with a diverse store mix that includes other stores that are Christmas-themed and baby-themed, including the higher end World Market chain. Additionally, investors can find better values in the gaming industry and may be better off by looking at Activision or Take-Two before going all-in on EA.


This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Bed Bath & Beyond and Electronic Arts. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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