EA and 4 More Long-Term Buys From Hedge Fund Manager Ray Dalio
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 founded Bridgewater Associates out of his apartment in 1973 and after 28 years, gave up the CEO title last year. Dalio now serves as “mentor” and co-CIO. Bridgewater manages institutional money only, around $120 billion, with the true uniqueness of the firm being its culture – driven by utter transparency. After reviewing Bridgewater’s recent 13F filing – which reports publicly traded equity positions from the end of 3Q – we have taken notice of five stocks that the fund is invested in for the long-term (check out Ray Dalio's top bets).
The first stock on Dalio’s long-term investment list is Bed Bath & Beyond (NASDAQ: BBBY). Dalio increased his stake in the retailer by 200% last quarter. After two huge drops of 15% or more in the weeks following, the retailer is still down 10% over the past twelve months, despite the Dow Jones Industrial Average's 10% gain over the same time period. Bed Bath & Beyond expects revenues for FY2013 to be up 16% following 9% growth in FY2012, driven by the acquisitions of Cost Plus and Linen Holdings.
The weakness seen in recent quarterly results will likely continue in the interim as the retailer struggles due to weak sales in its home goods segment. We believe Bed Bath & Beyond’s niche market will improve over the long-term as it expands in the midst of a housing market rebound. The retailer is currently offering investors a chance to get into the stock at a good value, trading below its historical 5-year average P/E (16x) at 12x trailing earnings. Fellow billionaire Steven Cohen of SAC Capital is also one of Bed Bath & Beyond's top investors (check out Steven Cohen's top bets).
Electronic Arts (NASDAQ: EA) is down 20% year to date on continued pressure from social and mobile gaming. Revenues are expected to be down 7% in FY2013 after a 9% in FY2012. Over the long haul, revenues are expected to be driven by digital sales, including online and mobile games. The declining sale of video game consoles and games via the retail segment are part of the fundamental shift in consumer buying and gaming preferences. We believe the interim pressure will present a buying opportunity as EA does have a robust long-term growth rate of 15% and a relatively low-debt load, with a debt-to-equity ratio of 25%. Paul Tudor Jones joined Dalio during the third quarter by taking a new position in the gaming company (see PTJ's biggest bets here).
Celgene Corporation (NASDAQ: CELG) expects 2012 revenues up 14% – due to Revlimid (drug) growth of 18% – and next year's revenue growth to average 10%. Revlimid’s prospects remain strong, despite its application withdrawal for earlier stage multiple myeloma in Europe. What will eventually drive the long-term growth of the biopharma company will be its global expansion and introduction of new drugs in 2013. We believe that Celgene falls in the middle ground, not being an ‘exciting’ new biopharma company and not being a large stable drug company like Merck, and so it has been overlooked.
Celgene has a robust drug pipeline with 25 drugs in phase III or undergoing pivotal studies. With over $3.8 billion in cash, the biopharma company will also be able to grow by snatching up smaller drug makers. This stock has the highest long-term growth rate of any of Dalio’s five picks mentioned here, which is at 22%. Couple this with its forward P/E of 14x and Celgene is not only a long-term growth play but also a growth at a reasonable price pick.
Cardinal Health (NYSE: CAH) is expected to see FY2013 revenues down 7% due to the loss of its large distribution contract with Express Scripts. Its stock is flat over the past six months. We see an interim buying opportunity, though, as a record number of branded drugs will come off patent protection in 2013, which will only boost Cardinal’s generic business.
Cardinal remains one of the three major drug distributors in the U.S., and maintains a relationship with two major retail pharmacy chains, which generate over 40% of its revenues. Cardinal has a solid balance sheet with over $2 billion in cash, and the ability to generate upwards of $1 billion in free cash annually based on historical trends. For investors that do choose to join Dalio as an investor, they will be compensated with a 2.6% dividend yield – a payout ratio of just 28%.
Last but certainly not least, Rogers Communications (NYSE: RCI) is the leading wireless provider in Canada – owning 35% of the market. We see Canada as a relatively untapped and undeveloped mobile market, when compared to the U.S., which has major competitors AT&T, Verizon and Sprint all fighting for subscribers and spectrum. Rogers’ wireless operations have grown to account for nearly 60% of the company’s total revenue.
Rogers is also the first provider in Canada to launch an LTE network, with over 35% of Rogers’ footprint now running off LTE. Rogers is working to establish itself in the mobile banking market with a new focus on credit, payment and charge-card services. A big positive for investors should be its 3.6% dividend yield and 13x forward P/E.
it appears that Ray Dalio has made some bets for the long haul. These stocks may very well see some interim pressure, but each has solid long-term prospects that have been overlooked due to earnings or demand weakness. Bed Bath & Beyond has seen weakness due to a poor economy and weak consumer spending, but should rebound as a result of its store diversification. EA has been shunned the most of its gaming peers, but has the most to gain with its wide reaching brand name. Celgene and Cardinal, meanwhile, will both benefit from a rising population and better healthcare standards in emerging countries. Rogers is a solid play in the rapidly growing wireless industry, in one of the developed – yet growing – markets that is Canada.
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 Rogers Communications (USA). 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!