First Eagle Investment's Top 4th-Quarter Trades
- By Graham Griffin
First Eagle Investment (Trades, Portfolio) has revealed its portfolio for the fourth quarter of 2020. Major trades for the firm include reductions in Deere & Co. (NYSE:DE), Philip Morris International Inc. (NYSE:PM), Weyerhaeuser Co. (NYSE:WY) and 3M Co. (NYSE:MMM). The firm also sold out of its Varian Medical Systems Inc. (NYSE:VAR) holding.
The firm takes a long-term and return-orientated investment approach. At no point in time does it try to compete against short-term movements. Managers use bottom-up fundamental analysis to reduce inherent risk and preserve capital.
Portfolio overview
At the end of the fourth quarter, the portfolio contained 96 stocks, with 12 new holdings. It was valued at $35.50 billion and has seen a turnover rate of 1%. Top holdings include Oracle Corp. (NYSE:ORCL), Comcast Corp. (NASDAQ:CMCSA), Exxon Mobil Corp. (NYSE:XOM) and Newmont Corp. (NYSE:NEM).
By weight, the top three represented sectors are basic materials (17.27%), technology (16.55%) and financial services (15.05%).
Deere
The fourth quarter saw the firm's Deere & Co. (NYSE:DE) holding reduced by 34.89% with the sale of 1.37 million shares. The shares traded at an average price of $248.92 during the quarter. Overall, the sale had an impact of -0.92% on the portfolio and GuruFocus estimates the total gain of the holding at 163.22%.
Deere is the world's leading manufacturer of agricultural equipment with approximately $35 billion in annual revenue, including $3.4 billion from its financial services arm. Approximately 60% of Deere equipment is sold in North America and Canada. The principal products harvested by Deere equipment include grain, oilseeds, cotton, sugar and biomass. In 2020, the agriculture and turf segment made up approximately 71% of total revenue while construction and forestry generated 29%.
On Feb. 12, the stock was trading at $313.32 per share with a market cap of $98.46 billion. According to the GF Value Line, the stock is trading at a significantly overvalued rating.
GuruFocus gives the stock a financial strength rating of 3 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 1 out of 10. There is currently one severe warning sign issued for poor financial strength. The company's cash-to-debt ratio of 0.17 ranks it lower than 81.28% of the industry and debt has risen significantly over the last several years.
Varian Medical Systems
The firm sold out of its Varian Medical Systems (NYSE:VAR) holding during the quarter. The remaining 1.33 million shares were sold at an average price of $173.42. GuruFocus estimates the firm gained a total of 86.72% on the holding and the sale had an overall impact of -0.69% on the portfolio.
Varian Medical Systems designs, manufactures and sells radiation technology for use in two business segments: oncology systems and proton therapy. The Americas account for the largest portion of revenue (47%), followed by Europe, the Middle East and Africa (33%) and Asia-Pacific (19%).
As of Feb. 12, the stock was trading at $176.21 per share with a market cap of $16.18 billion. The GF Value Line gives the company a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 2 out of 10. There is currently one severe warning sign issued for a declining operating margin. Despite the warning sign, the company's operating margin of 13.69% ranks the company higher than 74.29% of competitors alongside a similarly strong net margin of 8.9%.
Philip Morris International
Another holding that was reduced during the quarter was Philip Morris International (NYSE:PM). The firm sold 2.29 million shares to reduce the holding by 17.99%. The shares traded during the quarter at an average price of $77.91. Overall, the sale had an impact of -0.51% on the portfolio and GuruFocus estimates the total gain of the holding at 1.52%.
Philip Morris International is a leading international tobacco company engaged in the manufacture and sale of cigarettes and other nicotine-containing products in markets outside the United States. Through multidisciplinary capabilities in product development, state-of-the-art facilities and scientific substantiation, the company aims to ensure that its smoke-free products meet adult consumer preferences and rigorous regulatory requirements. Management's vision is that these products ultimately replace cigarettes.
The stock was trading at $86.14 per share with a market cap of $133.60 billion on Feb. 12. It is trading at fair value according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 6 out of 10. There is currently one severe warning sign issued for a declining operating margin. The company's weighted average cost of capital has been easily supported by the return on invested capital over the last decade.
Weyerhaeuser
The firm also reduced its Weyerhaeuser (NYSE:WY) position by 18.93% during the quarter. Managers sold 5.09 million shares that traded at an average price of $30.10 per share. GuruFocus estimates the firm has gained a total of 31.95% on the holding and the sale had a -0.51% impact on the portfolio.
Weyerhaeuser ranks among the world's largest forest product companies. Following the 2016 sale of its pulp business to International Paper, Weyerhaeuser operates three business segments: timberlands, wood products and real estate. Weyerhaeuser is structured as a real estate investment trust and is not required to pay federal income taxes on earnings generated by timber harvest activities. Earnings from its wood products segment are subject to federal income tax. Weyerhaeuser acquired fellow timber REIT Plum Creek in 2016.
On Feb. 12, the stock was trading at $35.04 per share with a market cap of $26.15 billion. According to the GF Value Line, the stock is trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 6 out of 10. There are currently no severe warning signs issued for the company. 2020 saw cash flows make a comeback after several years of fluctuating income.
3M
The firm's reduction in 3M (NYSE:MMM) rounded out the top five trades of the quarter. The holding was cut by 35.31% with the sale of 905,932 shares. The shares traded at an average price of $169.94 during the quarter. Overall, the sale had an impact of -0.43% and GuruFocus estimates the total gain of the holding at 73.26%.
3M is a multinational conglomerate that has operated since 1902 when it was known as Minnesota Mining and Manufacturing. The company is well known for its research and development laboratory, and the company leverages its science and technology across multiple product categories. As of 2019, 3M is organized into four business segments: safety and industrial, transportation and electronics, health care and consumer. About 60% of the company's revenue comes from outside the United States, with the safety and industrial segment constituting most of the net sales. Many of the company's 55,000-plus products touch and concern a variety of consumers and end markets.
As of Feb. 12, the stock was trading at $178.70 with a market cap of $103.55 billion. The GF Value Line shows the stock trading at fair value.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 6 out of 10. There are currently two severe warning signs issued for declining operating margins and assets growing faster than revenue. The company's revenue took a hit in 2016 and has been on a downward trend since 2017.
Disclosure: Author owns no stocks mentioned.
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This article first appeared on GuruFocus.
