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5 Stocks Jeremy Grantham Keeps Buying

GuruFocus.com

- By Sydnee Gatewood

Known for correctly identifying speculative market bubbles, Grantham Mayo Van Otterloo leader Jeremy Grantham (Trades, Portfolio) has a reputation for steering his clients' assets clear of impending crashes.


The guru's Boston-based firm, which was founded in 1977, depends on in-depth fundamental analysis and innovative quantitative methods to identify long-term investment opportunities that will achieve the best risk-adjusted returns.

As of the second quarter, five stocks Grantham keeps buying are Baxter International Inc. (NYSE:BAX), Freeport-McMoRan Inc. (NYSE:FCX), GlaxoSmithKline PLC (NYSE:GSK), Royal Bank of Canada (NYSE:RY) and SK Telecom Co. Ltd. (NYSE:SKM).

Baxter International

Grantham expanded his position in Baxter International by 5.57% in the second quarter. He now holds 379,417 shares, which represent 0.2% of his equity portfolio. According to GuruFocus, he has gained an estimated 30% on his investment since the first quarter of 2017.

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The Deerfield, Illinois-based medical products manufacturer has a $41.28 billion market cap; its shares were trading around $77.27 on Monday with a price-earnings ratio of 46.55, a price-book ratio of 4.65 and a price-sales ratio of 3.88.

The Peter Lynch chart shows the stock is trading higher than its fair value, suggesting it is overpriced.

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Supported by good interest coverage and a high Altman Z-Score of 5.77, GuruFocus rated Baxter's financial strength 7 out of 10.

The company's profitability and growth scored a 5 out of 10 rating as its revenue per share has been in decline for the last five years. Although the operating margin is in decline, it still outperforms 68% of competitors. The company also has a moderate Piotroski F-Score of 6 and a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 1.1% per year.

Of the gurus invested in Baxter, Daniel Loeb has the largest position with 6.74% of outstanding shares. Other shareholders include the Vanguard Health Care Fund, Bill Nygren, Pioneer Investments, Steven Cohen, Mairs and Power, Jim Simons' Renaissance Technologies and the Eaton Vance Worldwide Health Sciences Fund.

Freeport-McMoRan

The guru boosted his Freeport-McMoRan stake by 77.9% in the second quarter. He now holds 1.8 million shares, representing 0.23% of his equity portfolio. GuruFocus estimates he has lost 3% on the investment since the first quarter of 2015.

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The Phoenix-based mining company has a market cap of $21.17 billion; its shares were trading around $14.63 on Monday with a price-earnings ratio of 7.42, a price-book ratio of 2.23 and a price-sales ratio of 1.10.

According to the Peter Lynch chart, the stock is undervalued.

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Freeport-McMoRan's financial strength was rated 5 out of 10 by GuruFocus. While the interest coverage is above Benjamin Graham's threshold of 5, the Altman Z-Score of 1.26 indicates the company is at risk of bankruptcy as its revenue per share has declined over the last several years.

Supported by margins and returns that outperform industry peers, the company's profitability and growth scored a 6 out of 10 rating. The company also has a high Piotroski F-Score of 8, suggesting healthy business operations, and a one-star business predictability rank.

Carl Icahn (Trades, Portfolio) is the company's largest guru shareholder with 3.46% of outstanding shares. Other top guru shareholders include Ken Fisher (Trades, Portfolio), Manning & Napier Advisors, Pioneer, Cohen, Mario Gabelli (Trades, Portfolio), Ken Heebner (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).

GlaxoSmithKline

The investor added 12.99% to his GlaxoSmithKline stake in the second quarter. He now holds 1.7 million shares, which represents 0.49% of his equity portfolio.

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The British pharmaceutical company has a $96.34 billion market cap; its shares were trading around $40.2 on Monday with a price-earnings ratio of 45.03, a price-book ratio of 20.63 and a price-sales ratio of 2.53.

Based on the Peter Lynch chart, the stock appears to be overpriced.

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GuruFocus rated GlaxoSmithKline's financial strength 5 out of 10. Although the company has issued roughly 8.6 billion pounds ($11.3 billion) in new long-term debt over the last three years, it is at a manageable level since it has sufficient interest coverage. The Altman Z-Score of 1.53, however, indicates the company is in danger of going bankrupt due to posting operating income losses.

The company's profitability and growth scored a 7 out of 10 rating. While its margins have declined in recent years, they still outperform competitors. The company also has a moderate Piotroski F-Score of 5, suggesting business conditions are stable, and a one-star business predictability rank. The rank is on watch, however, as GlaxoSmithKline has seen a slowdown in revenue per share growth over the last 12 months.

With 1.94% of outstanding shares, Dodge & Cox is the company's largest guru shareholder. Fisher, Simons, Hotchkis & Wiley, Charles Brandes (Trades, Portfolio), NWQ Managers (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), John Rogers (Trades, Portfolio), the Kahn Brothers (Trades, Portfolio) and several other gurus also own the stock.

Royal Bank of Canada

Grantham boosted his Royal Bank of Canada holding by 32.55% in the second quarter. He holds 1.5 million shares, representing 0.8% of his equity portfolio.

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The Canadian bank has a market cap of $115.63; its shares were trading around $80.58 on Monday with a price-earnings ratio of 12.93, a price-book ratio of 2.10 and a price-sales ratio of 3.58.

The Peter Lynch chart suggests the stock is undervalued.

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Royal Bank's financial strength was rated 5 out of 10 by GuruFocus, boosted by good cash-to-debt and debt-to-equity ratios. The Beneish M-Score of -2.21 indicates the company may manipulate its financial statements, however.

The company's profitability and growth was rated 4 out of 10. While the bank's margins and returns outperform industry peers, GuruFocus warns its asset growth is faster than its revenue growth. This suggests the company may be becoming less efficient. The company also has a one-star business predictability rank.

Of the gurus invested in the bank, Simons' firm has the largest position with 0.11% of outstanding shares. Pioneer, Ray Dalio (Trades, Portfolio)'s Bridgewater Associates and David Dreman (Trades, Portfolio) are also shareholders.

SK Telecom

In the second quarter, the guru expanded his SK Telecom position by 22.44%. He holds 1.39 million shares, which represent 0.23% of his equity portfolio. GuruFocus estimates he has gained 9% on the investment since the first quarter of 2017.

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The South Korean telecom company has a $16.91 billion market cap; its shares were trading around $26.95 on Monday with a price-earnings ratio of 6.30, a price-book ratio of 0.91 and a price-sales ratio of 1.09.

According to the Peter Lynch chart, the stock is undervalued.

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SK Telecom's financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. As a result of issuing new long-term debt over the last several years, the Altman Z-Score of 2.45 indicates the company is under some financial pressure. In addition, the company has poor interest coverage.

Despite having a strong Piotroski F-Score of 8 and good returns, the company's margins are declining. The operating margin underperforms 62% of competitors as SK Telecom has posted an operating income loss over the past three years. The company also has a one-star business predictability rank.

With 0.61% of outstanding shares, Sarah Ketterer (Trades, Portfolio) is the company's largest guru shareholder. NWQ, Simons, Pioneer, Manning & Napier and Jeff Auxier (Trades, Portfolio) are also shareholders.

Portfolio composition

Grantham's $14.09 billion portfolio, which is composed of 550 stocks, is largely invested in the technology sector, followed by smaller positions in health care and financial services. His five largest positions as of the second quarter are Apple Inc. (NASDAQ:AAPL), Microsoft Corp. (NASDAQ:MSFT), Oracle Corp. (NYSE:ORCL), UnitedHealth Group Inc. (NYSE:UNH) and Johnson & Johnson (NYSE:JNJ).

Disclosure: No positions.

This article first appeared on GuruFocus.