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Alan Fournier Adds 4 Stocks to Portfolio

Alan Fournier (Trades, Portfolio), the head of Pennant Capital Management, disclosed his firm's first-quarter portfolio earlier this month, listing four new holdings.


The guru got his start at Sanford C. Bernstein before managing global equity investments at David Tepper (Trades, Portfolio)'s Appaloosa Management. He later founded his Summit, New Jersey-based hedge fund in 2001 with $12 million from Tepper. In March 2019, he converted Pennant into a family office as a result of several years of unsatisfactory returns.

Following a wide range of strategies, which include buy and hold, long-short, growth and hedging, Fournier established positions in Microsoft Corp. (NASDAQ:MSFT), CAE Inc. (NYSE:CAE), Nokia Oyj (NYSE:NOK) and Bellerophon Therapeutics Inc. (NASDAQ:BLPH) during the quarter.

Microsoft

In his largest transaction of the quarter, the guru invested in 119,000 shares of Microsoft, allocating 6.76% of the equity portfolio to the position. The stock traded for an average price of $164.71 per share during the quarter.

The Redmond, Washington-based tech giant, which is known for its Windows computer software, has a $1.38 trillion market cap; its shares were trading around $182.55 on Friday with a price-earnings ratio of 30.37, a price-book ratio of 12.22 and a price-sales ratio of 10.12.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 1 out of 10 aligns with this assessment as the share price and book and sales multiples are at 10-year highs.

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GuruFocus rated Microsoft's financial strength 7 out of 10 on the back comfortable interest coverage and a high Altman Z-Score of 6.57. The company's assets are building up at a faster rate than revenue is growing, however, which indicates it may be becoming less efficient.

The company's profitability scored a 9 out of 10, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 8, which implies conditions are healthy. Due to consistent earnings and revenue growth, Microsoft also has a business predictability rank of four out of five stars. According to GuruFocus, companies with this rank return, on average, 9.8% per annum over a 10-year period.

Of the gurus invested in Microsoft, PRIMECAP Management (Trades, Portfolio) has the largest stake with 0.34% of outstanding shares. Ken Fisher (Trades, Portfolio), Dodge & Cox, Pioneer Investments (Trades, Portfolio), Spiros Segalas (Trades, Portfolio) and Chase Coleman (Trades, Portfolio) also have large positions in the stock.

CAE

Fournier picked up 450,000 shares of CAE, dedicating 2.04% of the equity portfolio to the holding. Shares traded for an average price of $25.43 each during the quarter.

The Canadian company, which manufactures simulation and modeling technologies and provides training services for airlines, aircraft manufacturers, health care specialists and defense customers, has a market cap of $4.08 billion; its shares were trading around $15.13 on Friday with a price-earnings ratio of 15.77, a price-book ratio of 2.38 and a price-sales ratio of 1.54.

According to the Peter Lynch chart, the stock is trading near its fair value. The GuruFocus valuation rank of 5 out of 10 supports this assessment.

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CAE's financial strength was rated 4 out of 10 by GuruFocus. In addition to having poor interest coverage, the low Altman Z-Score of 1.75 warns the company could be at risk of going bankrupt. Another red flag is that assets that are building up at a faster rate than revenue is growing, suggesting the company is becoming less efficient. It may also have poor profitability since the weighted average cost of capital surpasses the return on invested capital.

The company's profitability fared much better, scoring an 8 out of 10 rating as a result of an expanding operating margin, returns that outperform more than half of its industry peers and a moderate Piotroski F-Score of 8, which suggests conditions are stable. Supported by steady earnings and revenue growth, CAE also has a three-star business predictability rank. GuruFocus says companies with this rank typically return an average of 8.2% per year.

With 0.48% of outstanding shares, Jim Simons (Trades, Portfolio)' Renaissance Technologies is CAE's largest guru shareholder. Pioneer, Joel Greenblatt (Trades, Portfolio) and Chuck Royce (Trades, Portfolio) also own the stock.

Nokia

The investor entered a 410,000-share holding of Nokia, giving it 0.46% space in the equity portfolio. The stock traded for an average per-share price of $3.73 during the quarter.

The telecommunications company, which is headquartered in Finland, has a $22.19 billion market cap; its shares were trading around $3.96 on Friday with a price-earnings ratio of 60.13, a price-book ratio of 1.27 and a price-sales ratio of 0.88.

Based on the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 5 out of 10, however, leans more toward fair value.

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Nokia's financial strength and profitability were both rated 5 out of 10 by GuruFocus. As a result of issuing approximately 238 million euros ($264.2 million) in new long-term debt over the past three years, the company has poor interest coverage. The Altman Z-Score of 1.24 also warns the company could be in danger of bankruptcy since it has recorded a loss in operating income and a slowdown in revenue per share growth in recent years. Its assets are also building up faster than revenue is growing, indicating it is becoming less efficient. It also has poor profitability since the ROIC is surpassed by the WACC.

In addition to contracting margins, the company's returns are underperforming over half of its competitors. Nokia is being supported by a moderate Piotroski F-Score of 6 and a one-star business predictability rank. GuruFocus data shows companies with this rank return an average of 1.1% annually.

PRIMECAP is Nokia's largest guru shareholder with 0.51% of outstanding shares. John Rogers (Trades, Portfolio), Charles Brandes (Trades, Portfolio), Simons' firm, Paul Tudor Jones (Trades, Portfolio), Jeff Auxier (Trades, Portfolio) and Fisher are also invested in the stock.

Bellerophon Therapeutics

Fournier purchased 70,132 shares of Bellerophon Therapeutics, expanding the equity portfolio 0.28%. During the quarter, the stock traded for an average price of $6.62.

The Warren, New Jersey-based clinical-stage biotherapeutics company, which focuses on developing treatments for cardiopulmonary diseases, has a market cap of $127.92 million; its shares were trading around $14.09 on Friday with a price-book ratio of 29.88.

The price chart shows the stock is treding above its median price-book multiple.

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GuruFocus rated Bellerophon's financial strength 5 out of 10 on the back of comfortable interest coverage and a cash-debt ratio of 3.98.

The company's profitability fared even worse with a 1 out of 10 rating. In addition to having negative returns that underperform a majority of industry peers, Bellerophon is being weighed down by a low Piotroski F-Score of 1, which implies operating conditions are in poor shape.

Simons' firm is the company's largest guru shareholder with 2.43% of outstanding shares. Fournier holds 1.14%.

Additional trades and portfolio composition

Other top trades Fournier made during the quarter included reductions to the Blackstone Group Inc. (NYSE:BX), The Walt Disney Co. (NYSE:DIS) and Energy Transfer LP (NYSE:ET) holdings, as well as expansions of his positions in Micron Technology Inc. (NASDAQ:MU), DISH Network Corp. (NASDAQ:DISH) and Johnson & Johnson (NYSE:JNJ).

Nearly 30% of the guru's $278 million equity portfolio, which consists of 21 stocks, is invested in the communication services sector, while the technology and consumer cyclical spaces have much smaller representations.

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Disclosure: No positions.

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This article first appeared on GuruFocus.