The former protege of Seth Klarman (Trades, Portfolio) follows a fundamental, value-oriented approach to stock picking, investing in a fairly concentrated number of stocks. His Boston-based firm looks for long-term opportunities across a wide array of asset types in both foreign and domestic markets. He also prefers companies in which the CEO has a significant stake, or where the CEO's salary is primarily stock-based.
Keeping these criteria in mind, the guru established positions in Allergan PLC (NYSE:AGN) and O-I Glass Inc. (NYSE:OI) during the quarter.
Abrams also revealed his stake in pharmaceutical company Celgene (NASDAQ:CELG) was dissolved after the company's acquisition deal with Bristol-Myers Squibb Co. (NYSE:BMY) closed in November. Similarly, his Altaba Inc. (NASDAQ:AABA) holding was eliminated when the investment management company filed a plan of liquidation and dissolution in October, removing its shares from the Nasdaq exchange.
Abrams invested in 1.24 million shares of Allergan, allocating 7.35% of the equity portfolio to the stake. The stock traded for an average price of $180.86 per share during the quarter. The company is in the process of merging with AbbVie Inc. (NYSE:ABBV).
The Irish pharmaceutical company, which specializes in products for the areas of aesthetics, ophthalmology, women's health, gastrointestinal and the central nervous system, has a $65.41 billion market cap; its shares were trading around $198.34 on Thursday with a forward price-earnings ratio of 11.49, a price-book ratio of 1.12 and a price-sales ratio of 4.06.
The median price-sales chart shows the stock is trading above its historical value, suggesting it is overpriced. Along with a share price and price-sales ratio that are near two-year lows, the GuruFocus valuation rank of 5 out of 10 also leans toward overvaluation.
GuruFocus rated Allergan's financial strength 4 out of 10. In addition to a low cash-debt ratio of 0.26, the company is weighed down by an Altman Z-Score of 1.11, which indicates it could be in danger of going bankrupt.
The company's profitability scored a 5 out of 10 rating on the back of negative margins and returns that underperform a majority of competitors. Although it has recorded a slowdown in revenue per share growth over the past year, Allergan is supported by a moderate Piotroski F-Score of 5, which implies operating conditions are stable. It also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
Of the gurus invested in Allergan, Jim Simons (Trades, Portfolio)' Renaissance Technologies has the largest position with a 1.53% stake. Additional guru investors hoping to benefit from the proposed merger with AbbVie include Daniel Loeb (Trades, Portfolio), John Paulson (Trades, Portfolio), David Tepper (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Larry Robbins (Trades, Portfolio), among others.
The guru picked up 4.87 million shares of O-I Glass, dedicating 1.81% of the equity portfolio to the position. Shares traded for an average price of $10 each during the quarter.
The Perrysburg, Ohio-based manufacturer of glass containers has a market cap of $2.05 billion; its shares were trading around $13.12 on Thursday with a forward price-earnings ratio of 6.18, a price-book ratio of 3.64 and a price-sales ratio of 0.31.
According to the median price-sales chart, the stock is undervalued. The GuruFocus valuation rank of 9 out of 10 also supports this analysis.
Weighed down by low debt ratios and poor interest coverage, O-I Glass' financial strength was rated 3 out of 10 by GuruFocus. Additionally, the Altman Z-Score of 0.91 warns that the company could be at risk of going bankrupt.
The company's profitability fared much better, scoring a 6 out of 10 rating. Although the operating margin is expanding, O-I Glass is being impacted by returns that underperform a majority of industry peers. It also has a moderate Piotroski F-Score of 4 and a one-star business predictability rank.
With 6.42% of outstanding shares, First Pacific Advisors (Trades, Portfolio) is the company's largest guru shareholder. Steven Romick (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Francisco Garcia Parames (Trades, Portfolio) and Simons' firm also own the stock.
Additional trades and portfolio composition
During the quarter, Abrams also boosted his stake in Camping World Holdings Inc. (NYSE:CWH) and reduced his holdings of Lithia Motors Inc. (NYSE:LAD), O'Reilly Automotive Inc. (NASDAQ:ORLY), Alphabet Inc. (NASDAQ:GOOGL), Sculptor Capital Management Inc. (NYSE:SCU), Willis Towers Watson PLC (WLTW), Franklin Resources Inc. (BEN) and Facebook Inc. (FB).
Nearly half of the guru's $3.22 billion equity portfolio, which is composed of 21 stocks, is invested in the consumer cyclical and health care sectors, followed by smaller positions in the financial services and communication services spaces.
Disclosure: No positions.
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This article first appeared on GuruFocus.