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Francis Chou Nearly Dumps Entire Stake in Valeant, Teva and Overstock in 4th Quarter

- By James Li

Francis Chou (Trades, Portfolio), portfolio manager of Chou America Mutual Funds, disclosed Wednesday he nearly eliminated his stakes in three companies during fourth-quarter 2017: Valeant Pharmaceuticals International Inc. (VRX), Teva Pharmaceutical Industries Ltd. (TEVA) and Overstock.com Inc. (OSTK).


Valeant

Chou axed 95.12% of his Valeant stake, selling 2,904,851 shares for an average price of $15.84. With this transaction, the manager knocked 14.8% off his portfolio.

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Throughout the past two months, our Forum users debated on Valeant's growth prospects. Although the company has good profitability, Valeant's financial strength ranks a poor 3 out of 10, suggesting moderate financial stress. The company only has four cents in cash per $1 in debt, ranking lower than 96% of global competitors. Additionally, Valeant's interest coverage is a weak 0.31, significantly lower than Benjamin Graham's required threshold of 5.

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Teva

Chou took an opposite stance than Warren Buffett (Trades, Portfolio) did with Teva: while the Berkshire Hathaway Inc. (BRK-A)(BRK-B) CEO initiated an 18,875,721-share stake, Chou sold 490,000 shares, leaving him with just 15,000. Teva's stock averaged $15.05 during the quarter, and Chou took a loss of approximately 55% on the stock based on GuruFocus estimates.

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8f36e71d2a447de19951f343f6e9a676.png

Teva CEO Kare Shultz said the company had a "challenging" 2017, which included an as-reported loss per share of $16.26. Gross profits declined 9% from the prior year mainly due to higher amortization costs and lower profitability in both the General Medicines and Specialty Medicines business segments. GuruFocus ranks Teva's profitability 4 out of 10 as the company's profit margins underperform 85% of global competitors.

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207468217.png

Overstock.com

Chou eliminated 97.68% of his stake in Overstock.com, selling 280,000 shares for an average price of $48.08 per share.

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0b47b7104a54831a9b017017a3bc31df.png

Although the company's financial strength ranks a satisfactory 6 out of 10, Overstock.com has a weak Piotroski F-score of 3 and a relatively high debt-to-EBITDA ratio of 3.32. The latter underperforms 61% of global competitors.

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According to a previous article, Quantum fund manager George Soros (Trades, Portfolio) invested in 2,472,188 shares for $40.10 per share.

Disclosure: No positions.

This article first appeared on GuruFocus.


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