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John Burbank Goes 3 for 2 in 1st Quarter

- By Sydnee Gatewood

Guru John Burbank (Trades, Portfolio), founder and chief investment officer of Passport Capital, released his first-quarter portfolio earlier this week, disclosing he established three new holdings and closed two other positions.


Since the investor shut down his flagship fund in 2017 after returns slumped, he is now focusing on the San Francisco-based firm's Special Opportunities Fund, which invests in a concentrated number of securities to achieve long-term growth of capital. He has also begun investing in cryptocurrencies.

During the quarter, Burbank took positions in Netflix Inc. (NFLX), Bandwidth Inc. (BAND) and Pan American Silver Corp. (PAAS). He also sold out of Tahoe Resources Inc. (TAHO) and UnitedHealth Group Inc. (UNH).

Netflix

After selling out of Netflix in fourth-quarter 2018, the investor entered a new 10,000-share holding, giving it 1.40% space in the equity portfolio. The stock traded for an average price of $345.48 per share during the quarter.

The Los Gatos, California-based company, which provides video streaming services, has a $151.11 billion market cap; its shares were trading around $349.47 on Wednesday with a price-earnings ratio of 123.44, a price-book ratio of 27.40 and a price-sales ratio of 9.40.

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

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GuruFocus rated Netflix's financial strength 6 out of 10. Although the company has insufficient interest coverage, the high Altman Z -Score of 5.09 indicates it is in good fiscal standing.

The company's profitability and growth scored a 7 out of 10 rating, driven by an expanding operating margin and strong returns that outperform at least 60% of competitors. The low Piotroski F-Score of 3, however, implies poor business operations. Netflix also has a business predictability rank of one out of five stars. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.

Of the many gurus invested in Netflix, Frank Sands (Trades, Portfolio) has the largest stake with 1.23% of outstanding shares. Other top guru shareholders include Spiros Segalas (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Philippe Laffont (Trades, Portfolio), Bill Nygren (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Steven Cohen (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).

Bandwidth

Burbank invested in 50,000 shares of Bandwidth, dedicating 1.32% of the equity portfolio to the position. During the quarter, the stock traded for an average price of $52.20 per share.

The software infrastructure company, which is headquartered in Raleigh, North Carolina, has a market cap of $1.65 billion; its shares were trading around $71.54 on Wednesday with a price-earnings ratio of 111.78, a price-book ratio of 5.99 and a price-sales ratio of 7.45.

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

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Supported by comfortable interest coverage and no long-term debt, Bandwidth's financial strength was rated 9 out of 10 by GuruFocus. In addition, the robust Altman Z-Score of 25.95 suggests the company is in excellent fiscal health.

The company's profitability and growth did not fare as well, scoring a 4 out of 10 rating. Despite recording a decline in revenue per share over the last 12 months, Bandwidth's returns are outperforming industry peers. The operating margin, however, is negative and underperforms 55.6% of competitors.

With 1.92% of outstanding shares, Simons' firm is Bandwidth's largest guru shareholder. Cohen and Chuck Royce (Trades, Portfolio) also own the stock.

Pan American Silver

The guru gained 4.9 million shares of Pan American Silver after it acquired Tahoe Resources, allocating 0.58% of the equity portfolio to the stake. The shares traded for an average price of $14.02 during the quarter.

The Canadian miner has a $2.38 billion market cap; its shares were trading around $11.37 on Wednesday with a forward price-earnings ratio of 42.19, a price-book ratio of 0.82 and a price-sales ratio of 2.25.

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

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Pan American Silver's financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. Aside from being weakened by low interest coverage, the Altman Z-Score of 1.63 warns the miner is at risk of going bankrupt.

While the company's margins and returns are outperforming industry peers, the low Piotroski F-Score of 2 suggests operating conditions are poor. In addition, Pan American's one-star business predictability rank is on watch as a result of a decline in revenue per share over the last 12 months.

Simons' firm is the company's largest guru shareholder with 3.32% of outstanding shares. Pioneer, Royce, John Hussman (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) also have positions in the stock.

Tahoe Resources

Burbank's 4.4 million-share stake in Tahoe Resources was dissolved after the company was acquired by Pan American Silver on Feb. 22. The stock traded for an average price of $3.72 per share during the quarter.

According to the terms of the deal, shareholders of the Reno, Nevada-based mining company could choose between receiving $3.40 in cash or 0.2403 shares of Pan American for each share held.

GuruFocus estimates Burbank lost 15% on the investment since establishing it in the first quarter of 2018. The trade had an impact of -3.76% on the equity portfolio.

Other gurus who cashed in on the merger included Royce, First Eagle Investment (Trades, Portfolio), Pioneer and Simons' firm.

UnitedHealth Group

The investor shed 500,000 shares of UnitedHealth, impacting the equity portfolio by -1.70%. Shares traded for an average price of $255.35 during the quarter.

According to GuruFocus, Burbank gained approximately 8% on the investment since establishing it in the third quarter of 2018.

The managed care company, which is headquartered in Minnetonka, Minnesota, has a $224.69 billion market cap; its shares were trading around $235.85 on Wednesday with a price-earnings ratio of 18.35, a price-book ratio of 4.46 and a price-sales ratio of 1.

The Peter Lynch chart suggests the stock is overvalued.

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GuruFocus rated UnitedHealth's financial strength 6 out of 10. Although the company has issued approximately $2.8 billion in new long-term debt over the last three years, it is at a manageable level as a result of having adequate interest coverage. In addition, the Altman Z-Score of 3.44 indicates it is in good standing financially.

The company's profitability and growth scored a 7 out of 10 rating, boosted by strong margins and returns that outperform competitors, consistent earnings and revenue growth and a moderate Piotroski F-Score of 4, which implies operating conditions are stable. UnitedHealth also has a five-star business predictability rank. According to GuruFocus, companies with this coveted rank typically see their stocks gain an average of 12.1% per year.

Of the gurus invested in UnitedHealth, the Vanguard Health Care Fund (Trades, Portfolio) has the largest stake with 1.04% of outstanding shares. Other top guru shareholders include Dodge & Cox, Steve Mandel (Trades, Portfolio), Halvorsen, Segalas, Pioneer, Jeremy Grantham (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss.

Portfolio composition

Burbank's $254.42 million equity portfolio is largely invested in the basic materials sector, followed by much smaller holdings in the consumer cyclical and technology sectors. Several of his positions are put and call options.

Disclosure: No positions.

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This article first appeared on GuruFocus.