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Ken Heebner's CGM Goes 3 for 3 in 1st Quarter

- By James Li

Ken Heebner (Trades, Portfolio)'s Capital Growth Management (CGM) disclosed this month its top three sells were Vale SA (VALE), Royal Caribbean Cruises Ltd. (RCL) and Norwegian Cruise Line Holdings Ltd. (NCLH), while its top three buys were Companhia Siderurugica Nacional (SID), Valero Energy Corp. (VLO) and PagSeguro Digital ltd. (PAGS). The top three sells outweigh the top three buys in terms of portfolio impact.


A growth-oriented investor, Heebner has historically made bold and swift sector calls. Additionally, the co-founder of CGM is not afraid to make large bets based on his convictions.

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As of quarter-end, the $1.62 billion equity portfolio's top sectors in terms of weight are real estate, financial services and energy. Twenty-six of the equity portfolio's 50 holdings represent new positions.

Vale SA

CGM sold 14,058,000 shares of Vale, chopping 11.62% off its portfolio. Shares averaged $12.96 during the quarter.

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The Brazilian company is one of the top iron ore miners along with BHP Group Ltd. (BHP) and Rio Tinto PLC (RIO). GuruFocus ranks the company's financial strength 6 out of 10: Even though the debt ratios are underperforming over 50% of global competitors, Vale's Piotroski F-score of 8 suggests strong business operations. Other strong signs, which contribute to a profitability rank of 8, include expanding profit margins and returns that are outperforming 80% of global competitors.

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Gurus that continue riding Vale's profitability include Jim Simons (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).

Royal Caribbean

CGM sold 565,000 shares of Royal Caribbean, reducing the equity portfolio 3.46%. Shares averaged $113.45 during the quarter.

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Royal Caribbean operates cruises through brands like Royal Caribbean International Celebrity Cruises and Azamara Club Cruises. GuruFocus ranks the company's financial strength 5 out of 10: Although it has a strong Piotroski F-score of 8, Royal Caribbean's interest coverage and debt ratios are underperforming over 62% of global competitors. Despite this, Royal Caribbean's profitability ranks 8 out of 10 on positive indicators like a three-star business predictability rank and profit margins that are outperforming over 79% of global travel and leisure companies.

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Gurus riding Royal Caribbean's profitability include Pioneer Investments (Trades, Portfolio) and Ron Baron (Trades, Portfolio)'s Baron Funds.

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Norwegian

CGM sold 1.165 million shares of Norwegian, trimming the portfolio 3.10%. Shares averaged $51.36 during the quarter.

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Norwegian operates cruises through brands like Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas. GuruFocus ranks Norwegian's financial strength 5 out of 10: Although the company has a strong Piotroski F-score of 8, its debt ratios are underperforming over 67% of global competitors. The website warns that Norwegian has increased its long-term debt by $248.65 million over the past three years. Despite this, the company's profitability ranks 9 out of 10 on strong signs like expanding profit margins, a 3.5-star business predictability rank and a three-year revenue growth rate that outperforms 84.11% of global competitors.

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Gurus that are riding Norwegian's profit momentum include Joel Greenblatt (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio).

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Companhia Siderurugica Nacional

CGM purchased 11.6 million shares of Companhia Siderurugica Nacional, giving the stake 2.94% equity portfolio space. Shares averaged $3.12 during the quarter.

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The Brazilian steel producer operates in five segments: steel, mining, logistics, energy and cement. GuruFocus ranks the company's financial strength 4 out of 10 on weak signs like low interest coverage and debt ratios that underperform over 70% of global competitors. Despite this, Companhia Siderurugica Nacional's profitability ranks 7 out of 10 on strong signs like expanding profit margins and a return on equity that outperforms 87% of global steel producers.

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Valero

CGM purchased 500,000 shares of Valero, giving the holding 2.61% weight in the equity portfolio. Shares averaged $82.53 during the quarter.

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The San Antonio, Texas-based company operates 14 refineries with a total throughput capacity of 3.1 million barrels per day in the U.S., the U.K. and Canada. GuruFocus ranks the oil refiner's financial strength 7 out of 10: Even though interest coverage of 8.85 underperforms 57.75% of global competitors, Valero's Altman Z-score of 4.05 suggests little financial distress.

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PagSeguro

CGM purchased 1.365 million shares of PagSeguro, giving the position 2.51% equity portfolio weight. Shares averaged $24.79 during the quarter.

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PagSeguro provides financial technology solutions focused primarily on micro-merchants, small companies and medium-sized companies in Brazil. GuruFocus ranks the company's financial strength 9 out of 10 on several strong indicators, which include robust interest coverage and a strong Altman Z-score of 6.17.

Disclosure: No positions.

Read more here:

  • Francisco Garcia Parames' Top 5 Buys of the 1st Quarter
  • Larry Robbins' Top 6 Buys of the 1st Quarter
  • John Paulson's Top 5 Buys in the 1st Quarter



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This article first appeared on GuruFocus.