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The Vanguard Health Care Fund's Top 5 Buys of the 1st Quarter

- By James Li

The Vanguard Health Care Fund (Trades, Portfolio) disclosed this week its top five buys for the first quarter included a new position in Galapagos NV (GLPG) and position boosts of the following four companies: Elanco Animal Health Inc. (ELAN), Teva Pharmaceuticals Industries Ltd. (TEVA), Centene Corp. (CNC) and Eisai Co. Ltd. (TSE:4523).


Managed by Jean Hynes, the fund seeks long-term capital appreciation through investments in domestic and foreign companies in various industries within the health care sector. As of quarter-end, the 89-stock equity portfolio contains 97.65% exposure to health care, with a buy impact of 3.25% and a net buy impact of 0.61%.

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Hynes said in her 2019 annual report the fund's investor shares returned 2.76% for the 12 months ending Jan. 31, outperforming the MSCI All Country World Health Care Index's return of 1.18%, boosted by strong stock selection in biopharma large-cap and strong performance in medical technology.

The fund manager views the health care sector "through a custom lens of subsectors," which include biopharma, a combination of biotechnology and pharmaceuticals; health care services; and medial technology.

Galapagos NV

The fund invested in 1,151,526 shares of Galapagos NV, giving it 0.30% equity portfolio weight. Shares averaged $100.78 during the quarter.

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The Mechelen, Belgium-based biotech company develops small-molecule medicines to treat rheumatoid arthritis, Crohn's disease and ulcerative colitis. GuruFocus ranks the company's financial strength 8 out of 10: Even though the Beneish M-score suggests possible earnings manipulation, the company has little or no long-term debt and a robust Altman Z-score of 15.37.

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Elanco Animal Health

The fund added 9,398,707 shares of Elanco Animal Health, increasing the stake 895.29%. Shares averaged $30.78 during the quarter.

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GuruFocus ranks Elanco Animal Health's financial strength 6 out of 10: Although the company has good interest coverage of 14.94, the Altman Z-score of 2.51 suggests slight financial distress.

Teva

The fund added 15,184,910 shares of Teva, increasing the position 65.14%. Shares averaged $17.62 during the quarter.

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The Israeli drug manufacturer develops and sells branded pharmaceutical products in various categories, including the central nervous system, oncology, respiratory and women's health. GuruFocus ranks Teva's financial strength 4 out of 10: Although the company's Piotroski F-score ranks a solid 5 out of 9, its interest coverage is less than Benjamin Graham's required threshold of 5 and the Altman Z-score suggests moderate financial distress.

Berkshire Hathaway Inc. (BRK-A)(BRK-B) CEO Warren Buffett (Trades, Portfolio) has not released his first-quarter portfolio as the deadline is 45 days after quarter-end. As of the latest portfolio date, Buffett owns 43,249,295 shares of Teva.

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Other gurus with holdings in Teva include Francisco Garcia Parames and Seth Klarman (Trades, Portfolio) protege David Abrams (Trades, Portfolio).

Centene

The fund added 2,167,800 shares of Centene, boosting the holding 193.36%. Shares averaged $60.76 during the quarter.

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Centene, a company tied to a merger agreement with WellCare Health Plans Inc. (WCG), offers health care plans to U.S. government-sponsored health care programs. GuruFocus ranks the company's profitability 7 out of 10: Even though the operating margin has declined over the past five years, Centene's three-year revenue growth rate of 38.20% outperforms 95.65% of global competitors.

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Eisai

The fund added 1,331,377 shares of Eisai, increasing the position 7.88%. Shares averaged 8,649.34 yen ($77.63) during the quarter.

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The Japanese drug manufacturing company expands its research, development, manufacturing and marketing capabilities through licensing strategies. GuruFocus ranks the company's financial strength 8 out of 10 on several positive indicators, which include a strong Piotroski F-score of 8, a solid Altman Z-score of 4.52 and robust interest coverage of 43.02. Even though gross profit margins have declined, Eisai's operating margin has increased approximately 2.30% per year over the past five years and is outperforming 68% of global competitors.

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Disclosure: No positions.

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This article first appeared on GuruFocus.