By Serkan Unal
Ray Dalio is the founder and co-CIO of Bridgewater Associates, a global macro firm with $140 billion in assets under management. The firm applies a global macro investing approach, using both qualitative and quantitative methods to identify attractive investments. Bridgewater's objective is to build portfolios with statistically uncorrelated investment returns based on risk allocations. Dalio's investment firm has three hedge funds: Pure Alpha, All Weather, and Pure Alpha Major Markets funds. Bridgewater Pure Alpha gained 0.8% last year and 14.0% annually since inception in 1991. All Weather had a total return of 15% in 2012 and 9.4% annually since inception in 1996. Pure Alpha Major Markets was up 4.6% or 6.9% last year, depending on the level of volatility. This year, Bridgewater plans to launch a new fund, All Weather Major Markets.
In a recently-disclosed 13F filing, Bridgewater revealed its fourth-quarter-2012 portfolio. The firm appears to be betting on global equities, oil, and commodities, in anticipation of further cash inflows into equity markets amid a more upbeat global economic outlook. Among the firm's top holding are emerging market equity ETFs, Vanguard FTSE Emerging Markets ETF (VWO) and iShares MSCI Emerging Markets Index (EEM), and the broad large-cap U.S. equity market index, SPDR S&P 500 (SPY). Among his bullish picks are also several dividend-paying stocks yielding more than 2.0%. Here is a closer look at Dalio's five bullish growth and value picks with solid dividends and decent upside potential.
CA Technologies (CA), an enterprise IT management software firm, has a dividend yield of 4.1%, payout ratio of 41%, and five-year annualized dividend growth of 33.5%. The company is flush with cash, as it boasts 22% of total assets in cash and equivalents. CA expects to return in dividends and share buybacks up to $2.5 billion to its shareholders by March 31, 2014, with a targeted payout of 80% of expected cumulative free cash flow. The company posted an estimates-beating third-quarter EPS, but its revenue was weak. A noticeable weakness was in the company's cash-cow segment, the low-growth and wide-margin mainframe segment. Currently, however, most of CA's growth comes from the low-margin enterprise business. CA expects FY13 total revenues in the $4.58-$4.67 billion range and non-GAAP diluted EPS from continuing operations of $2.36-to-$2.44. The EPS guidance compares with the analyst consensus EPS estimate of $2.42. The recent appointment of the company's new CEO has raised some speculations about the company's positioning for a takeover. The stock is trading on a forward P/E of 9.4x, slightly above its industry multiple, with a high free cash flow yield of 8.2%. Last quarter, Bridgewater hiked its CA share ownership by 228% to nearly 1.1 million shares.
Xerox Corp. (XRX), a provider of document systems and services, has a dividend yield of 2.8% and a payout ratio of 21%. The company has just raised its dividend by 35.3%. We recently wrote about XRX as a major dividend growth and a solid value play. As regards the business, XRX's ongoing transformation into a service-based company suggests annuity-like contracting will increase, providing for more secure cash flows in the years ahead. As regards the company's growth, overall revenues have been rebounding year-over-year and margins have widened. In the fourth quarter of 2012, the company's revenues beat analyst estimates by 2 cents, while EPS of $0.30 beat analyst estimates by a penny. Going forward, revenue growth will be driven by the services segment expansion. This year, XRX's technology revenues are projected to contract in mid single digits, while services revenues are projected to increase in mid to high single digits. Service revenues will be boosted in the years ahead as XRX seeks accretive acquisitions in the segment. In the first quarter of 2013, the midpoint of XRX's EPS guidance range of $0.23-$0.25 matches the consensus estimate of $0.24. Last quarter, Bridgewater hiked XRX share ownership by 173% to nearly 2.5 million shares.
Procter & Gamble Co. (PG), the packaged consumer goods giant, has a dividend yield of 3.0%, payout ratio of 55%, and five-year dividend growth of 9.3% annually. The company has raised dividends for 55 straight years, which is one of the longest uninterrupted dividend growth streaks on record. This S&P Dividend Aristocrat has a long-term annualized EPS CAGR of 8.3%, 4.4 times faster than the average rate of EPS growth over the past five year. P&G estimates its high-side long-term EPS potential CAGR at between 12% and 17%. The company's strengths include a solid and diversified brands portfolio, leading and expanding position in emerging markets, and product innovation. The room for expansion in emerging markets is vast. Following a slow fiscal 2012, the company initiated measures to boost growth, including productivity and cost cutting initiatives. These measures seem to be paying off. With a rebound in organic growth, market share expansions in key markets, and realized cost savings, P&G posted estimates-beating EPS in the past two quarters. The company's fiscal 2013 guidance sees EPS in the range of $3.92-$4.04. In terms of valuation, P&G is trading at a forward P/E of 18.3x, on par with its industry. PG is Bridgewater's new position. The investment firm bought 286,916 shares in the fourth quarter.
Intel Corp. (INTC), the world's biggest chipmaker, has a dividend yield of 4.4%, payout ratio of 46%, and five-year annualized dividend growth of 13.7%. The company's revenues and profits have been in a decline due to a secular shift in consumer spending from PCs to mobile devices which do not utilize Intel chips. Last quarter, Intel's revenue dipped 3% year-over-year, while its EPS plummeted 25%, still managing to beat analyst estimates by 3 cents per share due to a lower effective tax rate. Because of the weak demand, the company has been running its plants at less than half their capacity. Now, better days may lie ahead, as Intel sees 2013 revenue growth in the low single digits, compared to analyst expectations of a 2% gain for the year. IT research firm Gartner sees global semiconductor revenues growing 4.5% in 2013 and 9.9% in 2014. Intel has its long-term EPS CAGR forecasted at a robust 11.8%. The company's migration towards mobile-device and custom-made networking chips may prove decisive for long-term growth. The stock is a good value play, boasting a forward P/E of 10.8x, about half the multiple of its respective industry. Last quarter, Bridgewater initiated a new stake in INTC, reporting 756,153 shares in ownership.
St. Jude Medical Inc. (STJ), a cardiovascular and implantable neurostimulation medical devices maker, has a dividend yield of 2.2% and a payout ratio of 25%. The company has just raised its quarterly dividend by 9.0%. The company's EPS performance over the past four quarters has been positive, as the company beat analysts EPS estimates despite weak revenues. Still, 2012 revenues missed the company's initial guidance by 4%. The company expects 2013 revenues to drop 1%-to-2% from 2012, while its EPS is expected to increase between 6% and 7% from last year. Growth in atrial fibrillation will be the only growing segment. While the challenging healthcare environment characterized by sluggish cardiac rhythm management (CRM) and cardiovascular sales will push total revenues down, cost savings, restructuring, and share buybacks ($1 billion available since November 2012) will help buttress EPS growth this year. However, the newly-introduced medical device excise tax is a notable drag on profits. Still, the company has a solid product pipeline and new product launches will help drive future growth. STJ's long-term EPS CAGR is forecasted at 9.9%. Unfortunately, the company has faced several product recalls due to safety concerns. In terms of valuation, the stock is priced at 11.1x forward earnings, well below its industry multiple. Last quarter, Bridgewater boosted its ownership of STJ shares by 610% to 418,456 shares.