5 New Buy Ideas From Bridgewater's Ray Dalio

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Includes: ABB, DIN, DRI, EE, GPN, MDLZ, PNM, ROK, TR
by: Investment Underground

By HD Carver

Ray Dalio founded what is now the largest hedge fund in the world, Bridgewater Associates LP in 1975. Managing roughly $125 billion and serving the needs of pension and profit sharing plans, university and charitable endowments, corporations and government entities, it has an enviable track record of returns, averaging 15% through 2008. Mr. Dalio bought his first stock at age 12 and hasn’t looked back. Illustrative of Mr. Dalio’s keen insight is the fact he was the first to recognize the sub-prime mortgage crisis. Today, we will analyze five of Mr. Dalio’s recent additions from his 13F on a relative value basis and gain what insights on what to buy and sell now from this hedge fund icon.

PNM Resources, Inc. (NYSE:PNM) is a small cap trading at about $18.70. PNM is in the diversified utilities industry, with headquarters in Albuquerque, New Mexico and serves about one-half million customers. Dalio purchased 84,100 shares at a cost of $1.382 million. PNM Resources, Inc. has had rough times for the past several quarters, only achieving profitability in the quarter ending June 30th, 2011. The company was also profitable in the most recent quarter ending September 30th, 2011. As a result, there is no price earnings/ratio to report. The price/earnings growth ratio is 1.47 and price to book is 1.02. As you might anticipate, return on equity is in the negative at 1.65%. Quarterly year-over-year revenue growth is up 9.10%, however, quarterly year-over-year earnings growth is down 10%. The current ratio is 0.88. The company hasn’t missed a dividend payment. The dividend yield is 2.70% and although not stated, you can be sure the payout ratio exceeds 100%. Value investors will have a difficult time getting their heads around this one. PNM has appointed a new chairman and does seem on track to increased profitability.

Rival, El Paso Electric Company (NYSE:EE) is also a small cap trading at about $33.64. El Paso is in the electric utilities industry, based in El Paso, Texas and serves some 370,000 customers. The trailing twelve month price/earnings ratio is 13.34. The price/earnings growth ratio is 3.78 and price to book is 1.67. Return on equity is an acceptable 13.16%. Quarterly year-over-year revenue growth is up 9.70% however, as with PNM, quarterly year-over-year earnings growth is down 3.10%. The current ratio is 1.07 putting El Paso Electric on a better fiscal footing than rival PNM. El Paso pays a dividend yield of 1.30% with a payout ratio of 17%. Unlike rival PNM, El Paso has stayed in positive territory in terms of net income.

Global Payments Inc. (NYSE:GPN) is a mid-cap trading at about $44.24. Global is in the business services industry and calls Atlanta, Georgia home. Ray bought 94,015 shares totaling $3.797 million. The trailing twelve month price/earnings ratio is 16.16. The price/earnings growth ratio is a promising 1.04 and price to book is 3.06. Return on equity is an acceptable 19.88%. Quarterly year-over-year revenue growth is up 23.30% and quarterly year-over-year earnings growth is 29.60%. The current ratio is 1.54, suggesting financial strength. Global pays a dividend yield of 0.20% with a payout ratio of 3%. Analysts concur with Mr. Dalio and the forecast is for continued earnings growth in the double digits.

Although there is no publicly traded direct competitor, Global matches up favorably with what we know from competing private companies. Global’s quarterly year-over-year revenue growth is 23.30% compared to the average of 16.90%. Global also enjoys a higher than average operating margin of 18.30% compared to a 6.77% average among competing private companies. Global shines in gross margins as well, reporting in at 64.05% compared to the competitor’s average of 36.18%.

Rockwell Automation Inc. (NYSE:ROK) is a large cap trading at about $77.27. Rockwell is in the industrial electrical equipment industry and operates out of Milwaukee, Wisconsin.

Mr. Dalio acquired 18,286 shares at a cost of $1.024 million. The trailing twelve month price/earnings ratio is 16.16. The price/earnings growth ratio is 1.12 and price to book is very high at 6.27. Return on equity is an impressive 43.46%. Quarterly year-over-year revenue growth is up 21.90% and quarterly year-over-year earnings growth is up 53.70%. Rockwell enjoys a very strong current ratio of 2.31. Rockwell pays a dividend yield of 2.00% with a payout ratio of 31%. This stock has risen more than 30% in the past 3 months and has moved through its 200 day moving average. Many analysts expect this stock to achieve $90.00 per share. I’m sure Mr. Dalio expects that also.

Competitor, ABB Ltd. (NYSE:ABB) is a large cap trading at about $18.81. Based in Zurich, Switzerland, it is also competes in the industrial electrical equipment industry. The trailing twelve month price/earnings ratio is 14.35. The price/earnings growth ratio is 0.95 and price to book is a much more comfortable 2.72. Return on equity is strong at 20.59%. Quarterly year-over-year revenue growth is up 18.10%. However, quarterly year-over-year earnings growth is weak at 2.10% (unlike Rockwell). The current ratio is 1.34, also putting them on a slightly weaker footing than rival Rockwell. ABB pays a dividend yield of 3.40% with a payout ratio of 51%.

Darden Restaurants, Inc. (NYSE:DRI) is a mid cap trading at about $41.82. Darden calls Orlando, Florida home and operates several familiar names in the restaurant industry throughout the United States and Canada. Bridgewater Associates LP now owns 41,654 shares, originally acquired at a cost of $1.781 million. The trailing twelve month price/earnings ratio is 12.87. The price/earnings growth ratio is 0.88 and price to book is 2.90. Return on equity is first-rate at 25.03%. Quarterly year-over-year revenue growth is up 7.50% however, quarterly year-over-year earnings growth is down 5.70%. The current ratio is 0.50, which is very troublesome. Darden pays a dividend yield of 3.60% with a payout ratio of 41%. Darden is another Dalio pick that is nearing its 200 day moving average and if it breaks through, could be in a position to move close to its 52 week high of $53.81. Darden needs to improve its operating margins and strengthen the balance sheet. Mr. Dalio must feel strongly that the company can accomplish this.

Rival, DinEquity, Inc. (NYSE:DIN) is a small cap trading at about $45.67. Also in the restaurant industry, DinEquity, based in Glendale, California, develops franchises, owns and operates full service restaurant chains in the United States and internationally. The trailing twelve month price/earnings ratio is unavailable. The price/earnings growth ratio is 0.90 and price to book is very high at 10.34. Return on equity is -1.97%. Quarterly year-over-year revenue growth is down 21.20% and quarterly year-over-year earnings growth is up 15.30%. The current ratio is 1.21. DinEquity pays no dividend.

Tootsie Roll Industries, Inc. (NYSE:TR) is a small cap trading at about $23.97. Tootsie Roll is in the confectioners industry and based in Chicago, Illinois. Dalio bought 23,862 shares at a cost of $576,000. The trailing twelve month price/earnings ratio is exceedingly high at 33.19. The price/earnings growth ratio is 2.88 and price to book is 2.06. Return on equity is weak at 6.27%. Quarterly year-over-year revenue growth is down 2.20% and quarterly year-over-year earnings growth is down 30.80%. The current ratio is 3.05, perhaps the only bright spot so far. Tootsie Roll pays a dividend yield of 1.30% with a payout ratio of 33%. Tootsie Roll is another stock nearing its 200 day moving average. Passing through this barrier may put the share price well on the way to its 52 week high of $42.15, meaning significant gains for Mr. Dalio.

Competitor, Kraft Foods Inc. (KFT) is a large cap trading at about $36.51. Kraft is in the major diversified foods industry and a key dividend payer in the Buffett portfolio. The trailing twelve month price/earnings ratio is 19.83. The price/earnings growth ratio is 1.51 and price to book is 1.76. Return on equity is weak at 9.07%. Quarterly year-over-year revenue growth is up 11.50% and quarterly year-over-year earnings growth is up 22.30%. The current ratio is a disappointing 0.85. Kraft pays a dividend yield of 3.20% with a payout ratio of 64%.

Clearly, Mr. Dalio is not a value investor. None of Dalio's picks would ever see the Berkshire Hathaway, Inc. (NYSE:BRK.A) portfolio. In fact, competitors like Kraft are a better fit. That doesn’t mean they are ill-advised. It simply demonstrates that a variety of methodologies can be employed to achieve profits in the equities market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.