Ray Dalio made more money for his investors than George Soros or John Paulson did. Dalio's Bridgewater Associates operates under a variety of principles that lend to its success. It is a firm that values utter transparency, even when mistakes are made. As long as ownership is taken for the error and the reason behind the mistake learned from, the firm is accepting. Bridgewater Associates tries to keep everyone in sync, always questioning whether a premise is correct and does it make sense. This is how the firm manages itself and how it manages its investments.
In July 2011, Ray Dalio officially gave up his role as CEO of Bridgewater Associates, instead taking the title "Mentor," but the principles with which he founded the fund are still in action - and it's no surprise. The strategy must be working. Bridgewater Associates returned roughly 23% in 2011, a year when the average hedge fund lost roughly 4%.
According to a 13F filed with the SEC on February 15, Bridgewater Associates has 262 positions in its 13F portfolio, with a total portfolio value of $5.97 billion. A large portion of the Bridgewater Associates portfolio is invested in other funds and financials. For instance, Bridgewater had a stake in Vanguard MSCI Emerging Markets (VWO) worth $1.14 billion or 29.96 million shares at the end of the fourth quarter. The fund had a bigger position in the SPDR S&P 500 ETF Trust (SPY). It owned two positions in the company at the end of December - one worth 17.93 million shares or $2.25 billion and the other worth 2.97 million shares or $373.01 million. Bridgewater also had a large holding in iShares MSCI Emerging Markets (EEM) at the end of the fourth quarter. The fund had 21.20 million shares in the company, worth $804.46 million at the end of December. In this article we will focus on Bridgewater's largest three non-ETF positions.
Bridgewater Associates' top stock pick for the fourth quarter was Berkshire Hathaway favorite Johnson & Johnson (JNJ). The fund owned a stake in the company worth $27.62 million or 421,193 shares at the end of December. Bridgewater significantly upped its position in Johnson & Johnson during the fourth quarter. At the end of September the fund had owned just 288,500 shares of Johnson & Johnson, valued at $18.38 million.
Johnson & Johnson recently traded at $64.77 a share on a mean one-year target estimate of $72.69 a share (range $65 to $90). In addition to the massive upside, the company also pays a $2.28 dividend (3.50% yield) and it is priced low at 12.7 times its 2012 earnings. Pfizer (PFE) is one of Johnson & Johnson's competitors. Pfizer recently traded at $21.41 a share on a mean one-year target estimate of $24.51 a share. The company pays an 88 cents a share dividend (4.1% yield) and is priced at 9.5 times its 2012 earnings. We actually like both companies - between the upside, the dividends and the low forward P/E ratios, what's not to like?
BMC Software (BMC), which is a top pick for Larry Robbins' Glenview Capital, was the second largest stock in the Bridgewater Associates portfolio at the end of the fourth quarter. The fund had $26.96 million or 822,460 shares in the company at the end of December. Bridgewater had initiated an 85,705-share position in the company during the third quarter, which was valued at $3.31 million at the end of September.
BMC recently traded at $37.10 a share on a mean one-year target estimate of $41.95 (range $34 to $49). The company does not pay a dividend and is priced at 13.4 times its 2012 earnings. Looking at CA Technologies, one of BMC's primary competitors, we are not impressed. CA recently traded at $27.05 a share in a mean one-year target estimate of $27.78. It pays a $1.00 dividend (3.70% yield) and is priced at 12.7 times its 2012 earnings. BMC has greater upside but CA is priced lower and pays a dividend. We like CA better.
Bridgewater Associates was also bullish about Dell Inc (DELL) during the fourth quarter. The fund had a stake in the company worth $26.67 million or 1.82 million shares at the end of December, up from just 1.38 million shares worth $19.50 million at the end of September. Dell recently traded at $17.36 a share on a mean one-year target estimate of $19.05 (range $14 to $23). The company does not pay a dividend and is priced at 8.2 times its forward earnings.
Looking at a competitor like Hewlett Packard (HPQ), Dell has less estimated upside - Hewlett Packard recently traded at $25.32 a share on a mean one-year target estimate of $30.48. There is also the fact that Hewlett Packard offers a pretty decent dividend of 48 cents (1.9% yield) whereas Dell does not. Hewlett Packard is also priced lower at just 6.3 times its forward earnings, making it the better pick all around at their current pricing.
We wouldn't recommend either one for investors looking for strong growth. Within this sector, investors would enjoy much more upside and much less risk investing in a company like Apple (AAPL) or Google (GOOG) that has strong expected upside, is trading low relative to its future earnings and has strong growth estimates.