Founded in 1975 by Ray Dalio, Bridgewater Associates is a Westport, CT-based investment advisory and hedge fund firm. It caters to charitable organizations, corporations, pension and profit sharing plans, foreign governments, central banks and banking or thrift institutions.
I discussed Ray Dalio's Top Buys from the last quarter in a previous article. In addition, it is also interesting to look at the top stocks where Bridgewater is reducing its holdings. In this article, I will be discussing some of the top sells from Bridgewater Associates according to its latest 13F filing with SEC.
Microsoft Corp. (MSFT): My Take - Sell
Bridgewater sold 1,717,700 shares of Microsoft last quarter. Although Microsoft's stock has seen a decent run up after a long time in anticipation of the Windows 8 launch, I am not too positive on its prospects. Microsoft is going to launch Windows 8 OS this year, which can be used with tablets. As tablets continue to take market share from tradition PCs and laptops, it was important for Microsoft to have an OS that works for tablets as well. However, Microsoft has entered this space very late and I believe this delay will prevent Microsoft from gaining a leadership position in the tablet space, which will have an adverse consequence. It might end up being a 3rd player just like what happened in the mobile space. Apple's iOS and Google's Android are the main platforms in the smartphone space and they will likely be tough competition for Microsoft in the tablet space as well. After the recent run-up it appears like the market is anticipating a blockbuster launch of Windows 8, which I see as unlikely.
The Dow Chemical Company (DOW): My Take - Sell
Bridgewater sold 1,073,789 shares of Dow last quarter. Dow is the second-largest global chemical company providing chemical, plastic and agricultural products and services to diverse markets. In the short term, I am worried about Dow's major commodity exposure - the olefins chain - which is getting adversely affected by lower prices due to sluggish demand and inventory destocking. In addition, tighter-than-expected ethane markets leading to higher-priced feedstocks are adversely impacting the margins. In the medium term Dow's high operating and financial leverage makes the stock very susceptible to the downside, in case we enter another slowdown.
Goodyear Tire & Rubber Co. (GT): My Take - Sell
Bridgewater sold 936,400 shares of Goodyear Tire last quarter. Goodyear Tire and Rubber Company is a leading manufacturer and distributor of tires and other products for original equipment manufacturers and the automotive aftermarket worldwide. Goodyear manufactures numerous lines of tires for use on automobiles, trucks, buses, motorcycles, aviation, and industrial equipment under leading brands Goodyear, Dunlop, Kelly, Fulda, Debica, Sava and other house brands.
Goodyear reported a big miss for 4Q 2011 with weakened performance across geographies. Revenue misses were much worse in its international markets due to China plant start up costs, Thailand disruptions and pension and foreign exchange headwinds.
1Q 2012 is expected to be another difficult quarter and Goodyear's 2012 outlook appears soft with weak replacement demand and difficult comparisons. The company is expecting to cut down production which might hamper its fixed cost absorption. In addition, costs associated with Thailand disruptions and Union City closures are expected to spill over into 1Q 2012. All these factors are expected to weight on its near term performance.
Eastman Chemical Company (EMN): My Take - Buy
Bridgewater sold 653,704 shares of Eastman Chemical Company last quarter. Eastman Chemical Company is engaged in the manufacturing and sale of chemicals, plastics, and fibers in the United States and internationally. The company operates in four segments: Coatings, Adhesives, Specialty Polymers, and Inks; Fibers; Performance Chemicals and Intermediates; and Specialty Plastics.
I see a lot of positives from Eastman's recent acquisition of Solutia Inc. (SOA). The Eastman-Solutia combination is expected to present operational synergies and new growth opportunities. This deal also extends Eastman's reach into Asian markets and is expected to help reduce cyclicality of its business. It is also expected to boost Eastman's product mix in the Specialty segment.
Further, business trends seem to be favoring Eastman. Eastman chemical is a high-quality chemical business that benefits from unique and complex vertical integration into ethylene and propylene production from natural gas liquids. Propylene prices are moving up while isobutene's prices are lowering, resulting in high margins.
I believe the Solutia acquisition along with market leading, competitive position in key products will lead to superior financial performance in the near term and recommend investors to buy the stock.
Freeport-McMoRan Copper & Gold Inc. (FCX): My Take - Buy
Bridgewater sold 639,600 shares of Freeport-McMoRan last quarter. Freeport-McMoRan Copper & Gold Inc. is a copper, gold and molybdenum mining company. Its portfolio of assets includes the Grasberg minerals district in Indonesia, mining operations in North and South America, and the Tenke Fungurume minerals district in the Democratic Republic of Congo. Freeport-McMoRan is likely to see a high top-line growth for next several years.
It has potential to grow copper and gold volumes by 35% and 50%, respectively by 2016. In the near term continued strength in underlying copper prices are likely to provide upside catalysts for the stock prices. At 8.40x forward PE stock doesn't look pricey. I recommend buying the stock given its long-term company-specific growth and near term upside from its copper exposure for which the market still remains tight.