Jeremy Grantham's 5 Biggest Portfolio Positions

Includes: JNJ, MSFT, ORCL, PFE, PM
by: Vatalyst

Jeremy Grantham is a perennial favorite for investors to track. Here is my analysis of his biggest positions which should indicate how he is thinking about this market:

Johnson & Johnson (NYSE:JNJ)

Johnson & Johnson dominates the health care industry, which in general is considered a relatively stable industry that is less vulnerable to ongoing economic malaise. Moreover, JNJ is considered a high quality name that provides stability to the investor’s portfolio as defensive stock. The stock is also considered important as it is included in the Jeremy Grantham portfolio, a seasoned investor and reputable portfolio manager.

As of September 2, 2011, the stock closed at $64.06 with negative movement of 1.93% as compared to 1.19% of Abbot Laboratories (NYSE:ABT). The stock is trading at a price to earnings multiple of 15.33 with dividend yield of 3.50%. The stock is offering an upside potential of 13.03% and is ahead of its competitor with an annual EPS estimate of $4.97 against $4.64 of ABT. The stock is certainly in the lime light as the FDA committee will vote on the approval of JNJ drug ‘Xarelto’ for stroke prevention in a trial fibrillation next week.

The next week is really important for JNJ as this drug is expected to pull $1.2 billion from US sales in the next four years according to the company estimates. JNJ has also bought a small biotech company working on the organ regeneration technique. This is worth noticing for the long term investor as JNJ is a solid dividend paying stock that is not betting on organ regeneration, and this may be the best possible route to invest indirectly.

Microsoft Corporation (NASDAQ:MSFT)

Microsoft Corporation develops licenses and provides support for a range of software products and services for numerous computer devices around the world. As of September 2, 2011, the stock closed at $25.80 and is trading at price to earnings multiple of 9.59, with quarterly EPS estimate of $0.68 above $0.47 of Oracle Corporation (NYSE:ORCL), and well below $7.00 of Apple Inc (NASDAQ:AAPL). Almost all the major players in the industry went down by 2.00% on average, with ORCL being the highest in the last day of trading after two weeks of positive appreciation. The market reacted positively to the stock after MSFT recently announced a joint venture with China’s leading domestic Linux operating provider, China Standard Software Co. Ltd (CS2C). The companies will now jointly develop, market and sell solutions for the booming cloud computing market in China. In addition to that, the recently announced ‘Cloud CRM for less’ offer provides an opportunity for cost savings for customers. Investors may prefer to keep an eye on the stock as the company has a stable outlook in the near future.

Oracle Corporation

Oracle Corporation is a software company that engages in developing, manufacturing and distributing application software, middleware software and hardware systems worldwide. During the early trading hours, the software application industry is certainly feeling the heat. The ORCL stock fell by more than 3.10% to $26.97 with a volume of 30.29 million shares, compared to 1.56% of Microsoft Corporation with a volume of 43.89 million shares. It is trading at price to earnings multiple of 16.15,with quarterly EPS estimate of $0.47 compared to $0.68 of MSFT. All the major competitors in the industry fell down by 3.20% on average, with ORCL being the second highest in the last day of trading after two weeks of positive appreciation.

The continuous off-loading of the share from Jeremy Grantham's portfolio was another blow to the stock. Oracle announced on Friday that Oracle Database 11g Release 2, which runs on Oracle's SPARC Enterprise M9000 Server set a new world record on the SAP (SAP) Assemble-to-Order standard application benchmark. This could lead to some positive attitude on the part of investors as they seemed to be offloading software application shares from their portfolios during the day's trading.

Pfizer, Inc. (NYSE:PFE)

Pfizer, Inc. is a biopharmaceutical company, and offers prescription medicines for humans and animals worldwide. The much awaited employment data of August finally surfaced on Friday and the results were not very convincing as the unemployment rate remained at 9.1%. This is a major setback for investors and fears of another recession are expected to grow further. The stock market reacted strongly and the Dow Jones Industrial Average fell more than 250 points. All the major players in the drug manufacturing industry fell down with Bayer N being the highest which fell by 4.95% on Friday. PFE is no exception in this regard as the stock fell 2.38% to $18.46, with a healthy volume of 35.06 shares. PFE, being the volume leader in Friday’s trading hours, seemed to be ahead of competitors in terms of volume and is trading at price to earnings multiple of 17.24.

The future moves of the market are expected to remain uncertain as the market will take some time to stabilize. Investors may remain cautious but the trading volume of the stock looks healthy and indicates the investor confidence. Secondly, AstraZeneca's (NYSE:AZN) attempt to prove its top-selling drug works better than PFE blockbuster Lipitor appears to have backfired as the competitor was not able to prove this theory. PFE is offering a dividend yield of 4.20% along with potential upside gain of approximately 27.00% at current level. A gradual induction of PFE shares in a diversified portfolio is recommended to value investors with proper downside risk defined.

Philip Morris International Inc (NYSE:PM)

Philip Morris International Inc through its subsidiaries engages in the manufacturing and sale of cigarettes and other tobacco products in markets outside of the United States. PM is considered as a blue chip dividend stock with a dividend yield of 3.70% and is a high quality name that provides stability to the investor’s portfolio as an ultimate defensive stock. It is a recession resistant business that provides investors with the ability to hold while receiving dividends. With its ability to stand in difficult times, the stock is considered recently by the majority of analysts as reliable. PM has a three-year average operating margin of 41.2%. That's higher than that of other tobacco stocks like British American (NYSEMKT:BTI) (32.4%), Reynolds American (NYSE:RAI) (29.8%), and even former parent Altria Group (NYSE:MO) (37.3%).

As of September 2, 2011, the stock is trading at forward price to earnings multiple of 13.05 with 10.5% annualized EPS growth in the next five years, according to the consensus estimates. This is reasonable when compared to its 8.06% EPS growth of the past 5 years. The stock last closed at $68.24 and is offering 9.6% upside potential with an estimated price of $76.00 at year's end. As long as people smoke and governments are interested in tobacco taxes, tobacco isn't going anywhere in the foreseeable future.

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

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