Ray Dalio (Trades, Portfolio) founded hedge fund Bridgewater Associates in 1975 out of a two-bedroom apartment. Today, it manages $157 billion in assets for institutional clients, foreign governments, corporate and public pension funds, among others.
The firm’s success can be attributed to Dalio’s “Principles,” an overview of the investor’s life and management philosophies. Part 1 explains the importance of having principles in general, Part 2 explains Dalio’s fundamental life principles, and Part 3 discusses his management principles that are lived out at Bridgewater.
During the fourth quarter, the firm initiated 93 new holdings. The following are the five largest new buys in order of portfolio impact.
Potash Corp of Saskatchewan (POT, Financial)
The fund’s largest purchase during the quarter was 601,600 shares of Potash Corp of Saskatchewan for an average price of $34.03 per share. The purchase had a 0.17% impact on the portfolio.
Potash Corp is a fertilizer and feed products company that owns and operates five potash mines in Saskatchewan and one in New Brunswick. Its phosphate operations the manufacture and sale of solid and liquid phosphate fertilizers.
The stock has gone up 10% over the past year and may be overvalued according to the Peter Lynch chart.
Potash Corp’s current ratio is 0.88, indicating the balance sheet needs some work. A ratio of less than 1 means the company cannot cover its short-term obligations.
The P/S ratio is 5.31, which is close to the three-year high of 5.38. The current P/E ratio is 26.5 based on preliminary data.
Other gurus who own stock in Potash Corp include Jean-Marie Eveillard (Trades, Portfolio), Brian Rogers (Trades, Portfolio), and Manning & Napier Advisors.
United States Steel Corp (X, Financial)
The fund also purchased 569,965 shares of United States Steel for an average price of $33.34 per share.
United States Steel is a producer of flat-rolled and tubular products with major production operations in North America and Europe. The company is also engaged in other business operations consisting primarily of railroad services and real estate operations.
The company has been operating at a loss since FY 2009; however, preliminary data estimates diluted EPS will be $0.69 in FY 2014.
United States Steel has also suffered from inconsistent operating margins over the years, which recorded at -10.9% in FY 2013. Preliminary data also estimates this will improve for FY 2014.
The estimated P/E ratio for 2014 is 43.05, while the P/S ratio is 0.23.
Wynn Resorts (WYNN, Financial)
After selling out of its position in Wynn Resorts three times over the past five years, the fund purchased 74,659 shares of the company at an average price of $171.74 per share.
Wynn Resorts is a developer and operator of destination casino resorts. Its two resorts are Wynn Las Vegas and Wynn Macau in China. The Las Vegas resort features more than 4,700 rooms and suites, 186,000 square feet of gaming space, as well as 96,000 square feet of retail space.
The stock has declined 31% over the past year and may be overvalued when compared to the Peter Lynch earnings line.
The operating margin has been increasing steadily over time, recording at 22.95% in FY 2013.
The P/E ratio is 27.1 and the P/S ratio is 3.51.
CenterPoint Energy (CNP, Financial)
Dalio also purchased 453,278 shares of CenterPoint Energy for an average price of $23.87 per share. The purchase had a 0.09% impact on the portfolio.
CenterPoint is a public utility holding company whose business segments are electric transmission and distribution, natural gas, energy services, and midstream investments. The company has 3.3 million customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas.
Diluted EPS has been declining since FY 2011 and was $0.72 in FY 2013.
The current ratio, calculated by dividing current assets by current liabilities, is 0.88. A ratio of less than 1 indicates CenterPoint cannot easily cover its short-term obligations.
One positive indicator on the balance sheet is that the company has been gradually paying down its long-term debt since FY 2009.
The P/E ratio is 17.4 and the P/S ratio is 1.
The fund’s fifth-largest purchase of the quarter was 103,466 shares of Agrium at an average price of $93.60 per share.
Agrium is a retail supplier of agricultural products and services in North and South America. Its three primary groups of nutrients are nitrogen, phosphate and potash.
The stock has been up 21% over the past year and currently trades at $106.67. The DCF model projects a fair value of $164.83, giving a 35% margin of safety.
Diluted EPS declined slightly in FY 2013 to $7.20, but has grown about 35% over the past five years.
The current P/E ratio is 23.4 and the P/S ratio is 1.1.
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